Workers, Employers and the Distribution of National Income 2011

From a macro-economic perspective, 2011 was a good year for the Israeli economy, whose economic growth was higher than that of other developed economies. From the standpoint of employees, the two most positive developments were the continued decline in unemployment, from 6.6% in 2010 to 5.6% in 2011, and the creation of 80,000 new jobs.

At the same time, employees’ share in the national income remained at its 2009 level – 63% — which is still significantly smaller than it was at the beginning of the previous decade – 69%. The share of employers stayed at its 2010 level – 13% — significantly higher than it was at the beginning of the previous decade – 8-9%.

Even if the percentage differences are small, the sums are significant. In 2011, for example, Israel’s national income amounted to NIS 735 billion, one per cent of which was NIS 7.35 billion. Had the employees’ share of the national income in 2011 been 69%, as it was in 2001, employees would have received the combined total of an additional NIS 44.1 billion. If we divide this sum by the total number of employees in 2010, approximately 3.204 million (excluding migrant workers from abroad) – we find that in 2011 each employee would have received on average an additional NIS 13,763 per annum, or NIS 1,147 per month.

In sum, the years 2001-2011 were more beneficial to employers than to employees. The national income grew by 35%, but while the share of employees rose by 23%, the share of employers rose by 85%.

Persons in the top percentile received a growing share of the national income. This is evident from the figures published by two different sources.

  1. According to the figures of the Central Bureau of Statistics on employed persons, the top percentile of employees held 6.8% of the total income of salaried persons in Israel – the highest percentage recorded for the decade.
  2. According to the figures of the State Revenues Authority, the top percentile of both salaried and self-employed persons held 14.1% of all gross income in Israel in 2010 – an increase of 34% between 2005 and 2010. This figure positions Israel close to the top of those countries in which persons in the top percentile are very wealthy (See the following table).

Senior executives are one constituent of the top percentile.  The salary costs of executive directors of the 25 largest corporations on the Israeli Stock Exchange in 2011 amounted to NIS 9.8 million, on average, including NIS 3.0 million in salary, NIS 2.8 million in bonuses, and NIS 4.2 million in stock shares.

The picture that emerges from the foregoing figures shows an increasing concentration of wealth in the hands of a minority. It also shows the weakening of the bargaining power of most employees in Israel. The result is that the labor market fails to deliver a decent wage to a good portion of its employees. The profits of the minority today are liable to turn out as a future loss for the Israeli economy and society, for employees who do not manage to maintain a decent standard of living, including a good education for their children, do not constitute a strong basis for long-term economic development.

Attached is a table of international comparisons of the share of the national income going to persons in the top percentile.

Share of the Top Percentile in the National Income Circa 1949 and 2005,

Selected Countries, By Descending Order in 2005

 

Country Share of Top Percentile, Circa 1949 Share of Top Percentile, Circa 2005 Percentage Change
United States 10.95% 17.42% +59%
Argentina 19.34% 16.75% -13%
Great Britain 11.47% 14.25% +24%
Israel (2010) 14.10%
Canada 10.69% 13.56% +27%
Singapore 10.38% 13.28% +28%
Norway 8.88% 11.82% +33%
Germany 11.60% 11.10% -4%
Israel (2005) 10.50%
Ireland 12.92% 10.30% -20%
Japan 7.89% 9.20% +17%
Portugal —– 9.13% —–
Italy —– 9.03% —–
India 12.00% 8.95% -25%
Spain —– 8.79% —–
Australia 11.26% 8.79% -22%
New Zealand 9.98% 8.76% -12%
France 9.01% 8.73% -3%
Switzerland 9.88% 7.76% -21%
Finland 7.71% 7.08% -8%
Sweden 7.64% 6.28% -18%
China —– 5.87% —–
Holland 12.05% 5.38% -55%

Sources:

Israel: State Revenues Authority, Ministry of Finance, Annual Report, various years.

Other countries: Atkinson, A., Piketty, T. and Saez, E., “Top Incomes in the Long Run of History,” Journal of Economic Literature, 2011, 49/1:3-71.

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