Minimum wage’s impact on employees: an example from Israel

A heightened sensitivity to workers’ welfare has led countries to implement a variety of policy tools providing support for workers at the lowest income levels. Two of the most common tools - both of which are used in Israel - are the minimum wage and the negative income tax (referred to as the Earned Income Tax Credit in the United States). This study examines the impact of a gradual increase in Israel’s minimum wage during the period 2006-2009 on the wages and employment of workers at the lower wage levels. The findings indicate that the minimum wage increase led to higher wages, but that its effect on employment was not uniform. For men at the lower wage levels, minimum wage hikes caused a decline in movement into and out of employment - meaning that fewer workers stopped working, while fewer men became employed. For women, by contrast, there was a higher probability for termination of employment, with no change in the likelihood of joining the labor force. In summation, minimum wage increases benefitted men more than women at the lower wage levels, thereby widening the labor market gender gap. As such, there is a need for supplemental policies that provide differential support to women working at the lowest wage levels. -- First page