Narrowing Gender Pay Gap in Israel Would Boost GDP by 7%, Treasury Says

The treasury estimated that about 40% of the gap between Israeli men and women is due to women’s tending to opt for less-well-paying jobs in education and healthcare rather than in high-tech.

Women working at an Israeli factory.
Yaron Kaminsky

Closing the pay gap between men and women wouldn’t just be good for equality but would provide a big bonus to the economy, Finance Ministry chief economist Yoel Naveh stated in a study released Monday.

The study created two scenarios, one in which wage differentials between the two sexes narrowed significantly over two decades, and another where it didn’t, and found that more equality would increase gross domestic product by 7%. Using 2015 GDP data, that would have spelled an increase of 82 billion shekels ($21.9 billion), or 8,000 shekels on a per capita basis.

“Reducing the gender wage gap could also be expected to significantly reduce inequality in household income,” Naveh added, estimating it would reduce Israel’s Gini index of income equality by 2.8 points versus a scenario of no change in the gender wage gap.

The treasury study was based on data from the U.S. economy, where 94% of all doctors and lawyers in the 1960s were white males. Under the circumstances, many women and blacks were unable to realize their potential earnings abilities, which reduced the standard of living for all Americans.

The U.S. study estimated that between 15% and 20% of all U.S. GDP growth in the years between 1960 and 2008 could be attributed to wider opportunities for groups that had previous been denied job opportunities.

Naveh said that Israel makes less efficient use of its human resources because women face barriers in the workplace, which has led to some of the widest pay gaps between the sexes among countries belonging to the Organization for Economic Cooperation and Development.

The treasury estimated that about 40% of the gap between Israeli men and women is due to women’s tending to opt for less-well-paying jobs in education and healthcare rather than in high-tech, where pay is much higher. Women also work fewer hours because they devote more time to family and housework.

The treasury simulation assumed that the gender wage gap in Israel’s non-Haredi Jewish population narrowed to 22% from 39% by the year 2039, on account of women working in high-productivity jobs that command higher pay.

Naveh said the key to closing the gap is to coax women into hgher-paying positions. “The main factor for the wage gap in Israel is that few women opt for engineering or computers when they pursue a higher education,” he said. “So if the government acts to increase the number of women engineers and software experts, that would help reduce gender pay differential, speed growth and reduce inequality.”