טכניון מכון טכנולוגי לישראל
הטכניון מכון טכנולוגי לישראל - בית הספר ללימודי מוסמכים  
M.Sc Thesis
M.Sc StudentFederman Stav
SubjectIntragenerational Income Mobility of the Top Income
Earners in Israel,1999-2013
DepartmentDepartment of Industrial Engineering and Management
Supervisors Dr. Asaf Sarid
Professor Meir Yaish


Abstract

During last decades many developed countries have experienced increased income inequality. In some countries, this increase was accompanied by a rising income concentration, manifested by a substantial increase in the shares of the top income earners. Rising income concentration at the top is undesired. In particular, economic power might generate political power, which in turn may undermine the welfare-improving effect of economic growth as its benefits are prevented from reaching lower income groups. However, the extent of this adverse effect depends on the degree of income mobility: if individuals move between income fractiles, inequality and the concentration of income decrease in the long run.

While research regarding the mobility of the top income earners has expanded during the last decade in several OECD countries, it remained scant where Israel is concerned, even though Israel has been characterized by one of the highest levels of income inequality among OECD countries in the past decades.

Using micro-level panel data on business and labor income for the period 1999-2013, we find that the shares of the top income earners in Israel was stable in this period. The shares of the top 1, 5 and 10 percentiles suffered a small decrease in 2002, following the early 2000’s recession and the second Intifada, but recovered in the following years. Surprisingly, the shares of the top income earners were unaffected by the financial crisis of 2007-2008.

We assess the extent of top income intragenerational mobility in Israel using three different methodologies: First, we measure the impact of mobility on top income shares by comparing the yearly shares of the top 1, 5 and 10 percentiles to their corresponding average shares over a longer period. This measurement focuses on mobility in terms of variations in income over time.  Specifically, if a society is very mobile, and the incomes of those at the top and at the bottom of the income distribution change from one year to the next, then the average income of members of those groups will converge in the long run. Therefore, investigating the relevant income shares over a longer period provides a measure of this equalizing process. Second, we calculate the persistence rate of the top income fractiles and its stability. That persistence rate is defined as an individual’s probability of remaining in the same income fractile over time. Lastly, we evaluate individual mobility using changes in each individual’s rank among all earners over the entire period, allowing us to compare mobility across income fractiles.

Our results show that in Israel the income of the top earners was more volatile than that at the lower income fractiles. However, we find that the relative mobility of the top earners, which regards the relative changes in the position of individuals relatively to others, is lower than that at lower income fractiles. By comparing our results to other studies, we find that the top income earners’ mobility in Israel was higher than in Germany, Norway, and the USA and similar to that found in Finland.