Is the Israeli Labor Market Segmented? Revisiting the Mixture Regression Model
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We use a mixture regression model to identify segmentation in the Israeli labor market, and
propose a new method for assigning workers to simulated segments. We identified a lowwage
segment and a high-wage segment, as well as a third segment with a large wage
variability that we interpret as “noisy” observations. We found quantitatively small but
qualitatively reasonable differences in workers’ characteristics between the low-wage and
high-wage segments, while the coefficient differences were much larger, indicating that much
of the wage disparity in Israel is due to unobserved factors rather than to observable
characteristics. Some policy-relevant insights are derived.