Polarization, growth and social policy. The case of Israel, 1997 to 2008

In this paper we apply the methodology developed by García-Fernández and Palacios-González (2008,2009) based on multiresolution analysis, to the measurement of polarization to Israeli income data over the past decade. This methodology allows us, in contrast to other polarization measures, to detect sub-populations empirically as incomes concentrated around an optimal number of micropoles. Based on this procedure a polarization measure is developed, consisting of three components: an indicator of alienation and identification; the number of income classes and the distribution of the sizes of the groups. The proposed approach allows us to study polarization beyond mere income class membership, by including ethnic-cultural, individual, family and other demographic characteristics by means of a Probit analysis. The identification-alienation index fluctuated around two sub-periods - the first, showing an increase in identification-alienation from 2001 to 2004, coinciding with the harsh socio-economic policy during that period, and the second, showing a sharp decline, during the period of rapid economic growth (2005 to 2008). The increase in the size of the middle class - reducing polarization - and the decreasing number of classes - raising it - had offsetting effects on the overall index which has been relatively stable over the observation period. The Probit analysis reveals that belonging to the Haredi (Jewish Ultra-orthodox) community sharply raises their probability of belonging to the low income group. Being Arab yields a similar though less pronounced result. Furthermore, group-related characteristics of labor-force participation and small family size increase the chances of belonging to a higher income group.