From Promoting the Worthy to Promoting All: The Public Sector in Israel 1975-1999

From the middle of the 70’s until 1992, the percentage of employees promoted each year increased rapidly, in response to the high rates of inflation which would have led to large erosions of the nominal wage increases determined by the collective agreements. As the rate of inflation declined after 1985, the rate of promotion started to decline, too, but so far remained above its pre-inflation level. We attempt to measure non-distortionary promotion and found that a substantial amount of distortionary promotion was implemented during high inflation and after stabilization. We also investigate whether despite the high “excess” promotion rates for almost all, the “worthy” as defined by talent at the start of the beginning of the period and a record of “fast track” afterwards, were promoted even faster. Despite the change in the use of promotion less as a reward of employees for achievements and qualification to more of an instrument for preserving real wages, we found that “fast track” did affect promotion (as found in other studies). Talent too, did have a significant, albeit small effect in explaining individual differences in promotion rates. Also, we found a significant, but small effect of individual promotion rates on changes in individual real wages. The effect of arbitrariness (or randomness) in explaining promotion rates and changes in wages, which increased during high inflation, perhaps increased even more after stabilization and remained so far fairly high.