The average salary in the public sector is still higher than in the private sector, but the gaps are closing rapidly. A new report by the Ministry of Finance’s Commissioner of Wages paints a new picture: While the private market snaps up the highest quality personnel, public sector employees see their earning capacity being eroded. The evidence of this is striking on the ground: one in five government employees supplement their income with additional work in the private sector to make ends meet.
The dilemma of the public service
The public sector in Israel has some 750,000 employees and includes the health and education sectors, local government, government ministries, higher education, statutory corporations, government companies and other bodies. Employment in this sector is characterized by high stability compared with the private sector, and a structured salary system based in most cases on professional affiliation, organizational hierarchy, and seniority.
The study shows that this salary system creates certainty and equality, but on the other hand it reduces the employer’s flexibility and limits the possibility of providing performance-based or quality-based compensation. In extreme cases, this may even create a situation in which employees who are satisfied with their assured salary are actually weaker employees, who could not earn a higher salary in the private sector. This harms the functioning of the public sector and the quality of service provided to the public.
The study sheds light on certain trends: salaries in the private sector have risen rapidly, and a significant gap has opened up, mainly among those with an academic education. The decline in the proportion of employees with high psychometric scores who integrate into the public sector in the decade between 2013 and 2023 is particularly notable. These findings show that most people who join the public service do so immediately after completing their degree, while only a few choose it after gaining prior professional experience in the market.
Between 2013 and 2023, the proportion of people employed in the public sector increased by only 1%, reaching 17% of all employees in 2023. At the same time, the gaps between the sectors in wages have narrowed significantly. Although on paper the average wage in the public sector remains higher (about NIS 14,000, compared with about NIS 12,000 in the private sector), the data in the private sector is biased downward due to the increase in part-time jobs. Despite this bias, the analysis shows that the gap has narrowed sharply due to rapid wage increases in the private sector since 2019.
Humanities graduates earn more
In order to make an accurate comparison between workers with similar characteristics, the report’s authors, Uri Shimon and Tal Ben Shalom from the Ministry of Finance’s Salary Benefits and Retirement Division, examined the salaries of those with academic degrees. Here, the picture is reversed: While in the private sector the average monthly salary for academics is slightly more than NIS 20,000, in the public sector it amounts to slightly more than NIS 15,000. This gap has widened significantly since 2019, partly as a result of the influence of the tech industry.
Analysis of salaries by job classifications reveals a varied picture. At the bottom of the scale in the public sector are employees in education and local government, while above them are employees of government ministries, the health system, the security forces and institutions that are not subject to supervision (such as the State Comptroller’s Office).
The rate of salary increase in these fields is fundamentally different from that recorded in the private market. While in the private sector wages grew by 42% over the past decade, the most notable increases in the public sector were recorded in unsupervised entities (36%), in education (33%), in security (29%) and in higher education (28%).
These differences are also evident in the distribution by field of study: Law and humanities graduates enjoy higher salaries in the public sector (albeit by a moderate gap), compared with mathematics, statistics, computer science and economics graduates, who earn significantly more in the private sector – a gap that continues to widen steadily.
Another statistic that has changed over the years is the proportion of public sector employees who also work in the private sector. Some of them do this because, for example, in the health system and higher education, there are employees in part-time jobs. In other cases, it is probably a matter of supplementing income. In the last decade, there has been an increase from 15% to 20% in employees in government ministries themselves who also work in the private sector in addition to their work.
The hidden erosion of human capital
A study by the Bank of Israel published last year indicated a decline in the quality of workers in the public sector compared with the private sector, according to international proficiency tests (PIAAC). The data from the current study reinforce this trend: while psychometric scores remained stable, the rate of excellence in the public sector fell from 5.7% to 4.2% – a decrease of more than 25%. “This situation may have a significant impact on the public service in the long term and requires attention,” the authors warned. A similar picture emerges from examining matriculation scores: while the overall eligibility rate is stable, the rate of excellence in government offices has fallen about 20%, while in the private sector it has risen 12%.
At the same time, clear demographic trends are evident: public sector employees tend to have partners who are also employed in the sector, sometimes in the same organizations – mainly in the education sector and local government. The highest number of employees whose partners are also employed in the public sector is seen in the security forces, where 39% of employees are married to public sector employees, a fact that makes sectoral wages a critical component of the economic stability of these households.
Another notable trend is the dominance of young, inexperienced workers in the public service. The authors also point to two major barriers that discourage experienced private sector workers from joining the government: the first is the wage gap – the return on skill is significantly higher in the private market; the second is the geographical location, as most government ministries are concentrated in Jerusalem, with the exception of units that do not operate nationwide.
While in 2013 about 50% of new government employees had to accept a pay cut, in 2023 this became much rarer. According to the authors, this gap may indicate improved wages in the public sector, but it may also reflect an erosion in the sector’s prestige: workers are not willing to join it even at the cost of a salary increase, or they only turn to it after losing their previous job.
The bottom line – and the implications
The issue of the quality of public service employees is of concern to all economic organizations in Israel, and not just the Ministry of Finance Salary Division. A Bank of Israel report from last March explained that civilian public spending in Israel is low compared with OECD countries, partly due to low wage levels. “The ongoing erosion of wages in the public sector continued this year,” the report states, “It is reflected in a significant decline in the skills of employees, especially among young men, both in international comparison and in relation to employees in the business sector, with negative implications for the quality of the public service and economic growth.”
The Bank of Israel notes that while wage erosion is similar to the trend worldwide, skill erosion in Israel is sharper. It is possible that other factors, beyond wages, also influenced this, such as the damage to the status of public officials – a hypothesis that requires further research.
Published by Globes, Israel business news – en.globes.co.il – on June 9, 2026.
© Copyright of Globes Publisher Itonut (1983) Ltd., 2026.
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