Is the Israeli Labor Market Segmented?

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 low-wage 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 than the differences in worker characteristics, 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