An agency theory perspective of the Israeli labor market segmentation: past, present, and future

In this paper we use agency theory to present a process of the dichotomization of the Israeli workforce into two structures, each representing distinct organizational cultures. The first structure is the private sector, led by the high-tech industry; a model where the principal has strong control over the activities of the agent. The second is the public sector, an opposing model in which the principal has virtually no control over the activities of the agents and as a result, the effectiveness within this sector deteriorates. We argue that such conflicting systems cannot exist side by side without affecting each other and we suggest a role for human resource management (HRM) in future developments. Within the public sector it is the responsibility of the principal, the Israeli government, to gain more control over the agent and employ professional HRM systems for this purpose.