Category Archives: Labor Markets

REALITY CHECK* – Arab Israelis: From Education Through Employment

muslim girlThe past decades have seen remarkable changes in education within Arab Israeli society, with particularly prominent changes evident among Arab Israeli women.

Starting with high school, the portion of 14-17-year-olds enrolled in school grew from 63% in 1990 to 93% in 2015, with a steeper climb for girls than for boys. There was growth for the Jewish population also, but since the portion studying was far higher to begin with, the increase was much smaller – from 91% to 97%.

Within the high-school system, the share of students in technological-vocational education tracks (VET) has risen. As of 2017, more than 45% of students in the Arab education system were enrolled in VET studies, compared to 37% of students in the Hebrew education system. (The Israeli education system is divided into Hebrew and Arab education based on the supervisory authority and language of instruction.)

It is interesting to note that the greatest increase was among those entering the high technology education track (e.g., computer programming); here, too, the share among those in Arab education is higher than among those in Hebrew education. This trend is likely to improve their chances to integrate into the future labor market; the high technology track gives its students high-level math skills, which are in demand in high tech employment.

Although these science and technology studies are more prevalent in Arab education than in Hebrew education, unfortunately, the scholastic level of their bagrut (matriculation) qualification is on average lower, and fewer of their students study math and English at the highest proficiency level (5-units of study).

In general, the lower level of English (and Hebrew, which is also studied as an additional language) proficiency in the Arab Israeli sector harms their ability to integrate into high wage employment. Improving their proficiency in these languages is central to narrowing labor market gaps.
Graph Eng

The increase in the share of Arab Israeli girls studying in the technology track, and particularly in the high technology track, is noteworthy. In 2017, 21% of the girls in Bedouin education and 31% in Christian education studied in the technology track.

In addition, their share in the science-engineering track is high, including in studies not traditionally considered “female subjects” such as computer science, electronic systems, technology science, and the like. Among Druze girls, more than half of those with a bagrut in science study in tracks other than biology and chemistry (which are not considered high tech oriented).

The percentage of those with a bagrut qualification has increased substantially over the past 20 years, as has the portion of those with a qualification that fulfills the requirements for acceptance to higher education. The most substantial gain was among Arab Israeli girls – in 2017, their achievements were close to those of their Jewish peers.

Among Arab Israeli boys, the increase was smaller, relative to both Arab Israeli girls and to Jewish boys. The share of boys with a bagrut in the Bedouin sector remains particularly low – only 25% – and it rose by only about 5 percentage points between 1999 and 2013.

With the increase in the share of those in Arab education with a bagrut certificate, the share of those entering higher education has also increased. However, the rise was mostly among Arab Israeli women, while the increase among men was much smaller.

The most marked increase was among the Druze and Bedouin women, where the rates of those entering higher education rose by about 50% between 2008 and 2013 and, in all likelihood, this upward trend has continued.

In terms of study majors in higher education, it is interesting to note that about a third of Arab Israeli students, both men and women, study health-related fields, either in Israel or abroad. That said, the past decade has seen a shift, with men with high grades studying computers and engineering (rather than health professions) at rates similar to those of their Jewish peers.

Despite the fact that we see more Arab Israeli high school girls studying these subjects, we do not yet see women in higher education studying science at high rates. Their share in academic level computer and engineering studies is lower than that of Arab Israeli men or of Jewish women.

Until 2014, of the Arab Israeli women who studied science in high school (excluding biology and chemistry), 22% of Christian and Druze women and only 9% of Muslim women continue their studies in related fields in academia.

These developments in education have had a tremendous influence on the employment of Arab Israelis. There is a positive relationship between higher education and employment, with higher employment rates among those with an academic education.

Employment rates among Arab Israeli women are on the rise; between 2003 and 2014, the employment rate rose by about 11 percentage points, an increase of almost 50%, and in the final third of 2018, it reached almost 40% of the population – only 1% shy of the 2020 employment target for Arab Israeli women set in 2010 by the then Ministry of Labor, Trade and Employment.

The rise in the employment rate of Arab Israeli women is strongly correlated with the increase in their education levels; Arab Israeli women with degrees are far more likely to work than are those without such a degree. Nevertheless, their employment rates are still much lower than those of Jewish women in Israel.

In light of the strong correlation between education and employment for Arab Israeli women, encouraging them to major in fields with the potential for subsequent high wage employment, particularly in technology and engineering fields, could have significant spillover effects.

A rise in these women’s salaries could serve as a beacon to other women, which can ultimately lead to increased education and employment rates, to an improvement in their socioeconomic situation, and to a decline in their poverty rates. For the same reason, it is worthwhile considering expanding vocational training programs and assistance given to Arab Israeli women who choose not to go on to academic studies and who, nonetheless, are interested in working.

Finally, turning to Arab Israeli men, their employment rates are lower than are those of non-Haredi men and lower than the OECD average. In 2018, about 75% of this group were employed as opposed to almost 90% of non-Haredi Jewish men.

Their lower education levels impact their employment opportunities, and a large portion of them are employed as skilled workers in manufacturing, construction, and agriculture. While this portion is falling, it is still high – about 50% in 2017. These are low prestige jobs that pay poorly, and are also likely to be computerized in the not-so-distant future, making these workers susceptible to losing their livelihood.

In addition, these jobs have high burn-out rates and, as a result, employment rates among Arab Israeli men over 50 are low. Men employed as skilled workers tend to have low education levels, particularly for Arab Israelis; the portion of Arab Israeli men without a higher education in these jobs is 60% versus 34% among Jewish men. Improving the education level of Arab Israeli men could help give them access to improved employment opportunities.

In light of the strong correlation between education and employment, policies and programs that encourage the Arab Israeli population to gain higher education and to find their place in high wage employment have the potential to be very beneficial to the Arab Israeli population and to contribute greatly to the continuing growth of the entire economy.

 

REALITY CHECK* – Women at Work

kobu-agency-7okkFhxrxNw-unsplashAs of 2019, the employment rate of women in Israel is among the highest in the OECD countries. This relatively new phenomenon is rooted in the growth in employment in the past decade, which came largely from women ages 35-44 and 55-64. For the younger of these age groups, the rise is attributable to an increase in the share of young mothers entering the labor market.

The increased participation for the older age group, on the other hand, reflects both the general growth in participation of women in the labor market and a delay in retirement resulting from an increase in the official retirement age from 60 to 62 in 2004.

In general, higher employment rates are correlated with higher education levels. Rising education levels are already evident in high school; the share of both boys and girls graduating high school with a bagrut (matriculation) qualification, as well as those with a bagrut sufficient to enter university, saw a large rise between 1999 and 2013. Though both girls and boys have increased their rates of bagrut qualification, girls have higher rates of bagrut qualification and higher average bagrut scores than do boys.

Nevertheless, there are large gender differences specifically in the choice of high school major and in the level of mathematics study – both of which are factors with an influence on wage gaps between women and men. The share of those receiving a bagrut qualification with an emphasis on high technology studies is higher among boys, and there is a male majority in majors like computer sciences and physics. Girls make up the majority choosing the arts – literature, theater, art, and the like.

Gender differences are also substantial in higher education. For at least the past 20 years, women have been enrolling in higher education in greater numbers than men.
Graph1 eng

Over time, the share of women continuing on to advanced degrees has grown. In 2017, the share of women among first, second, and third degree earners, respectively, was 58%, 63%, and 53%. Here, too, differences in field of study are evident and largely unchanged for the past 25 years: women tend towards the caring and education professions (e.g., nursing, social work, and teaching) while men tend toward mathematics-based studies at higher rates.

That said, there has been substantial growth in the share of women studying social sciences and business administration, and women now represent more than 50% of the students in law and medical schools. In the exact sciences (math, statistics, and computer sciences) the absolute number of students in BA studies tripled between 2000 and 2014 with the share of men rising sharply, so the share of women in these studies has actually dropped.

Until the beginning of the century the share of women in engineering fields rose, especially in the areas of biological, chemical, and food engineering, as well as in industrial engineering and engineering management, but since then, women’s share in engineering has been steadily declining.

Gender differences carry over to occupational choice as well; the caring professions including education are characterized by a female majority while the technology professions are largely male dominated. When occupations are divided by education level, it is found that occupations are particularly polarized for those without an academic occupation.

For individuals with an academic degree, the differences between the genders are less pronounced. It is interesting to note that there is an inverse relationship between gender gaps in occupations and those in wages; for those without an academic degree, gender wage gaps are low, while for those with higher education, there are substantial gaps, with men concentrated in the occupations at the highest end of the wage distribution.

Occupational choice is not the only factor responsible for wage gaps in the labor market. Additional factors contributing to wage gaps include characteristics of employment, like number of work hours, employment terms, maternity leaves and career breaks for childcare, as well as differences in wage growth in the labor market. In general, more women than men tend to work in less than full-time positions. In 2017, 31.8% of women worked part-time versus 12.9% of men, and the number of weekly hours worked by women was on average 16% less than men.

The main reason is likely that the brunt of childcare continues to fall to women. Even among women who are employed in full-time positions, the average number of weekly hours is still lower than for men (women tend to work less overtime). With regard to continuous employment, women’s employment patterns are characterized by maternity leaves and career breaks for childcare. Their absence from the labor market leads to less work experience, a lowering of their skill levels relative to their male counterparts, who are less likely to take career breaks, and a lessening of their attractiveness to employers.

In 2014, 41% of Israeli women who gave birth chose to take more than the 14 paid weeks of maternity leave then set in the law**.The high fertility rate in Israel – an average of 3.1 children per women – is also a factor that contributes to the number of career breaks that women experience.

There are also differences between men and women in salary increases; while beginning salaries are similar for 25-29-year-olds, wages grow at a substantially faster rate for men, with the wage gap between men and women greatest by age 45.
Of all these factors, the largest sources for the wage gaps between men and women are the number of hours worked and differences in occupational choices made at young ages.

Gender wage gaps in Israel also have a large impact on pension savings. Since, on average, women work less than men over the years, take more breaks, and are in relatively lower paying jobs than men, their pension accrual is less than men’s. Moreover, Israel is one of the nine OECD countries with a gender-based official retirement age and one of only three countries that intend to retain this gap for decades to come.

This means that not only do women accrue less pension savings for all the reasons given previously, but they also do so over fewer years than men. What is more, the lower pension accrual has to suffice for more years of retirement – both due to retirement at a younger age as well as due to their longer life expectancy relative to men.

** In 2014, maternity leave consisted of 14 paid weeks of leave and an additional 12 unpaid weeks of leave for any woman who had been working for a company for at least 12 months prior to giving birth. As of 2017, the paid portion of maternity leave is 15 weeks, in addition to 11 subsequent unpaid weeks for any woman working for a company for at least 12 months.

Executive Summary: Today’s Workers, Tomorrow’s Retirees – Understanding the Pension Gender Gap in Israel

In recent years there has been much public discussion about a variety of issues relating to pensions in Israel, including concern about the performance of pension funds and the implications of an aging population on the pension system. In Israel, pension income comes primarily from two sources: oldage allowances (provided by the National Insurance Institute to retirees and elderly living in poverty) and occupational pensions (mandatory since 2008). The differences between men and women for each of these pillars are expected to dictate the degree of future gaps in pension income…

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Executive Summary: Welfare Nonprofits in Israel – A Comprehensive Overview

Civil society organizations (or nonprofit organizations) are playing a growing role in the field of welfare in Israel. In 2016, 43,000 nonprofit organizations were registered, a particularly high share of organizations per capita. Of them, 15 percent were active in the field of welfare…

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Executive Summary: Arab Israeli Women Entering the Labor Market – Higher Education, Employment, and Wages

Usually, socioeconomic discussions about the Arab Israeli sector focus on the gaps that still exist between this sector and Jewish Israelis, and do not emphasize the areas where substantial improvements have been made. However, large strides have been made by Arab Israeli women in educational achievements as well as improvements, though more limited, in employment…

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Executive Summary: Back and Forth – Commuting for Work in Israel

The subject of commuting has attracted more and more public attention in Israel in recent years as road congestion levels continue to rise with the increasing number of commuters. Over the last 30 years, the number of employed persons working outside their residential area has risen from 42 percent to 54 percent (as of 2016) among Israelis of working age (25-64)…

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Executive Summary: The Income-Expenditure Gap and Household Debt in Israel

How do Israeli households sink into debt? Given the difficulty of assessing actual debt due to data limitations, the gap between Israeli household income and expenditure can be analyzed alongside characteristics such as socioeconomic status, age, marital status, and type of housing expenditure…

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Israel’s Labor Market: An Overview

In 2018, Israel’s labor market continues to be strong: participation rates continue to rise, employment rates of both men and women are increasing, and unemployment has reached a historic low. The number of job vacancies has also increased, and wages have been continually rising. The study examines changes that have occurred in the Israeli labor market overall, as well as changes within specific population groups.

The labor market: A general picture

 

Israel’s employment rate has reached slightly more than 78% in 2018 and the unemployment rate is continuing to decline, reaching a low of 3.4%.

  • Overall, the employment rate for men has risen by 7 percentage points since 2003, while women’s employment has increased by 13 percentage points.
  • The employment rates of non-Haredi Jewish women and men and Haredi women in Israel are higher than the average employment rates in the OECD, and among non-Haredi Jewish women, it is the second highest in the OECD (after Iceland). For both men and women, most of Israel’s employment growth between 2003 and 2018 was due to changes in the non-Haredi Jewish population (5 and 10 percentage points for men and women, respectively), mainly because they are the most populace group.
  • When broken down by age group, the greatest impact on the rise in employment among women came from the 35-44 and 55-64 age groups, but for different reasons: the former because there was a major increase in the percentage of mothers of young children in the labor market, the latter due to women close to retirement working more than their predecessors and the increased retirement age. Among men, the most substantial employment rate increase occurred in the 55-64-year-old age group.
  • Wages have continued to rise in 2018 at a fast pace. This increase is consistent with the rapid rise in real wages since 2014 – an increase of 11% in total.Employment rates by pop groups and gender

High tech employment

 

While the high tech sector employs only 8%-9% of Israel’s workers (as of 2017), it contributes 12% of GDP, a quarter of the country’s tax revenues, and 42% of exports. Employment rates in this sector differ by gender and across population groups.

  • Over the past decade, the share of workers in high tech has increased from 8% to 15% among non-Haredi Jewish men, but among Arab Israelis and Haredim the percentage has remained negligible.
  • The share of women employed in high tech is low (as it is in the rest of the world), standing at 32% of those working in the sector in 2017, and those women employed in high tech are mostly non-Haredi Jews.
  • There has been an impressive rise in the share of Haredi women employed in the field: from less than one percent in the middle of the last decade to about 3%.

Labor market trends by population group

 

Arab Israeli employment

  • After several years of stagnation, the employment rate of Arab Israeli women increased substantially and stands at about 40% – nearly double the rate in 2003 and an increase of more than 6 percentage points since 2016 – and is now very close to the government’s 2020 target (41%). Most of the increase (72%) stems from the improved education of Arab Israeli women.
  • Arab Israeli men’s education levels have not risen as much as those of Arab Israeli women, and the increase in their employment rate is relatively low. Low levels of education also affect the employment opportunities available to Arab Israeli men, 50% of whom (as of 2017) work in occupations characterized by low wages: manufacturing, construction, and agriculture. These are also physically demanding occupations, and, consequently, Arab Israeli men show a major decline in employment rates from age 50 and on.
    High tech employment

Haredi employment

  • After rising by more than 15 percentage points between 2003 and 2015, the employment rate of Haredi men has declined slightly in recent years, and stands at about 48% – far from the government’s 2020 goal of 63%. About 42% of employed Haredi men ages 30-64 worked part time in 2017 (compared to 15% of non-Haredi Jewish males), mostly due to yeshiva studies. About 23% of employed Haredi men work in education, most without academic or post-secondary training other than yeshiva study.
  • The employment rate of Haredi women increased by 5.5 percentage points between 2013 and 2018, and stands at 76%. About 51% of Haredi women were employed in part-time positions in 2017, and 55% of those working in part-time positions do so in order to care for their families and households. This is a higher share than for Arab Israeli women (36%) or non-Haredi Jewish women (30%). The share of Haredi women employed in education dropped from 58% in 2004 to 46% in 2017, while the share of women learning technological studies in seminaries is on the rise.

Employment among older adults

  • Israel’s population is aging at a slow pace relative to the OECD, but when taking into account Israel’s high birth rate, the dependency ratio (the ratio between those not of prime working age and those of prime working age) is the highest in the OECD. One possibility for coping with this situation is to raise the retirement age for women.

Rising Housing Prices and Their Impact on Households’ Ability to Purchase a Home

The rising housing prices of the past decade have reduced the ability of the average Israeli household to purchase a home. However, when the ability to buy a home is assessed in terms of total disposable household income, rather than in terms of the number of monthly salaries needed to purchase housing (widely used in the media and public discourse), the findings show a more moderate decline in purchasing ability.

The reason for this is that total disposable household incomes rose more than wages did between 1998 and 2016, due mainly to a rise in the average number of income earners per household.

Measuring the ability to purchase a home

 

From the mid-1990s to 2007, many developed countries experienced housing price increases. Prices dropped somewhat in the wake of the 2008 financial crisis but, by 2017, have risen back to their pre-crisis levels. Since the second half of 2007, real housing prices in Israel have been trending upward (in annual terms). The consistency of this trend over the course of a decade, and the rate of increase, are unprecedented.

A households’ ability to buy housing is usually calculated in terms of the ratio between the average (or median) apartment price and the average (or median) individual wage – called the “average wage index” for the purposes of this study. However, this has many drawbacks as it does not take into account non-salary income or multiple household income earners. Thus, this study uses the “disposable household income index” to evaluate Israeli households’ housing-purchasing ability.

  • Between 1998 and 2016, the average disposable income grew by 2.3% annually, while the average monthly wage increased by just 1%.
  • Between 1998 and 2007/2008, both ratios declined – that is, the ability to buy housing improved. Since then, it has become harder to purchase housing.
  • The ability of households to purchase housing in 2007 declined in most of the OECD countries relative to the end of 1990s. A similar picture emerged in Israel, but a decade later than in the other developed countries.

Ratio of housing prices to disposable income ENG

The ability to purchase housing by household characteristics

 

The figures described above provide a more general picture, but do not necessarily reflect changes in the ability to buy housing that occurred among specific population groups, or in different geographic regions.

  • The disposable income of young adult households (25-34) grew at a rate similar to the average disposable household income between 1998 and 2016, so their ability to purchase housing was no more affected than was that of the general population.
  • The age group whose housing-purchasing ability was most affected (the group whose disposable income rose at a lower rate than the general population) are households headed by individuals in the 35-54 age range, because the income of these households increased at a lower rate than the average for the general population.
  • The ability to purchase housing has declined significantly in Tel Aviv, Jerusalem, and Israel’s Southern District. In the Northern, Sharon, and Gush Dan districts (excluding Tel Aviv), the ability to buy housing declined to a degree similar to the national average.

Housing Prices to Disposable Income Index ratio by locality
Real estate EN

  • Since 1998, the average disposable household income of immigrant families has risen at a faster rate than has the average Israeli disposable income: 2.9% between 1998 and 2016, versus an average annual change of 2.2% for native-born Israelis. This indicates that the ability of immigrants to purchase housing diminished to a more limited degree than the average for the public at large.

Household leveraging

 

A home is one of the largest purchases a household can make, and the vast majority of home buyers are obliged to take out loans in order to fund the purchase. As such, a useful indicator of households’ ability to buy housing is the credit available to them, and their ability to repay loans.

  • The average level of household leveraging – the size of households’ net financial liabilities to creditors as a percentage of GDP – has increased since 2009, which could potentially make it hard for them to receive additional credit in the future.
  • The following trends emerge when examining credit in terms of housing credit, non-housing credit, and net credit: the ratio between housing credit and GDP declined slightly between 2000 and 2007, then started climbing again and slowed around 2013; the ratio between non-housing credit and GDP increased from 10.1% in 2000 to 13.4% in 2009, halted between 2009 and 2013, then climbed until reaching 15.4% in 2017; the net credit to GDP ratio fell steeply from 27.1% of GDP in 2000 to 10.7% in 2009, then the trend reversed and the ratio rose continuously to reach 23.4% of GDP in 2017.
  • The current level of leveraging is only slightly lower than it was in 2000, the year that witnessed the highest leveraging levels recorded.

The data show that rising housing prices have taken their toll on Israeli society. Since the second half of 2007, the ratio between housing prices and disposable income has increased, meaning that it was harder to buy housing in 2016 than it was in 2007.

Nonetheless, using the disposable household income index to measure this shows that the ability to buy housing did not decline as much as one might conclude if using the commonly-accepted average wage index.

Going the distance: commuting patterns in Israel

In a recently published Taub Center study, Researcher Haim Bleikh explores various aspects of commuting trends in Israel and finds that most trips to work in Israel are short. Three out of every four workers of prime working age travel 20 kilometers or less to reach their workplace, and most of them travel by private car.

Distribution of workers by daily commute to work

While 62% of commuters get to work by car, only 17% commute by public transportation, 10% by bicycle or by foot, and 8% by work-organized transportation. In terms of how long the commute takes, about 60% of workers travel for no more than half an hour, while 30% travel between half an hour and an hour, and 10% travel for over an hour in each direction.

The length of commuting time can be influenced by different factors in different parts of the country.

For example, in both Jerusalem and Petah Tikva many commuters travel between half an hour and an hour, but in Jerusalem (where 91% of residents work within the city) this seems to be due to the extensive use of public transportation and large city size, while in Petah Tikva (where 44% of residents work within the city) a higher percentage of commuters travel by private car and commute distances of up to 20 kilometers, indicating that the travel time is a result of traffic congestion.

There are also differences in modes of transportation and commuting patterns between Arab and Jewish majority localities. For example, among Arab Israelis living in Arab localities the infrequent use of public transportation is notable, stemming from the lack of adequate public transportation infrastructure.

The topography of some localities creates natural constraints that impede mobility as well. Among those who use public transportation, surveys show that 82% of Jews are satisfied with the location of the nearest bus stop to their home, compared to only 63% of Arab Israelis.

Similarly, residents of Arab Israeli localities report lower levels of satisfaction with the state of the roads in their area than Arab Israelis living in localities with a Jewish majority.

Given the particularly low labor force participation of Arab Israeli women, Bleikh’s study takes a closer look at the commuting patterns within this segment of the population. The vast majority of employed Arab Israeli women (about 70%) live either in the north or in the Triangle (Hadera and the Central region) areas. Two-thirds of these women work within the area in which they live, while one-third work outside their residential area.

Of those who commute from their residential area, the commuting distance among women from the Triangle is greater than among women from the North. This seems to indicate that women in the Triangle have a higher “commuting tolerance” than women in the north.

In general, employment opportunities are more limited and less diversified in the north and big employment hubs like Haifa are a considerable distance from Arab Israeli localities. Thus, traveling just a little bit farther does not necessarily yield a big increase in employment opportunities.

For women in the Triangle, however, their relative proximity to the center of the country, where there are more employment opportunities, means that traveling farther distances is more likely to be rewarded with increased employment opportunities.

It’s important to note that the willingness of Arab Israeli women from the Triangle to commute farther distances may be due to a combination of two factors: increased employment opportunities that make a longer commute reasonable (as mentioned above) or a shortage of employment in the Triangle area, which forces many women to seek work farther from home.

So, are the challenges faced by Arab Israeli women in integrating into the labor market all about geography? The employment rates of Arab Israeli women in mixed localities are higher than in the northern and Triangle regions but lower than those among Jewish women.

This indicates that, beyond the substantial geographic barriers, there are additional obstacles that affect the employment patterns of Arab Israeli women, such as mastery of the Hebrew and English languages, unofficial discrimination by employers, a shortage of appropriate daycare solutions, and social norms.

In Israel, the National Insurance Institute publishes its annual report on poverty in December, resulting in a month in which policymakers and the media put a particular emphasis on discussing issues relating to poverty. It’s no surprise that the presence or lack of employment opportunities has an impact on individuals’ and households’ abilities to escape poverty.

Therefore, it is important to understand that the accessibility of employment opportunities largely depends on the spatial “match” between places of employment and places of residence, as well as on the transportation options and travel times required to get from one to the other.

Better understanding of Israelis’ commuting patterns provides us with a more accurate picture of how this spatial matching affects labor market participation and employment opportunities, particularly for some of Israel’s most vulnerable population groups.

 

How Much Can the Israeli Start-Up Nation Continue to Grow?

Israel is considered the “Start-Up Nation,” but the high tech sector accounts for only about 8% of total employment. Nonetheless, this sector is of great importance to the economy as the source of one-quarter of Israel’s income tax revenues and a major portion of the added value of Israeli exports.

The sector has received support and incentives from Israeli policy makers since its inception, including a recently approved comprehensive government reform to encourage further employment in the high tech sector.

Despite the fact that high tech workers in Israel earn twice as much as workers in other fields, on average, and the large tech companies have been regularly ranked among Israel’s most desirable workplaces, the share of high tech workers has remained more or less unchanged for more than a decade.

The question is, how much room is there for employment in Israel’s high tech industry to grow? Given a number of trends, it seems that efforts to expand employment in high tech are only relevant for a small percentage of the working-age population, at least in the short term.

Basic worker skills: international comparison

According to an analysis of the OECD’s Basic Skills Survey (PIAAC), Israel is characterized by a large prevalence of workers with low skills.

  • The percentage of Israeli workers whose skills are ranked at the lowest skills level in the OECD (the bottom decile) is about 16% of the adult population and only about 7% of Israeli workers rank in the highest skills level (top decile).
  • About half of the adult Arab Israeli population ranks at the bottom of the OECD skills distribution (the bottom two deciles).

These data point to the need for substantial improvements in every stage of Israel’s education system in order to improve the skills of future workers and their employment opportunities.

High tech versus the rest of the labor market

The PIAAC survey results point to stark differences between the skill levels of Israeli high tech workers and those of workers in other fields. The gap between the skills of Israeli high tech workers and the skills of employees in other sectors is almost a full standard deviation – an exceptionally large gap among the developed countries.
Skill level gap between workers in the high tech sector and non-high tech sectors

Another finding that emerges from the survey is that a large portion of the most highly-skilled workers are already working in high tech and it is difficult for others to integrate into the field.

  • Of Israeli workers ranked in the highest skills quintile, 22% are already working in the high tech sector. This is the highest percentage of all the comparison countries. Put differently, 60% of Israelis working in the high tech sector are ranked in the highest skills quintile and the probability of working in high tech declines significantly at lower skill levels.
  • Even science and engineering graduates who do not have high skill levels find it difficult to integrate into occupations relevant to their areas of study (both in Israel and in other developed countries).
  • Individuals who reported low levels of English had almost no likelihood of being employed in the high tech sector, regardless of their skill levels in other areas.
  • A high share of the Haredi and Arab Israeli populations report low levels of English proficiency, as opposed to a high level of proficiency reported among high tech employees. As a result of this, and due to low levels of general proficiency among these population groups (as measured by the survey), it seems that there is limited expected benefit from using professional training as a means of integrating them into the high tech industry (thereby narrowing gaps).
  • Most of the potential to expand high tech employment is found among non-Haredi Jews, who already comprise the majority of high tech workers.

The potential for expanding employment in Israel’s high tech sector

A simulation conducted as part of the study shows that the combination of the high share of highly skilled workers who are already employed in high tech and the low skill level of workers in the other sectors means that the potential for increasing high tech employment is low relative to that in other countries, at least in the short term.

  • The intermediate scenario of the simulation shows the high tech employment growth potential to be about 4% of the working-age population. Among Haredim, this figure is 3% and, among Arab Israelis, only about half a percent.
  • The percentage of workers who may expect to substantially improve their employment status by retraining for high tech (a subset of those with the appropriate skills) is small and stands at only about 1% of the working-age population.
  • There is a notable shortage of women in high tech, and it seems highly likely that a majority of the potential for employment expansion comes from within this group.

Beyond the question of the extent to which it is possible to grow the high tech sector, there is also room to examine whether this is a worthwhile pursuit.

Due to the large skills gap between high tech and other sectors, it is unlikely that expanding employment in high tech would lead to the spread of advanced knowledge and innovative work methods to other fields to a significant degree. It is also possible that expanding employment in high tech may slow development in other areas of the economy, where the employment profile is more varied.

The availability of cheap labor makes it less feasible that employers will streamline processes and adopt advanced technologies, and is likely one of the causes of low levels of investment and low productivity in non-high tech industries.

Therefore, increasing investment and technology adoption in these industries as well as raising the skill levels of the workers employed in them, through appropriate professional training and by improving the education system (in order to improve the skills of the next generation), may be preferable to efforts to recruit additional highly-skilled workers to move into the high tech field.

What’s behind Israel’s pension gender gap?

In recent years there has been much public discussion about a variety of issues relating to pensions in Israel, including concern about the performance of pension funds and the implications of an aging population on the pension system.

In particular, women’s retirement age is one of the most contentious topics on Israel’s socioeconomic agenda. Israel is one of only nine OECD countries that has a gap between the retirement age of men (67) and women (62) and recent attempts to increase the retirement age for women have thus far been unsuccessful.

Those in favor of raising women’s retirement age cite it as a central factor contributing to the gender gap in pension income during retirement. On the other hand, some argue that raising the retirement age will harm women of low socioeconomic status who would find it difficult to continue working until a later age.

In a new Taub Center study, Researchers Liora Bowers and Hadas Fuchs analyze pensions from a gender perspective. In Israel, pension income comes primarily from two sources: old-age allowances (provided by the National Insurance Institute) and private occupational pensions (mandatory since 2008).

To get a sense of the full picture, the study analyzes both the gaps arising from differences between men and women in the labor market and the gaps arising from the pension system itself. The study aims to assess what factors impact the pension gender gap and what pension income gaps between men and women will look like in the future.

While limitations in data availability make it difficult to measure the pension gender gap among today’s retirees in Israel, data for 640,000 people who held a pension fund with Menorah Mivtachim (the largest new pension fund in Israel) in 2017 indicate that there is indeed a gender gap in private pension savings and this gap increases with age. The most significant gap was found among those aged 45-54: men in this age group have 28% higher occupational pension savings than women.

When looking across population groups, the study finds generational differences in the gender gap among Arab Israelis (likely due to an increase in employment and higher education rates among young Arab Israeli women) and higher pension balances among Haredi women than Haredi men (due to the fact that Haredi women are employed at higher rates than Haredi men).

What factors affect the pension gender gap?

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In addition, while women accrue pension entitlements during paid maternity leave (15 weeks), they do not accrue entitlements if they choose to extend into unpaid leave, as many do, or during other career breaks for childcare.

These factors affect differences in the extent of savings men and women have in their occupational pension funds. In addition, there are gender differences in how the sum of the allowance is calculated. Israel is among only four OECD countries that take gender into account when calculating the monthly sum to be paid to each insured individual in the fund, a practice that is not legal in many other countries.

Since the life expectancy of women is higher, pension companies divide the total savings into a higher number of payments – thus, unmarried women receive a lower sum each month during retirement than unmarried men. (It is important to note that, among married couples, the coefficient is also influenced by the calculation of survivor’s pension benefits should one’s spouse pass away. Due to the fact that a woman is more likely in practice to benefit from a survivor’s pension than is her husband, the coefficients used for married men and women are fairly similar.)

Women’s lower retirement age – the factor that has received the most public attention in Israel – actually affects the pension gender gap in both directions. On the one hand, the difference in working years due to the gap in retirement age reduces women’s occupational pension savings.

On the other hand, because of the differences in retirement age, women may take advantage of the ability to defer the old-age allowance provided by the National Insurance Institute (NII) until the age of 70 (the absolute retirement age), thereby increasing the value of the benefit. The NII provides an additional 5% for every year of delay so that women who choose to retire at age 70 receive a 25% higher social security benefit from the NII than men who retire at the same age.

Looking forward, the researchers use a simulation to estimate future pension gender gaps in Israel. They find that, among married individuals who retire at the age of 67, a man will receive about NIS 2,000 more a month from a pension (occupational and old-age allowance) than a woman: NIS 15,300 compared to NIS 13,300, on average. Among single individuals, the gender gap is expected to be even larger in favor of men: about NIS 3,000.

The researchers conclude that gender shapes retirement policies in a uniquely profound way in Israel that has a large effect on pension gaps between men and women. In looking to the future they draw attention both to structural issues within the pension system and to the connection between current labor market trends and future post-retirement income.

The Hadassah Foundation has provided generous support for the creation and implementation of this project.

Back and Forth: Commuting for Work in Israel

Executive Summary

The subject of commuting has attracted more and more public attention in Israel in recent years as road congestion levels continue to rise with the increasing number of commuters. Over the last 30 years, the number of employed persons working outside their residential area has risen from 42% to 54% (as of 2016) among Israelis of working age (25-64). The main mode of commuting is by private car and the number of rides has grown faster than road expansion – creating the traffic jams that have become all too familiar.

Commuting distance, time, and mode of transportation

Most trips to work are short. Three out of every four workers aged 25-64 travel 20 kilometers or less to reach their workplace, mostly in private vehicles (for 2014-2016). About 60% of workers travel for no more than half an hour, 30% between half an hour and an hour, and about 10% travel for over an hour in each direction. Regarding the choice in mode of transportation – 62% commute to work by car (including shared rides) and only 17% commute by public transportation. 10% commute by bicycle or by foot and 8% commute by work-organized transportation.

There are large differences in commuting patterns in different parts of the country. For example, in both Jerusalem and Petah Tikva many commuters travel between half an hour and an hour, but in Jerusalem (where 91% of residents work within the city) this seems to be due to the extensive use of public transportation and large city size while, in Petah Tikva, a higher percentage use a private vehicle and commute distances of up to 20 kilometers, indicating that the travel time is a result of traffic congestion. In contrast, Tel Aviv has a high rate (68%) of workers with short commute times, and the city is also characterized by a high percentage of commuting by foot or bicycle.

Distribution of workers by length of commute ENG

The choice among modes of transportation for commuting is influenced by various economic, social, and geographic factors. Among Arab Israelis living in Arab localities, the infrequent use of public transportation is notable, stemming from a low supply due to the lack of adequate public transportation infrastructure. The topography of some localities creates natural constraints that impede mobility as well. This is evident from responses on satisfaction surveys. A high percentage of residents of Arab Israeli localities reported low levels of satisfaction with the state of the roads in their area while Arab Israelis living in localities with a Jewish majority and Jewish residents outside of Jerusalem reported higher levels of satisfaction. Among those who use public transportation, 82% of Jews are satisfied with the location of the nearest bus stop to their home, compared to only 63% of Arab Israelis.

Resident satisfaction with roads ENG

Among both Jews and Arab Israelis, a large proportion of workers in the manufacturing industry commute by work-organized transportation, a mode of transportation also commonly used by Arab Israeli men in the construction industry.

Within the Jewish population, there is widespread use of public transportation among Haredim (ultra-Orthodox) and new immigrants – especially women – in both large and small localities.

Commuting, migration and housing

Commuting should allow workers to live in the right place for them at the right price and to work in a place that suits them. The academic literature on commuting suggests the existence of a trade-off between the journey to work and housing prices; that is, the inconvenience for households living farther from employment hubs should be “compensated” by lower housing prices.

In an analysis of the commuting distances and housing prices among the Jewish localities in the “Gedera-Hadera” area (the Central region of Israel), the data show that those living in localities closer to central employment areas do indeed pay on average a higher price for housing, while workers who are forced to travel longer distances receive “compensation” in the form of cheaper housing prices.

Distance to workplace and housing prices ENG

The relatively short distances between localities in the Gedera-Hadera area may encourage choosing longer commutes over moving between residential areas.

More generally, residents tend to prefer to remain in the living environment familiar to them. The internal migration rate between localities and within them in Israel stands at about 7% of the total population in recent years, and about 60% of changes in address were recorded within the same locality.

In terms of moving across regions, the data seem to reflect the limited ability of low housing prices in the periphery to attract residents away from the Central region, where there are a number of socioeconomic advantages (e.g., proximity to employment, cultural centers, and leisure areas).

Arab Israeli women: geography, commuting and employment

While the employment rate of Arab Israeli women has risen in recent years, further increasing their labor force participation rate is an important challenge facing policymakers.

Over 70% of employed Arab Israeli women live either in the North or the Triangle (Hadera and the Central region) areas. About a third of the employed women from these regions work outside their residential area.

Of those who commute from their residential area, women in the Triangle area are more likely to commute to Jewish localities for work than women in the North. Also, the commuting distance among women from the Triangle is greater than among women from the North. In general, the North is characterized by more limited and less diversified employment opportunities and big employment hubs like Haifa are a considerable distance from Arab Israeli localities. However, for women from the Triangle, their relative geographic proximity to the Center of the country, characterized by more employment opportunities, increases their “commuting tolerance.” Their willingness to travel farther distances may be due to a combination of two push and pull factors: a long commute that is still considered reasonable due to increased employment opportunities, or a shortage of employment in the Triangle area, which forces many women to seek work farther from home.

Employment rates of Arab Israeli women in mixed localities (66%) are higher than in the Northern and Triangle regions (about 33%) but lower than those among Jewish women, indicating that, beyond the substantial geographic barriers, there are additional obstacles that affect the employment patterns of Arab Israeli women, such as mastery of Hebrew and English and social norms.

 

Today’s Workers, Tomorrow’s Retirees Understanding the Pension Gender Gap in Israel

Executive Summary

In recent years there has been much public discussion about a variety of issues relating to pensions in Israel, including concern about the performance of pension funds and the implications of an aging population on the pension system.  

In Israel, pension income comes primarily from two sources: old-age allowances (provided by the National Insurance Institute to retirees and elderly living in poverty) and occupational pensions (mandatory since 2008). The differences between men and women for each of these pillars are expected to dictate the degree of future gaps in pension income. 

Pension savings by gender 

Data for 640,000 people who held a pension fund with Menorah Mivtachim (the largest new pension fund in Israel) in 2017 indicate that there is indeed a gender gap in private pension savings and this gap increases with age. The most significant gap was found among those aged 45-54: men in this age group have 28% higher occupational pension savings than women.

Pension gap by age group ENG

Among older age groups (44 and older) the average pension gender gaps are higher among Arab Israelis than the rest of the population, but for those aged 44 and under, the expected gaps are similar. This seems to reflect an intergenerational shift – younger Arab Israeli women are employed at higher rates and therefore their pension contributions are expected to be higher than those of the previous generation.  

The private pension savings of Haredi women in the 25-34 age group is 26% higher than that of Haredi men, reflecting the higher employment rates of women in this population group. 

What affects the gender pension gap? 

A comprehensive index that measures the expected future pension gender gaps in European countries provides a framework for comparing the situation in Israel to that in Europe. 

Employment data: The employment rate of women in Israel is relatively high: about 66% among women of working age and policies encourage women’s employment; for example, women receive higher tax credits than men. Since private pension funds play a very important role in post-retirement income, the higher magnitude of employed women reduces gender disparities relative to the world. 

However, other data widen the gap; the hourly wage gap between men and women in Israel falls in the middle of the OECD ranking (standing at about 19% as of 2016), and there is a relatively high gap (16%) between the number of weekly working hours for women (about 37 hours) and for men (about 44 hours). 

Continuity of employment: Paid maternity leave in Israel (15 weeks) is considered an insured period for the purposes of calculating the accrual of pension entitlements, but if a woman chooses to extend into unpaid leave, as many do, this period is not insured. In Israel, the protection of pensions during periods of childcare is relatively limited compared to countries in the OECD, most of which have policies for reducing these gaps. 

Retirement age: Israel is among the nine OECD countries that have retirement age gaps between men and women, and one of only three that are expected to maintain this gap through 2060. The conditional retirement age for men in Israel (67) is the highest in the OECD, while for women it is 62, though many women continue to work after this age. The difference in working years due to the gap in retirement age contributes greatly to reducing women’s pension income relative to men’s.  

Government allowances: Allowances actually provide an advantage for women. While a man and a woman who paid NII contributions for at least 35 years and retire at the official retirement age will receive an identical monthly allowance from the NII, employees can opt to defer the allowance until the age of 70 (the absolute retirement age) and receive an additional 5% for every year of delay. Because of the gap in the conditional retirement age, a woman who chooses to retire at age 70 will receive 22% more than a man who does the same.  

Pension payment coefficient: Israel is among only four OECD countries that take into account gender when calculating the monthly sum to be paid to each insured individual in the fund, a practice that is not legal in many other countries. Since the life expectancy of women is higher, pension companies divide the total savings into a higher number of payments – thus, unmarried women receive a lower sum each month than unmarried men. (It is important to note that, among married couples, the coefficient is also influenced by the calculation of survivor’s pension benefits should one’s spouse pass away. Due to the fact that a woman is more likely in practice to benefit from a survivor’s pension than is her husband, the coefficients used for married men and women are fairly similar.) 

The future pension gender gap 

A simulation to estimate future pension gender gaps finds that, among married individuals who retire at the age of 67, a man will receive about NIS 2,000 more a month from a pension (occupational and old-age allowance) than a woman: NIS 15,300 compared to NIS 13,300, on average. Among single individuals, the gender gap is even larger in favor of men: about NIS 3,000. 

Monthly pension income gaps ENG

The simulation also shows that retirement age has a significant impact on pensions: a woman who retires at age 62 will receive about NIS 3,800 less per month than one who retires at age 67, both because of lower total accrual in her pension fund and because she will not receive additional funds for postponing the old-age allowance. 

In general, it seems that gender plays a more prominent role in retirement policies in Israel than in other OECD countries. A 5-year retirement age gap, the pension payment coefficient, and the lack of pension accrual during breaks in employment for childcare are just a few examples of how gender shapes retirement policies in a uniquely profound way in Israel that has a large effect on pension gaps between men and women. 

The Hadassah Foundation has provided generous support for the creation and implementation of this project.  

 

Closing the gaps? The achievements of Arab Israeli women

Usually, socioeconomic discussions about the Arab Israeli sector focus on the gaps that still exist between this sector and Jewish Israelis, and don’t emphasize the areas where substantial improvements have been made. In the case of Arab Israeli women – the data point often cited is their low employment rate, which stood at 34% for those aged 25-64 in 2017.

However, recent findings by Researcher Hadas Fuchs show the bigger picture including the large strides that have been made by Arab Israeli women in education and their improvements, though more limited, in employment. Academic achievements are important to the discussion of employment as well given that Arab Israeli women with an academic degree are employed at much higher rates than those without one. At the same time, there are still opportunities for further improvement among this segment of the population.

Already in high school, the percentage of Arab Israeli women qualifying for a bagrut (matriculation exam) surpasses that of Arab Israeli men and is approaching the qualification rate of non-Haredi Jewish women.

Furthermore, the lower socioeconomic status of the Arab Israeli population, on average, seems to contribute to the gaps that remain. When controlling for socioeconomic background, the matriculation rates among all sub-groups of Arab Israeli women are higher than those among Jewish women.

There has been a notable rise in the share of Arab Israeli women enrolling in higher education – particularly notable is an increase of nearly 50% among Bedouin and Druze women between 2008 and 2013 – while there has been almost no change in the enrollment rates of Arab Israeli men. Nonetheless, a smaller share hold a degree than Jewish women; in 2014, about half of Jewish and Arab Christian women aged 30-33 held an academic degree, whereas the percentage of academics was only 23% among Muslim women, 19% among Druze, and 16% among the Bedouin.

Despite the fact that over 70% of Arab Israeli women who qualify for a matriculation certificate study science/engineering majors in high school (compared with only 39% of Jewish women) – subjects associated with a potential for high future wages – by college, they are studying science and engineering at relatively low rates.

Rather, a large percentage of Arab Israeli women pursue degrees in education: 42% among Muslim women and 46% among Bedouin women, compared to only 16% among Jews.

This trend continues on into employment. Among Muslims, Druze, and Bedouin, over 50% of employed female degree-holders work in education, including many women who did not major in education in college. This share is nearly three times higher than the share among Jewish women.
employment branches for thos with a higher degree ages 25-35

The story of Arab Israeli women in the field of education is a complex one. On the one hand, the average number of working hours of Arab Israeli teachers (men and women) has risen in recent years and the share of women employed part-time decreased, meaning that many women are able to find work and with a large number of hours.

On the other hand, the data show that in the past few years, Arab Israelis who studied education are having trouble finding jobs in the field. While the percentage of Jews who received training in education and have since entered the field of teaching has remained relatively stable over the past decade or so, among Arab Israelis there has been a notable decline.

In addition, demand for Arab Israeli teachers is not expected to grow because Arab Israeli fertility rates are declining, the Arab education system has reached near full enrollment, and the trend of reducing class size has stabilized. Thus, there are indications of an excess of women in the field, which is likely to increase further in the future.

In general, employment rates among Arab Israeli women have increased since the early 2000s, but the increase was similar to the increase among Jewish women, such that the gap between them hardly narrowed.

While the employment rate of those with a degree has remained stable at around 75%, a particularly notable increase occurred among non-academic Arab Israeli women aged 45-54. Nonetheless, the 34% employment rate among those aged 25-64 in 2017 is still far from the target rate set by the government for 2020 – 41%.

Wage gaps between Jews and Arab Israelis are low among graduates with degrees in the fields of health and education (occupations in which most jobs are part of the public sector), but are large among those who studied engineering, computer science, business administration and management.

These data reveal that gaps between Arab Israeli and Jewish women still remain. However, given that Arab Israeli women with an academic degree are employed at much higher rates than those without, there is reason to hope that the strides made in education will be accompanied by improvements in employment in the coming years. This could advance Arab Israeli women and could also be a source of growth for the larger Israeli economy.

In order to confront the challenges that remain and promote this population group, it is possible to consider a number of options, including: improving the Arab education system, advising students to increase awareness of ‘in demand’ professions and providing guidance as they navigate academic studies and enter the labor market, and increasing employment opportunities for workers in Arab Israeli localities and the surrounding areas.

 

 

Arab Israeli Women Entering the Labor Market: Higher Education, Employment, and Wages

*This brief is also available in Arabic. To read the full brief in Arabic, click here

The study shows that Arab Israeli women have improved their academic achievements in high school, are more successful than Arab Israeli men, and are approaching the achievements of Jewish women. In addition, there has been an increase in the share of Arab Israeli women pursuing higher education.

However, alongside these positive trends, there are areas that require further improvement: Arab Israeli women pursue careers in the field of education, which is already saturated with workers, at high rates, and study or pursue work in more lucrative fields such as computers and engineering at much lower rates. A more balanced distribution of fields of study and employment among Arab Israeli women would likely lead to better integration into the labor market and is a potential source of growth for the Israeli economy in the coming years.

The Taub Center gratefully acknowledges The Diane P. and Guilford Glazer Fund of the Jewish Community Foundation of Los Angeles for its generous support of the research study upon which this policy brief is based.

Patterns of Haredi Integration into the Labor Market

The full chapter can be accessed using the link on the right.

This chapter looks at the integration of young Haredim into the labor market relative to other sectors in Israel, and examines how their employment options and earning abilities differ based on factors such as education level, field of study, employment branch, and place of residence.

The first section of the chapter focuses on current trends in employment of young Haredim and finds an impressive rise in the employment rates of young male and female Haredim, within all major streams. Haredi men show higher employment rates in the periphery than in the center of the country, and in mixed cities rather than in homogeneous Haredi cities. In addition this section presents, for the first time, a high resolution map of the geographical distribution of the major Haredi streams by neighborhoods. It also reports the relative share of each stream within the Haredi sector.

The second part of the chapter compares four population groups (Haredim, National Religious, secular Jews, and Arab Israelis), and examines the relationship between education and additional background variables to employment possibilities and earning ability for each group. One interesting finding is that the employment rate of Haredi academic degree students is very similar to that of Haredi degree holders which could indicate that, for Haredi men, the decision to go to work, as evidenced by enrollment in an academic program, is no less important than the degree itself in terms of labor market integration.

Haredi integration in the labor market

  • In recent years there has been an impressive rise in the employment rates of young Haredi women and men across all Haredi streams: between 2008 and 2013, the employment rates of Haredi women and men ages 23-30 rose by 9 percentage points, reaching 73% among women and 36% among men, the largest increase across all sectors. The most significant increase was found among men and women in the Hasidic stream.
  • Employment rates of Haredi men in the periphery are higher than in the center of the country. This may be due in part to new economic realities and rising housing costs in the old Haredi centers that are incentivizing young Haredim to migrate to the periphery.
  • Haredi men living in homogeneous Haredi cities have significantly lower employment rates than those living in mixed cities. Assuming that place of residence has an impact on employment possibilities and desire to work, it is preferable, from an employment standpoint, to build Haredi neighborhoods in mixed cities rather than in homogeneous Haredi cities.

Impact of education and personal characteristics on employment prospects and wages

  • The employment rate among Haredi students is not much lower than the rate among Haredim who already hold an academic degree. In 2013, approximately 76% of Haredi men with academic degrees (ages 25-35) and 67% of male Haredi students worked, compared with only 37% of Haredi men in the same age group who never pursued higher education. This indicates that the employment level of Haredi men is more influenced by the decision to start working (and studying in higher education) than by actually earning a degree.

Haredi Employment EN (1)

  • Among Arab Israeli women, however, there is a large gap between the employment rates of those who already have an academic degree and those who are still students, indicating that, for this group, the probability of employment improves significantly with a degree.
  • The impact of parental income on the chances of obtaining a bagrut (matriculation) certificate – which greatly increases the chances of acquiring an academic education – is four times higher among the Arab Israeli population than among Jews.
  • When controlling for background characteristics (via regression analysis), the probability of young Haredi male degree holders being employed is 26.5% higher than that of those who have never pursued academic studies; for National Religious men – 17.6% higher; for secular Jewish men — 19.7% higher, and for Arab Israeli men — 13.7% higher. Compared with young women who have never studied for a degree, the probability of Haredi female degree holders being employed is 18.1% higher; for National Religious women – 18.8% higher; for secular Jewish women – 14.4% higher; and for Arab Israeli women – 44.2% higher.
  • Nearly 50% of degrees earned by Haredi men are in business administration, law and the humanities, versus 30% among secular Jewish men. In science-related subjects (engineering and architecture, mathematics and computer science), 34% of secular male academics hold degrees in those fields, versus only 25% for Haredi degree holders. That is, a larger percentage of male Haredi academic degree holders are earning degrees in areas where the market is saturated, while a lower percentage are earning higher-paying science-related degrees.
  • However, among female Haredi degree holders, 11.5% earned degrees in computer science and math, compared to only 3.6% of secular female academics.

Impact of parents’ continent of origin on young adults’ income

  • Parents’ continent of origin has a substantial impact on their children’s projected income in all sectors. When controlling for the income and education level of parents (and the mother’s education level in particular) the study finds that, contrary to popular belief, non-Haredi Jewish women whose fathers were born in northern Africa are expected to earn slightly more than women whose fathers were born in Israel. This finding may indicate that, given equal educational opportunities, ethnic wage gaps could be reduced. By contrast, males whose mothers were born in Asia (Mizrachim) may be expected to earn slightly less than those whose mothers were Israeli-born.

Education and Employment Among Young Arab Israelis

The Taub Center gratefully acknowledges The Diane P. and Guilford Glazer Fund of the Jewish Community Foundation of Los Angeles for its generous support of this project.

In recent years there have been major changes in education and employment trends in the Arab Israeli society. The chapter examines these trends by sub-group within the sector and by gender, and finds that there have been substantial improvements in post-secondary and higher education – though there are large gaps between the various sub-groups.

The rate of qualifying for a bagrut (matriculation) certificate rose significantly

The rate of those entitled to a bagrut certificate increased substantially between 1999 and 2013 but, while bagrut achievements by Arab Israeli women are approaching those of Jewish women, the increase among Arab Israeli men was more moderate.

  • It seems that a major factor contributing to educational gaps between Jews and Arab Israelis is the lower socioeconomic status of the Arab Israeli population. When controlling for socioeconomic backgrounds, the matriculation (bagrut) rates among all sub-groups of Arab Israeli women are higher than (or equal to) those among Jewish women. Among men there are still gaps favoring Jewish men – and these gaps have increased over the past decade.
  • A high percentage of Arab Israelis qualifying for a matriculation certificate studied in a scientific-engineering track. The differences between Jewish and Arab Israelis are particularly prominent among women: 39% of Jewish women who qualified for a matriculation certificate in 2013 studied in scientific-engineering tracks, as compared with 71% of Bedouin women and 84% of Christian women, and in the Arab Israeli sector there is a female majority in most scientific-engineering tracks.

Higher education – a large share of women pursue occupations in the fields of health and education

  • The share of those pursuing higher education has increased greatly among Arab Israeli women, particularly among Bedouin and Druze women – an increase of nearly 50% between 2008 and 2013. Among men the improvement was much smaller, although the data do not include Arab Israeli men pursuing an academic degree abroad.
  • Arab Israeli women (especially Muslims and Bedouins) still pursue occupations in the education field at very high rates – a field that facilitates working within their localities. This trend may lead to employment difficulties: 59% of those who applied to teach in the Arab school system did not receive placements in the 2013-2014 school year. If there is not a significant drop in the share of female students studying for a teaching certificate, this percentage is likely to increase as the percentage of female Arab Israeli graduates increases.
  • As in the past, many Arab Israeli men pursue academic studies in health-related fields (both in Israel and abroad), but there has also been an increase in the share pursuing engineering and computer science degrees – which may open the door to new fields of employment.
  • The average psychometric exam score of Arab Israelis is lower than the average score among Jews. It seems that a larger portion of Arab Israelis who take the exam do not reach the threshold required to be admitted into various study programs in academic institutions, as about half of Arab Israeli men who took the psychometric exam did not go on to study in higher education in Israel (although some studied abroad).

Higher Ed EN (3)

How much do Arab Israelis earn in comparison to Jews?

  • Wage gaps between Jews and Arab Israelis are low among graduates with degrees in the fields of health and education, but are large among those who studied engineering, computer science, business administration and management. In the fields of engineering and computer science, high wage gaps stem largely from differences in the sectors in which the graduates of these fields are employed: Jewish academics tend to be employed in more profitable industries (for example, 28% of Jewish graduates are employed in programming, compared with 16% of Arab Israeli graduates).

What are the differences between the different sub-groups?

The Christian population has the highest achievements on all indices: bagrut exams, the share of the population with an academic degree and fields of employment, and the gaps between the Christian and Jewish populations have been decreasing over time. Among the Muslim population, which is the largest sub-group, there were general improvements on educational indices, gaps favoring women over men, and a marked tendency to pursue degrees in the fields of health and education. The achievements of the Druze population are mixed: they have particularly high matriculation rates and their employment rates are high as well. On the other hand, the fields in which they are employed are limited and a high percentage of those with a degree are employed in the defense system. The Bedouin population has the lowest achievements on all indices, despite a significant improvement among women. The vast majority of Bedouins with an academic degree work in education.

Education and Wage Trends Among Ethiopian Israelis — Differences by Gender

In 2015, the Taub Center published a brief examining the developments in education and employment among the Ethiopian Israeli population between 1998 and 2011. The study found that the education level of those who came to Israel at an older age is low, while Ethiopian Israelis who grew up and were educated in Israel enjoy greater educational achievements.

This policy brief looks more into education and wages among Ethiopian Israelis and, in particular, explores differences between the genders. While Ethiopian Israeli women’s educational achievements are getting closer to the rest of their Jewish peers, the gaps among the men remain large.

Trends in the Labor Market

The labor market in Israel is moving from a traditional economy, based on manufacturing and production, to one of information technology and modern services. As a result, some occupations are at risk of automation – that is, the workers currently employed in these positions are likely to be replaced by machines or computers. To prepare for the needs of the future labor market, workers should be encouraged to move out of jobs that are at high risk of automation and into jobs in industries at lower risk.

In the past few years there has indeed been a decline in the share of workers in jobs at high risk of automation, although this decline has been less pronounced among Arab Israelis and immigrants than among the long-time resident and native-born Jewish working population.

Just as not all population groups in Israel are equally prepared to meet the needs of the future labor market, levels of education and the return on education also vary between the different population groups, affecting wage gaps.

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Women are moving from high to low risk jobs to a greater degree than men

The changes among women were greater than among men, primarily due to an increase in the share of female workers in academic professional occupations – which require high skill levels and are at low risk of automation. A decline in clerical workers also contributed given that these positions were often occupied by women. It seems that the reason for the decline is that these professions have begun the process of automation and computerization, as evidenced by bank branch closures, outsourcing of secretarial services, and computerization of office administration activities.

More Arab Israelis are working in service and sales

In the Arab Israeli sector there has been a decline in the share of skilled workers in production and manufacturing (considered at high-risk of automation) and a relatively strong rise in their share in sales and service, occupations at lower risk. There was only a small increase in the share of Arab Israeli workers in occupations requiring an academic education, which may be due to the relatively lower skill levels in reading comprehension and math within the Arab Israeli sector (as evidenced by the OECD PIACC Survey – Programme for the International Assessment of Adult Competencies).

Many immigrants are employed as unskilled workers and are therefore at high-risk of being replaced by automation

Among men ages 45-54 who immigrated to Israel in the early 1990s, there was an exceptional rise in the share of those employed as unskilled workers, in industries like cleaning and security. This indicates that adult male immigrants have had a particularly difficult time integrating into Israel’s modern labor market.

However, a different story emerges with female immigrants. The share of female immigrants employed as unskilled workers has increased as well, yet faster changes in the mix of occupations among women indicates that their chances of improving their situation and moving from high-risk low-pay employment to more lucrative lower risk occupations over time are likely greater than men’s chances.

The two major problems facing immigrant workers are a lack of language skills and having academic education that does not match the local Israeli labor market.

Wage gaps are widening, largely due to changes in returns to education

Another notable trend in Israel’s labor market is that level of education has a greater impact on wages than it did in the past. This study considers changes over time in returns to education – that is, to what degree does a year of formal education improve hourly average wages.

The general trend in Israel since 2003 has been a rise in returns to education. This increase encourages workers to attain more education, thus improving the quality and skill level of the labor force. However, it also contributes to increasing wage gaps between workers with high and low levels of education. The hourly wage difference between those with 18 years of education (equivalent to a second degree) and those with 12 (equivalent to a high school diploma or matriculation certificate) was about 35% among men and about 40% among women in 2014 – an increase relative to 2003.

There was also a rise in returns to education among immigrant men, although the gaps remained lower than among the general male population. This may be due in part to differences in the distribution of occupations among immigrants and the long-time resident and native-born Jewish working population –among immigrants, the share of unskilled workers earning low wages increased at the expense of occupations with somewhat higher wages. In contrast, returns to education among immigrant women declined between 2003 and 2011 but increased substantially between 2011 and 2014. Among other things, the rise in later years was due to women who immigrated at a younger age joining the labor market, whose skills and education better match the Israeli labor market.

Wage gaps have increased overall, and are particularly notable between Arab Israelis and immigrants and the rest of the population

Wage gaps have increased, due to a polarization of sorts within the labor market: an increase in the share of earners receiving either low or high wages at the expense of those earning wages in the middle. During the years analyzed, many low-skilled workers entered the labor market. This trend is positive as it seems that these workers relied on the welfare system in the past, but are now contributing to the GDP. However, the influx of these workers still increases the share of total workers receiving relatively low wages. At the same time, there is a consistent rise in the share of workers with higher education in the labor supply, due to the entrance of more young, educated workers than in the past. This, in turn, increases the share of workers receiving relatively high wages.

An examination of the various population groups reveals inequality, as expressed in wage gaps between Jews and Arab Israelis and between Jewish immigrants and Jewish long-time residents/native-born. Over time, the wage gap between Jews and Arab Israelis was found to be quite stable while the wage gaps between immigrants and long-time residents/native-born narrowed. The latter was primarily due to improvement in the occupation mix over the past few years, especially among immigrant women.

 

Division of Labor: Wage Gaps between Women and Men in Israel

Wage gaps between women and men in Israel have narrowed over the years, but are still large. A new Taub Center study reveals that the most substantial factor behind the disparity is the fact that, on average, women work fewer hours than men, but another key factor is that women are more likely to be employed in lower-wage occupations and industries.

The wage gap between women and men in Israel’s labor market ranges from 32% to 42% (depending on the calculation method used). This difference has been studied extensively, and opinions differ as to its source; some attribute it to discrimination against women, while others maintain that the gap is rooted in essential differences between the genders and in their differing occupational preferences. A study by Taub Center Researcher Hadas Fuchs that was recently published in the Taub Center’s State of the Nation Report 2016, sought to assess the status of women in the labor market, focusing on the causes of the male-female wage gap. Fuchs assessed the gap in light of employees’ personal and demographic characteristics, including number of working hours, education level, and the occupations and industries in which the employees worked. The assessment included data from 2010-2011.

Fuchs’ calculations indicate that the most important factor behind the gender wage gap is the number of work hours, with 57% of the gap being due to women’s smaller position scope (i.e., less than full-time employment) (see Figure 1). In 2015, 34% of working women aged 25-54 were employed part-time, versus 17% of men; even among those with full-time jobs, women worked fewer hours.

Article Graph 1 final

The second most important cause, which is responsible for 14% of the wage gap, is the difference between the occupations and industries in which men and women work. Men work in occupations where the average wage tends to be higher (as shall be seen below). By contrast, the number of years of schooling variable reduces the gap by 5%, as on average, women are better-educated than men – and a higher education level raises the average wage.

Overall, more than two-thirds of the wage gaps arise from the variables that Fuchs assessed, among them one’s years of experience, position scope, family status, and education.  The portion of the gap that is not explained by these variables could  reflect discrimination, but it might also be due to attributes that could not be measured in this study, such as personal abilities, the exact job held by a given employee, or more precise detail regarding occupation. So that the “personal ability” component (which is presumably a major determinant of wage) could be taken into account, Fuchs used a special Central Bureau of Statistics database, which, in addition to the data shown above, also included matriculation and psychometric exam scores. These exams reflect, to a certain degree, the requirements of the labor market, and scores on these exams can thus serve as a good indicator of an employee’s “quality” in terms of remuneration for their work. This database contains information for those who were ages 29-31 in 2008.

One of the most interesting findings obtained through this estimation is that the occupation/industry component has a greater impact on wage gaps [in the 29-31 age group] than in all age groups taken together – a fact that underscores the importance of occupational choice in determining women’s future wages. Among those with academic degrees, this component had the greatest impact on the wage gap, explaining over half of the disparity (as seen in Figure 2).

Differences in matriculation and psychometric exam scores increase the wage gap; their joint contribution to the explained gap was 13%. Fuchs explains this by noting that, although women have a higher matriculation average than do men, five units of mathematics study and the quantitative portion of the psychometric exam have relatively great influence on wage, and women tend to have lower achievements in these spheres. In this calculation, the unexplained wage gap was only 6%.

Article Graph 2 final (update)

 

In light of the major role of mathematics attainment in determining wage, the study examined the gender gaps in this sphere at various stages along the lifecycle. The data indicate that women’s lower achievements in math are discernible from a young age; among Jewish Israelis, girls’ achievements on the Grade 5 GEMS exams in mathematics are lower than those of boys (though girls outperform boys in English), while on the PISA tests their achievements are lower in math and higher in reading. In secondary school fewer girls study math at the 5-unit matriculation level, and their average score is lower.

At the academic level, in all degree programs, women account for at least half (and often more than half) of students, but they tend to study therapy and education-related fields.  In contrast, men comprise the majority in the mathematical and scientific disciplines, which are associated with higher average salaries. In 2014, for example, only 27% of students in mathematics, statistics and computer science were women.

Gender polarization continues into the labor market, where a high percentage of women are still employed in education and a very low percentage in high-tech occupations. Even among computer science graduates, a relatively high percentage of women do not go on to work in this field. The reason for this may be that women enter occupations, such as education, that provide them with flexible working hours and part-time employment options, and avoid occupations that are regarded as demanding in terms of the number of work hours, such as technology, science and finance (as shown by Figure 3).

eng3

Given these findings, it appears that in order to reduce wage gaps, it is important to raise awareness of the impact that choice of academic field has on wage. Additionally, the contribution of mathematical ability to wage, and women’s lower attainments in math-related fields from an early age, highlight the need to persevere with programs that encourage women to study scientific subjects at a high level.

The question of why women do not enter STEM (science, technology, engineering, mathematics) fields, which are considered prestigious and known to offer high salaries, should also be examined in greater depth. Fuchs notes that the reason for this may be that women are still thought to be their children’s primary caregivers, and to bear most of the responsibility for housework. If this is indeed the reason, then one should consider the possibility of offering work-schedule flexibility and shorter work days to both men and women, which would enable suitable women who so desire to enter these fields, fulfill their potential and reduce overall gender wage inequality.

 

Gender Differences in the Labor Market: Wages and Employment Polarization

Executive Summary

The wage gap between women and men in Israel’s labor market stood at 35% in 2016. This gap has been studied extensively, and opinions differ as to its source; some attribute it to discrimination against women, while others maintain that the gap is rooted in essential differences between the genders and in their differing occupational preferences.

This study finds that most of the wage gap can be explained by differences in the individual characteristics of employees in the Israeli labor market: namely, differences in work hours, occupations, and mathematical achievements.

Contribution of employee traits to gender wage gap

Differences in work hours

The most influential factor in explaining the gap is the disparity in working hours between men and women: differences in work hours were responsible for 57% of the wage gap in 2010-2011.

  • In 2015, 34% of working women aged 25-54 were employed part-time, versus 17% of men. Even among those with full-time jobs, women work fewer hours than men: averaging 43 hours a week, compared to 47 hours on average for men (2015).
  • Among full-time employees in Israel, the difference in work hours between men and women is among the highest in the OECD.
  • When examining the hourly wage gap in Israel, the gap is similar to that of other OECD countries – standing at 16% in Israel, compared to an OECD average of 15% (2014).

Part and full time employment

Differences in occupations and industry of employment

Differences in the occupations pursued by men and women account for another 14% of the gender wage gap in Israel.

Although women pursue academic education at higher rates than men, there are significant differences in the fields men and women tend to study, which is later reflected in jobs and wages.

  • In all academic degree programs, women account for more than half of students, but they tend to study therapy and education-related fields. In contrast, men comprise the majority in the mathematical and scientific disciplines, which are associated with higher average salaries.
  • The share of female students in technology fields rose slightly with the years, yet remains low at only 20%-30%. In 2014, for example, only 27% of students in mathematics, statistics and computer science majors were women.
  • Even among female graduates with a degree in computer science, a relatively high percentage of women do not go on to work in this field.
  • While the wage gap is almost nonexistent in the field of education, in industries such as medicine and engineering, the gender wage gap is higher than 20%.

Lower level of achievement in mathematics

The study shows that mathematical abilities have a definite effect on wages, and on the gender wage gap.

  • Women’s lower achievements in math are discernible from a young age: among Jewish Israelis, girls’ achievements on the Grade 5 GEMS exams in mathematics are lower than those of boys (though girls outperform boys in English), while on the PISA tests their achievements are lower in math and higher in reading. In high school fewer girls study math at the 5-unit matriculation level, and their average score is lower.
  • Although women have a higher matriculation average than do men overall, five units of mathematics study and the quantitative portion of the psychometric exam have a relatively large influence on wages, and women tend to have lower achievements in these spheres.
  • In high school elective study majors, female students make up less than 40% of the students in subjects like computer sciences (33%) and physics (37%) whereas they make up more than 60% of students in subjects like art (83%) and literature (79%).

Possible approaches to reducing the gender wage gap

Given the findings of the study, it appears that, in order to reduce wage gaps, it is important to raise awareness of the impact that choice of academic field has on wages. Additionally, the relationship between mathematical ability and wages highlights the need to promote programs that encourage women to study scientific subjects at a high level, beginning from an early age.

Another reason why women might not be entering technological occupations, which are considered both prestigious and high paying, is the long work hours in these fields, with little opportunity for flexible hours. Offering work-schedule flexibility and shorter work days to both men and women in these fields would enable women to enter more lucrative occupations and reduce overall gender wage inequality.

 

This paper appears as a chapter in the Center’s annual publication, State of the Nation Report 2016edited by Prof. Avi Weiss. 

Work-life balance: parental leave policies in Israel

Working Women

Employment rates for Israeli women are relatively high and have been improving over time. In 2014, the employment rate of women in Israel was 7 percentage points higher than that of women in the OECD. Between 1990 and 2014, employment rates for Israeli women of prime working age (25-54) grew by 20 percentage points. In fact, the employment rates of Jewish men and women in this age group are now nearly identical to one another.

In a recent Taub Center policy brief, Policy Director Liora Bowers and Researcher Hadas Fuchs find that notable growth in employment has occurred among mothers of young children (ages 0-4), particularly among those without a university education. Only about half of women aged 30-40 with children ages 0-4 were employed in 1995, while in 2011, as shown in the graph below, the figure rose to 69%. The employment rate for mothers of young children with an academic degree increased from 78% in 1995 to 84% in 2011, while the increase in employment among women without a university education was greater: from 47% in 1995 to 57% in 2011 and 61% in 2015.

Employment rate for ages 30-40

Still, about 33% of women in Israel aged 30-54 work part-time, in comparison to 15% of men. Half of women working part-time cite that caring for their children is the main reason for their limited employment. Also, there remains a 14% gap in hourly wages between men and women in Israel, which is similar to the average gender wage gap in OECD countries.

Employment Rights

Israel’s current government policies around parental leave include a number of important rights, among them: job protection during pregnancy and for up to one year after birth, 100% salary replacement during the months of paid maternity leave, and a one hour paid reduction in working hours during the months following maternity leave. However, in some areas, there is a gap between Israel’s policies toward parents and the policies of other OECD countries.

One of the notable differences between Israel and other OECD countries is in policies related to paternity leave. Unlike the 20 OECD countries that provide either partial or full paid paternity leave for fathers immediately following the birth, Israel did not provide this benefit as of early 2016 (at the time that Bowers and Fuchs conducted their research). Bowers and Fuchs found that 75% of fathers take advantage of this benefit in the countries where it is offered. In June of 2016, the Knesset’s plenary approved legislation making Israeli fathers eligible for six days of paid paternity leave following the birth of a child, including the day of the birth itself. Three of these days will come from the father’s sick leave and the remaining three will come from his annual vacation days. Legislation passed in July of 2016 included two other notable changes to Israel’s policies. Firstly, the one-hour paid reduction in working hours during the months following birth that previously had been granted only to mothers can now be shared with fathers, as well. Secondly, the term used in Israel’s policies surrounding birth will be changed from “maternity leave” to “parental leave.”[1]

Aside from paternity leave, there are 13 OECD countries that provide a paid parental leave benefit that is specifically allocated to fathers. As a result, on average in the OECD, 16% of individuals who take some leave to care for a child are men. In Israel, despite the fact that mothers are allowed to share some of their maternity leave time with their spouse, only 0.4% of individuals taking some leave are men.

Share of fathers taking parental leave

Examining the paid leave granted to mothers, Bowers and Fuchs find that Israel grants less leave per child than the average in OECD countries. However, fertility rates in Israel are much higher than those in the OECD (an average of 3 children per woman in Israel, compared with 1.7 on average in the OECD). As such, it is more costly for the country to provide for the same length of maternity leave per child (paid and unpaid), because of the financial cost to the state and the impact on the broader economy. In addition, Israel also provides for 100% wage replacement during maternity leave, while 21 OECD countries pay less than a woman’s full salary during leave. 100% wage replacement makes sense from a policy perspective for three main reasons: less than a full salary could discourage fathers – who are more likely to have higher earnings – from taking part of the leave; reducing income just as a family faces the additional expenses related to a new child can burden families; and the lower wages distributed over a longer period of time keep women out of the workforce for longer – which can ultimately hurt their careers. The figure below shows that, when comparing the length of paid leave granted throughout a woman’s lifetime, rather than per child, Israel is close to the OECD average: 42 weeks of full-rate equivalent salary (i.e., the adjusted number of weeks of paid leave received over an individual’s lifetime at 100% of the individual’s average wage) compared to 44 weeks in the OECD.

Total lifetime weeks of paid leave

A woman in Israel is eligible for 12 weeks of unpaid maternity leave with full social protections, following the 14 weeks of paid leave. She can extend her “leave without pay” for a quarter of the length of her employment, up to a maximum of one year. However the “leave without pay” benefit is not well known (only 12% of women take more than six months of leave per child) and requires a woman to give up some of her social protections for that period including increases in seniority, sick leave, and severance benefits. The common practice in the OECD, on the other hand, is one unpaid leave benefit that is granted uniformly to all women who have worked at least 12 months with their current employer.

Another difference between the policies in OECD countries and Israel is that in the OECD there is more flexibility when returning to work after leave. When maternity leave is over in Israel, women are expected to return to the workplace in the same capacity as before the birth of the child. In contrast, about half of OECD countries allow parents to return to work gradually – by utilizing parental leave benefits to return to work on a part-time basis. In most such countries, the worker also has the right to return to full-time employment when they request to do so.

Based on the above findings, Bowers and Fuchs identify that the following measures would be necessary to align Israel’s policies with those of other OECD countries:

  • Provide 1.5 paid weeks of leave for fathers upon the birth of a child; the recently approved legislation ensuring six days of paternity leave is a step in this direction;
  • Combine the 12 weeks of unpaid maternity leave and up to one year of “leave without pay” benefits into one six-month benefit renamed “parental leave,” to be provided to a parent who has worked at least twelve months with their current employer;
  • Allow parents to use some of the leave currently granted by the law to return to work part-time, extending the overall time the parent is on some form of leave.

 

[1] The term will be changed from “חופשת לידה” to “תקופת לידה והורות”.

The freedom of labor mobility: Israel’s dual labor market

The celebration of Passover, a holiday that commemorates the duality of slavery and freedom, provides an opportunity to discuss another type of duality present in Israeli society today—Israel’s polarized labor market. In their study published in the 2015 State of the Nation Report, researchers Gilad Brand and Eitan Regev find that the business sector can be classified into two groups that differ greatly from one another. At one end of Israel’s economy are the high-tech and other advanced industries, with high and quickly rising labor productivity (labor productivity is defined as the ratio of total GDP to total work hours and is considered a useful tool for assessing a country’s economic growth and standard of living). At the other end are industries that primarily sell to the domestic market, such as most of the commerce and services sectors, and are characterized by low productivity and minimal growth.

Figure 1 English take 2

Labor market polarization is a phenomenon that has developed over the past two decades. Before the early 1990s, Israel’s manufacturing and commerce and services industries had nearly identical rates of productivity growth. Yet after this point, as the Israeli economy was opened to global trade, the sectors diverged dramatically. Productivity in manufacturing shot up, while productivity in commerce and services experienced a slight decline. Not only is the rift large, but wages have also become polarized in tandem with productivity, contributing to growing income inequality in Israel.

What is responsible for the polarization in Israel’s labor market and what is preventing the convergence of productivity in these two sectors? Brand and Regev find the main cause to be related to the major trade liberalization reform that took place in the Israeli market during the early nineties.

It is well-known in economic literature that productivity tends to rise in industries exposed to international trade. This can explain the rise in productivity in Israel’s manufacturing industries, which are export-oriented, following trade liberalization. It is also not particularly surprising that commerce and services industries, which are locally oriented and less likely to be traded in international markets, did not see the same kind of productivity growth that occurred in manufacturing. But why did the productivity in Israel’s commerce and services industries decline in the mid-1990s?

Brand and Regev find that the decline in productivity in commerce and services is explained by a transfer of low skilled workers from traditional manufacturing industries to occupations in commerce and services. Since the early 1990s, employment in traditional manufacturing industries, such as textiles, has declined whereas there was an increase in work-hours in commerce and services. This trend is especially visible in the second figure, where we look at the employment distribution of workers with limited education: for those with a high school education or less, labor participation in low-tech manufacturing industries decreased from 16% to 9% between 1995 and 2011, while employment in commerce and services increased from 38% to 48% over the same period. An influx in supply of low paid, low skilled workers incentivizes companies to rely on cheap labor rather than investing in new technologies that would increase efficiency. As such, the use of more workers per unit of output slows down productivity.

Figure 2 English

At the other end of the spectrum, opening Israel’s economy to international trade in the early 1990s has made higher skilled workers better off than they were a few decades ago by creating more opportunities in high productivity industries. Among those with a college degree, labor participation in finance, communication, and high-tech has increased since 1995. Therefore, while those with lower education and skills are moving into industries with low productivity (where their presence actually contributes to a decline in productivity), those with higher education and skills are moving into industries with higher productivity, thus increasing the productivity gap.

Figure 3 English

The problem is that high-tech and other growth-oriented industries consist of a relatively small share of the workforce. The majority of workers in the business sector, about 70%, are employed in commerce and services. This means that much of the Israeli labor force is employed in industries where productivity—as well as salaries—remains relatively low.

In addition to the polarization of high- and low-skilled workers, worker mobility has declined since the 1990s, stabilizing somewhat over the past decade. Even though there is an excess of low-skilled workers in commerce and services and a shortage of skilled workers in manufacturing, employees are unable to move from industry to industry because they lack the necessary skills.

Brand and Regev suggest that Israel can bridge the gap between these polarized sectors by diversifying the Israeli export base and creating vocational training programs. Diversifying exports would apply pressure on wages in industries with low productivity and encourage firms in these industries to streamline their processes, ultimately leading to a narrowing of gaps within the Israeli labor market. Creating vocational training programs would also narrow the gaps by increasing occupational mobility between sectors.  Increasing the supply of vocational training programs can provide an opportunity for those currently employed in low-paying jobs in commerce and services to acquire the skills necessary for integration into high productivity industries, which are in need of skilled workers and offer relatively high salaries. Also, programs like these should lead to a more efficient allocation of manpower between the manufacturing and commerce and services industries. Applying these measures would encourage more rapid and balanced economic growth in Israel and a less divided labor market.

Women and Parents in the Labor Market – Israel and the OECD

Any substantial discussion about the economic situation of women in Israel – particularly with regard to labor market outcomes – must be placed in the context of the unique demographic trends in the country. At 3.0 children per woman in 2014, as shown in Figure 1, Israel has a much higher fertility rate than any other country in the OECD. In contrast to its fellow OECD countries, Israel’s fertility rate today is relatively similar to that in 1980. While other developed countries are dealing with the economic burden of a rapidly aging population and fertility rates below replacement levels, Israel does not face similar demographic challenges.

Israeli society – including its culture, geopolitical situation and governmental policies – has helped encourage both fertility and female participation in the labor market. Such policies include government funded in-vitro fertilization treatments for up to two children, job protection during pregnancy, generous wage replacement rates equal to 100% of the salary during the 14 weeks of paid maternity leave, childcare subsidies for qualifying families, universal preschool from age three and reduced working hours following the return from maternity leave (“nursing hour”) (Bowers, 2014).

Yet, in some categories, support for working mothers in Israel lags behind that provided in the OECD. This brief provides context on important trends regarding women in the labor market in Israel and provides guidance on what policies Israel would need to undertake to align with prevailing norms in the OECD in regards to parental leave and family-friendly work practices.

The digital world: computerization trends in Israel’s labor market

The modern market is dynamic, shaped by an array of influences such as technological developments, globalization, and capricious consumer preferences. While such rapid technological advances are generally a blessing, they come at a cost in the guise of a loss of existing jobs. Using a method developed by American researchers that rates occupations, on a scale from 0 to 1, by the risk that employees will be replaced by computers, Taub Center researcher Shavit Madhala-Brik mapped Israel’s labor market into low, medium and high risk occupations in a new study published in the State of the Nation Report 2015.

Madhala-Brik found that among workers between ages 25 and 64, 39% of work hours are considered at high risk; 20% at medium risk, and 41% at low risk, as shown in the first figure. This translates into roughly one million Israeli workers in this age group who are at high risk of being replaced by computers or machines. Occupations such as tailors, construction workers, bookkeepers, and clerks fall into the high risk category, as well as a number of other occupations that are characterized as repetitive or technical. Professions requiring creativity, social intelligence, and proficiency in negotiation are characteristic of low-risk occupations. As Madhala-Brik notes, these trends are not unique to Israel; countries such as the United States and Germany have 47% and 49% of work hours in high-risk occupations, respectively.

Jan Newsletter 1

Computerization is expected to particularly affect jobs held by some of Israel’s more vulnerable populations groups – specifically non-Jewish men, teens and young adults, and low-income workers. In general, a negative correlation was found between an occupation’s average wage and its likelihood of being computerized – that is, those who earn low wages tend to be at higher risk. As a result, non-Jewish men stand out as a high risk group – 57% of Muslim, Christian and Druze men are in professions at high risk of computerization. Over half of the hours worked by non-Jewish men are in manufacturing, construction, and skilled work of a similar nature. In contrast, only 35% of Jewish men work in high risk professions, while 39% of both Jewish and non-Jewish women in Israel are in such professions. Israel’s youth and the unemployed may also face challenges in this regard; a total of 60% of work hours among those aged 15-24 are in high-risk occupations. Similarly, the percent of unemployed individuals is relatively high in professions with a high likelihood of computerization, especially among unskilled workers and those in industrial and construction work, meaning that these individuals will have a difficult time finding their way back into the workforce.

In general, the education level within a profession is negatively correlated with the level of computerization risk of that occupation. Occupations that have a lower share of academic degree holders among those employed in them are more likely to be automated. As the second figure shows, this trend is consistent through most of the distribution, with two major anomalies. There is a sharp rise in degree holders among occupations at the highest risk level. This jump occurs because of jobs such as insurance agents, secretaries, accountants, and bank tellers – many of which are manned by academic degree holders, but that nonetheless are at high risk of computerization. The second anomaly is found at the opposite end of the spectrum – there is a drop in degree holders among the occupations with the lowest risk of computerization. This includes hairdressers, athletes, cosmeticians, and police officers, most of who have relatively few years of schooling. Madhala-Brik finds that while higher education certainly plays a substantial role in determining one’s risk level, it does not necessarily protect a worker from computerization, and workers with lower education are not necessarily at high risk.

Jan Newsletter 2

The replacement of people through computerization comes with an occupational upside – new opportunities in the market. Vocational training is a policy tool that can be used to address the anticipated changes in the labor market and prepare the population for new and low risk opportunities. Such programs already exist, both in the form of courses offered by the Ministry of the Economy’s Manpower Training and Development Bureau and in the form of a voucher system to subsidize participation in vocational programs. However, there is a great need to expand these services; of the half-million jobless Israelis who visit employment bureaus each year, only about 1% are referred to vocational training frameworks. There is also a need to adjust the jobs for which these programs provide training; Employment Service survey data indicate that the most common jobs the voucher programs prepare individuals for are those at high risk of computerization, such as bookkeeping and payroll controlling. Expanding vocational training programs, and adjusting them to the reality of Israel’s future labor market needs, will ensure that the population, particularly the vulnerable citizens, will have employment prospects that are secure for the long-term.

Kids these days: the socioeconomic situation of young adults in Israel

Each generation embodies its own attributes, values, standards, and work ethic. Generation Y, known as the millennials generation, is composed of individuals born in the 1980s and early 1990s.  Millennials indeed have a uniquely perceived image throughout the world, and many leaders of recent social protest movements have emerged from among this generation. The protests on socioeconomic issues in Israel, which began in the summer of 2011, were largely initiated by these young adults. The discontent ranged from issues about the price of housing to the price of cottage cheese.

Both external and internal factors influenced the situation of young adults. The external factors include those economic conditions that prompted the social protests, such as the challenges that many young adults face due to the rise in housing prices. The internal factors relate to the modern characteristics of young adults; Generation Y is often accused of being more spoiled than previous generations, with an attitude of self-absorption, lack of industriousness, and a spirit of pampering that affects their moral and professional code. A new study by Taub Center researcher Hadas Fuchs examines the social and economic conditions of young adults in the realms of higher education, employment, and housing, ultimately seeking to determine whether these perceptions are supported by the data.

One of Fuchs’ major findings is that Generation Y is more educated than the preceding generation. Over the last two decades, the share of students among the 18-34 year-old population has increased from 9% in 1995 to 15% in 2011.  The majority of this increase comes from students enrolled in academic colleges rather than universities. In 2014, 96,000 students were enrolled in colleges and 65,000 students were enrolled in universities.  In both the Arab Israeli population and the Jewish population there are more women than men with academic degrees. Young adults, particularly men, are both beginning their higher education and entering the labor force at a later age than in the past. These findings can likely be attributed to cultural or internal factors, such as the rise in popularity of traveling abroad after army service.

Even more than in the past, a high share of Jewish students, 65%, work while pursuing their degree, predominantly in part-time jobs. Between 1995 and 2011, employment rates among Jewish students rose as students progressed in their studies. Students are, however, mainly employed in clerical, sales, and service jobs with only a small share employed in occupations requiring post-secondary education.  As such, students often do not gain relevant work experience during the course of their studies.

Following their studies, educated individuals aged 31 to 34 have similar rates of employment and work in similar occupations as educated individuals ages 35-54. Nonetheless, as the first figure shows, there has been a decline in the real hourly wage for this group between 2004 and 2011. There are a number of potential explanations for this decline in wage. The delay of young adults in beginning their studies could lead them to have lower seniority – i.e., fewer years of experience – by the time they are in their early thirties. Additionally, the substantially higher rate of students pursuing an academic degree leads to a rise in supply of educated young adults.  It may be that there is no parallel rise in demand for those with academic degrees, which could also account for the decline in real wages, as Taub Center research shows.

figure 1

Following their mandatory military service, many young adults continue to live in their parents’ homes. As the second figure shows, since 2005, there has been a substantial increase in both single and married individuals aged 22 to 28 living with their parents. In addition, the delay in marriage age results in an additional increase in the overall share of those living with their parents. The trend may also be related to a change in housing prices, since the rise in young adults living at home corresponds to the sharp rise in housing prices in 2005, as well as to the delayed entry of many young adults into the labor market.

figure 2

The study finds that young married couples are also facing increasing obstacles to home ownership. Between 2003 and 2014, the share of married couples aged 25 to 30 living in a home that they own declined by 19 percentage points and stood at only 44%.This decrease aligns with the delay in initiating studies, and began prior to the sharp rise in housing prices. In the same years, young couples in the 31 to 34-year-old age group who live in a home that they owned declined by 12 percentage points and stood at 60% in 2011. For this group, most of the decline occurred after the rise in housing prices began.

In examining the situation of Israel’s young adults in the areas of higher education, employment and housing relative to the past, it is evident that since the 1990s there have been changes both in social norms and in the labor market. An overall delay was found in the initiation of independent adult living, which is reflected in the more advanced age for starting academic studies and entry into the labor market, in the later age for marriage and childbearing and in lower rates of homeownership among young adults. Despite these lags, by their early thirties most young adults conclude their studies (even those who have pursued higher education), successfully find employment, and leave their parents’ homes. Nonetheless, the research indicates that both social norms and external economic factors are associated with increased difficulty for young people in transitioning into adulthood.

Occupations at Risk: Computerization Trends in the Israeli Labor Market

In the past few years, there has been a rapid process of technological developments that is changing the face of the world of work. These changes raise several questions: what will the labor market look like in the future? Which occupations will disappear and which remain essential? What are the skills and aptitudes that will be required to succeed in the new labor market? This chapter maps out the risks faced by occupations in Israel from a process in which computerization will replace manpower; it is based on a similar mapping of the US labor market. Results indicate that workers who supply about 40 percent of the work hours in the Israeli market place are likely to be replaced by computers or machines in the coming two decades. Since the mid-1990s, there has been a decline in the relative share of work hours in such “high risk” occupations. A look at those occupations at high risk shows that they are characterized by requiring low levels of education and low wages and many of them employ non-Jewish men or young workers. These findings emphasize the need to prepare in advance for the expected changes in order to prevent a situation where willing labor market participants are forced out due to a lack of the required skills or aptitude. This preparation may require several steps, including widening the use of vocational training and targeting it to match the relevant characteristics of the workers in high-risk occupations while monitoring the needs of the future labor market.

This paper appears as a chapter in the Center’s annual publication, State of the Nation Report 2015, Dov Chernichovsky and Avi Weiss (editors).

The Socioeconomic Situation of Young Adults in Israel

This chapter examines the developments in the socioeconomic characteristics of young adults ages 18-34 in Israel since 1995, with breakdowns by age groups and personal attributes. In the areas of higher education and employment, the share of students and academic degree holders has grown considerably since the 1990s, commensurate with the opening of many colleges. The age at which individuals begin their academic studies has been delayed, and the majority of students are concentrated in the 23-26 age group. The employment rates of the youngest age group have declined, while there has been a sharp increase in the rate of those employed in part-time jobs among individuals of this age group. In contrast, the rate of Jewish student employment has risen, with students mainly employed in clerical, sales and service jobs. There has also been an increase in the relatively low-paid service jobs among individuals in the 31-34-year-old age group who do not have an academic education. Among those with an academic education of the same age, there has been a decline in wages relative to older academics, even though younger academics are employed in the same professions and working the same number of hours. In the area of housing, a rise was found in the share of young adults living with their parents, particularly since the beginning of the housing crisis. Home ownership rates among young adults have dropped, due in part to older ages at marriage. For those ages 25-30, the decline has likely occurred because of changing social preferences, while among ages 31-34, the rising cost of housing was no doubt also a factor.

This paper appears as a chapter in the Center’s annual publication, State of the Nation Report 2015, Dov Chernichovsky and Avi Weiss (editors).

The Increase in the Number of Income Earners and Its Impact on Household Income

The Israeli economy is growing but real wages have not risen since the early 2000s. Reductions in the income tax burden during that time helped some households improve their situation, but many earners remain beneath the tax threshold and so their households are not affected by changes in tax rates. In parallel with the stagnation of wages, the average number of earners per household has risen, so that the overall income of the average household has grown in real terms, even though the additional earners earn much less than the main earners. Working-age young adults living in their parents’ households constitute the largest part of the increase in the number of marginal earners; this may also be a result of the cost of housing, which prevents those young adults from establishing their own households. The increase in the number of earners, whether it is the reason for the wage stagnation or a result of it, cannot continue indefinitely; therefore in-depth analyses into the reasons for the stagnation of real wages must be undertaken to better understand the consequences for households which rely on the labor market for their livelihood.

This paper appears as a chapter in the Center’s annual publication, State of the Nation Report 2015, Dov Chernichovsky and Avi Weiss (editors).

The Dual Labor Market: Trends in Productivity, Wages and Human Capital in the Economy

The Israeli economy is characterized by a severe duality. At one end are the advanced high-tech industries, with high and quickly rising labor productivity. At the other end are industries characterized by low-productivity and minimal growth. This chapter examines the characteristics of this polarization in the labor market, which began in the second half of the previous century. The chapter examines why the success of the high-tech sector has not led to an improvement and streamlining in the rest of the economy, and shows that, over the years, the two sectors have further diverged in terms of worker traits, college wage premiums and labor productivity. At the same time as employment mobility between sectors declined, the relationship between the wages in the high-productivity and low-productivity sectors also diminished. The chapter raises the possibility that by diversifying the Israeli export market, it may be possible to apply pressure on wages in industries with low-productivity and to encourage them to streamline their processes, ultimately leading to a narrowing of gaps within the Israeli labor market. The authors also recommend encouraging research and development in low-technology industries and creating avenues for vocational training that will enable better employment mobility between the various sectors.

This paper appears as a chapter in the Center’s annual publication, State of the Nation Report 2015, Dov Chernichovsky and Avi Weiss (editors).

Causes of the Widening Productivity Gaps Between Israel and the OECD: A Multiyear Industry-Level Comparison

This chapter presents a novel detailed multiyear industry-level comparison of labor productivity growth in Israel and in 12 OECD countries (henceforth OECD12), and reveals the causes for the widening of productivity gaps from 1995 to 2009. The comparison shows that five large industries are responsible for 81 percent of the total widening of the productivity gap. These industries provide products and services mainly to the local market and are mostly dependent on the local business environment. A comparison of industry-level productivity growth rates in Israel and in the OECD12 over time reveals that the most significant factor affecting the ability of the different industries to reduce productivity gaps with the OECD12 is the degree of the industry’s exposure to competitive imports. Differences in the average number of work hours per worker can explain at most half of the gap in productivity per work hour, and cannot explain the widening of this gap over the last two decades. Nor can differences in industry composition explain the widening of the gap; in fact, they narrow it, mainly due to the fact that the relative share of the high-tech and finance sectors in Israel is larger than the average in the OECD12. The study findings point to the non-tradable service industries as the main contributors to the widening of the productivity gap relative to the OECD. This is perhaps indicative of defects and obstacles to competition in the local business environment such as excessive centralization and structural and regulatory barriers.

This paper appears as a chapter in the Center’s annual publication, State of the Nation Report 2015, Dov Chernichovsky and Avi Weiss (editors).

Contract Workers in Israel

The public discourse in Israel has dealt extensively with the phenomenon of contract workers: workers employed via a third party, whose rights and terms of employment are usually inferior to those of direct employees. This chapter will focus both on the extent of this phenomenon and on the essential difference between two groups of contract workers: agency contract workers and service contract workers. Agency contract workers are young relative to the Israeli workforce, and the extent of this form of employment is in decline. In contrast, service contract workers are older and have lower socio-demographic profiles, and the extent of such employment is on the rise. The failure to distinguish between these two groups leads to the common misconception that the extent of this phenomenon in Israel is extraordinary in international comparison; this chapter will demonstrate the differences between the two groups. In its final section, this chapter will address solutions to the problems involved in contract employment. The gap between the rights of permanent workers and those of temporary workers must be reduced as such gaps are the primary impetus for temporary or indirect employment. However, measures that would harm employers’ ability to hire and fire workers according to the prevailing economic circumstances must be avoided, as this could serve to increase unemployment, particularly among contract workers.

This paper appears as a chapter in the Center’s annual publication, State of the Nation Report 2015, Dov Chernichovsky and Avi Weiss (editors).

Arab Israeli Pharmacists in the Israeli Labor Market

For many years, the Arab Israeli population has struggled to find a place in the Israeli labor market. This is reflected in relatively low employment rates, few working women and limited representation in those occupations considered prestigious. For this reason, the relatively rapid entrance of Arab Israelis over the past decade into the labor force in the field of pharmacy stands out. A new Taub Center research study conducted by Prof. Noah Lewin-Epstein, Prof. Alexandra Kalev, Erez Marantz, and Shimrit Slonim examined how Arab Israeli pharmacists integrate into the private retail marketplace, as a test case for the integration of Arab Israelis (and in particular those with an academic education) into the Israeli labor market.

According to the researchers, the integration of this group in general is positive, both from the perspective of the satisfaction of the Arab Israeli pharmacists themselves and as an indicator for the potential integration of Arab Israelis into the labor force – an outcome that would likely strengthen the Israeli economy. Nevertheless, the Taub Center study points to a number of difficulties and obstacles that characterize the entrance of Arab Israeli pharmacists into the marketplace. The researchers also provide policy recommendations that may improve the situation.

According to Ministry of Health data, the number of registered pharmacists of employment age has grown by 50% in the past 12 years. Along with the overall expansion in the profession, the number of Arab Israelis in this field has also grown, and Arab Israelis now represent about one-third of all pharmacists (see the figure). To a great extent, this growth stems from the entrance of Arab Israeli women into the profession. For a number of years, the majority of Jewish pharmacists have been women – about 58% in 2012 – while among Arab Israelis, the field was dominated by men. Over the past decade, the share of Arab Israeli women in the field has risen, and the figure is nearing that of Arab Israeli men.

English figure

A key factor for the demographic change within the pharmacy field is linked to changes in opportunities for higher education among the Arab Israeli population. Since the signing of the peace accords between Israel and Jordan in 1994, the doors to higher education in Jordan have opened for Arab citizens of Israel. Arab Israelis now have the opportunity to study pharmacy in Jordan and then to return and integrate into the profession in Israel. In fact, in 2005, more than one-third of all pharmacy licenses (for both Arab Israelis and Jews) were issued to graduates of institutions in Jordan.

The researchers conducted in-depth interviews with pharmacists, managers and owners of pharmacies, with the goal of examining the characteristics of the various career stages within the pharmacy field and identifying the obstacles to integration of Arab Israeli pharmacists into the profession.

The findings show that the experiences of Jews and Arab Israeli pharmacists differ from the outset; the process of finding an internship position differs greatly between the two groups. For most Jews, internships are often found prior to completion of studies; while for their Arab Israeli counterparts, this can be a very difficult process. This stage is particularly challenging for those studying in Jordan, who find that employers prefer those who have studied and graduated from institutions in Israel. Graduates of Jordanian institutions are unable to work as pharmacy assistants during their studies, unlike those studying in Israel, who are often able to transition from a pharmacy assistant position into an internship at their workplace. In addition, many pharmacy employers feel that the Jordanian coursework is of poorer quality than that in Israel. Such challenges in finding an internship position mean that many Arab Israeli pharmacists have to compromise at this stage, often even starting to work without pay (which is against the law), or starting as a pharmacy assistant – a position that is generally reserved for students.

The job search phase for Arab Israelis is also prolonged relative to that of Jewish pharmacists, although it is generally shorter than the internship search process. The Taub Center interviews found that the main reason for the shorter job search relative to the internship process is that Arab Israeli pharmacists tend to keep working where they do their internships (33% of all interviewees). In contrast, following their internship and qualification exam, Jewish pharmacists tend to change their place of employment to somewhere more suitable for them (only 8% of the Jewish interviewees stayed on to work where they had interned).

The Taub Center study notes that even though a large share of the pharmacists in the country is Arab Israeli, this group’s representation among management is lacking. This finding can be explained, at least in part, by the fact that Arab Israeli pharmacists tend to be younger than their Jewish counterparts and have not yet accumulated the seniority necessary for advancement to senior positions.  Nevertheless, according to the Arab Israelis who were interviewed, the most senior management positions, decision making and pharmacy chain management had no Arab Israeli representation. A feeling of discrimination regarding the large pharmaceutical companies was also evident in the interviews. The Arab Israeli interviewees noted that the large pharmaceutical companies have army service as a prerequisite for employment, effectively closing the doors to this population.

When questioned about the personal level – daily interactions and social relations in the workplace – interviewees generally responded positively. Overall, the interviewees raised certain challenges, like dealing with women wearing the hijab or speaking in Arabic among colleagues at work. The overall picture is encouraging, however, because it indicates cooperation on professional grounds. Furthermore, direct contact in the workplace between Arab Israeli and Jewish pharmacists also allows them to get to know each other.

Nevertheless, ethnic tensions between Arab Israeli pharmacists and Jewish clients appear to be prevalent. The interviews revealed that there are occasions when a client is dissatisfied and expresses his anger with ethnic slurs. According to the study, however, the most important aspect of these incidents is the way they are handled by the system – sometimes employers support the pharmacists while on other occasions, the customer service policy leads to tolerance for racist remarks.

Religious holidays are another problem that has not been adequately managed by the system. In most cases, pharmacists indicate that their employers and colleagues are considerate in this regard, but it seems that there are no official organizational policies on the matter.  Those who are unable to find a substitute for their shift are often forced to work even on their religious holy days.

The Taub Center study proposes several steps to improve the integration of Arab Israeli pharmacists. Some employers are reluctant to grant internships to graduates of Jordanian institutions because they are concerned that the level of studies is inferior or because graduates are unfamiliar with the local market and products. To remove this employment barrier, the state should run a course for graduates of Jordanian institutions to familiarize them with the local market and pharmaceuticals in Israel while simultaneously bridging between potential employers and Arab Israeli pharmacists. The study also suggested that the state subsidize intern salaries, primarily for those graduating with honors from Jordanian institutions. According to the researchers, these actions are worthwhile not just for Jordanian graduates, but also for Israel, which is not opening additional pharmacy programs due to its reliance on graduates of foreign institutions.

In addition, the researchers recommended closer regulation of the religious rights of workers. In particular, policies should be developed that are sensitive to the uniqueness of the month of Ramadan and that require the employer to take steps to ensure a number of days off, shifts that are easier for employees who fast, and a longer break to eat the evening meal (with pay), for those who work evening shifts during this month.

In order to protect pharmacists from abusive customers, the researchers suggested enacting a law against bullying in the workplace, requiring the employer “to deal effectively with cases of harassment or bullying, and to do everything possible to prevent and to rectify the harm caused by harassment.” Proposing this bill as well as raising consciousness among pharmacists and their employers will help create a safe working environment for Arab Israeli pharmacists.

Education and Employment Among Ethiopian Israelis

A few months ago, widespread protests among the Ethiopian-Israeli community arose, resulting from feelings of discrimination and oppression within the community. Following the protests, Taub Center researchers Hadas Fuchs and Gilad Brand examined the education and employment characteristics of this population. In order to identify trends with regard to integration, the research distinguished between Ethiopian Israelis born in Israel (or who immigrated at or before the age of 12) and those who arrived at an older age. The findings showed that young Ethiopian Israelis raised in the country are catching up to the general Jewish population, although gaps between the two groups are still evident. In general, the Ethiopian Israeli population is characterized by levels of education that are lower than those of the rest of the Jewish population. In 2012, the share of those qualifying for bagrut (matriculation certification) reached 54% among those Ethiopian Israelis who took the tests, compared to 73% among all those tested in the Jewish education system. Among those who qualified for bagrut, the share with a score high enough for acceptance to university was 56% among Ethiopian Israelis compared to 84% among the general Jewish population. The education gaps are also evident when looking at the share of academic degree holders in the population. The first figure shows that among Ethiopian Israelis who were born in Israel or who immigrated to Israel at a young age, the share of those with higher education is approximately 20%. This rate represents a substantial improvement from those Ethiopian Israelis who immigrated after age 12 (about 6%) and a higher rate than that found in the Arab Israeli sector. Nevertheless, it is still low compared to the rest of the Jewish population, where the rate is about 40%.

English figure 1

According to Fuchs and Brand’s research, educational gaps between Ethiopian and non-Ethiopian Jews manifest themselves in the labor market. 62% of Ethiopian Israelis who immigrated over the age of 12 are in occupations characterized by low skill levels, compared to 44% among the rest of the Jewish population. Only about 5% of those who immigrated to Israel at a later age are employed in occupations that require a high skill level, compared to 33% among the rest of the Jewish population (including managers). As the second figure shows, a relatively high share of Ethiopian Israelis who immigrated to Israel at a later age – about half of employed women and 17% of employed men –work as cleaning or kitchen workers. In contrast, the rate among Ethiopian Israelis educated in Israel is similar to the rate among the rest of the population (3.9%). Furthermore, the likelihood of being employed in cleaning and kitchen services is highly dependent on the number of years lived in Israel and an individual’s age of emigration from Ethiopia. As the number of years in Israel decreases and the age of immigration to Israel increases (up to age 20, after which the effect is no longer significant), the probability of working in cleaning and kitchen services is greater.

English figure 2

Examining the cohort of 30-35-year-olds shows that Ethiopian Israelis educated in Israel are better off relative to those who immigrated at a later age, even though they still lag behind the rest of the Jewish population. About 21% of Ethiopian Israelis who were educated in the country are in high-skilled occupations compared to 40% of the non-Ethiopian Jewish population. About 60% of Ethiopian Israelis educated in Israel are in low or unskilled occupations, compared to 41% among the rest of the Jewish population. One of the claims regarding the employment challenges of this population is that there exists discrimination in the labor market. It is likely, however, that the lower education level and the lack of needed skills make it difficult for Ethiopian Israelis to effectively integrate into the modern labor market. In order to further understand the effect of education, the occupational distribution of the population among those with an academic degree was examined. As shown in the third figure, among those with an academic degree, there is no substantial difference between Ethiopian Israelis and the rest of the Jewish population except for a low share of managers among Ethiopian Israelis. In other words, Ethiopian Israelis with academic degrees generally integrate effectively into those occupations requiring a higher education. Nevertheless, examining the wages of Ethiopian Israelis with an academic degree shows that although they integrate into high-level occupations, their incomes are low relative to others in the same employment category. These gaps are apparently due to the concentration of Ethiopian Israelis with higher education into occupations that pay relatively less. Specifically, many Ethiopian Israeli degree holders in high-skilled occupations work in the welfare services and teaching fields, which are relatively low-paying professions. This finding suggests that this population might have less access to academic majors that are considered more prestigious and that lead to higher wages.

English figure 3

The overall picture from the Taub Center research is positive: Ethiopian Israelis raised in Israel are substantially narrowing the wide gaps in education and employment that exist between those immigrated from Ethiopia at a later age and the general Jewish population. Nevertheless, attention should be paid to the differences between Ethiopian Israelis raised in Israel and Israelis of other origins, especially among those with higher education. As Fuchs and Brand have found, an academic degree, in and of itself, is not sufficient to narrow gaps. This finding supports the importance of modern, high-quality education (with an emphasis on access to various fields of study and prestigious employment opportunities) in ensuring proper integration into and advancement within the labor market.

Integration of Arab Israeli Pharmacists into the Labor Market

This policy paper attempts to examine the mechanisms that both facilitate and hinder the employment of educated Arab Israelis by Jewish employers. The study focuses specifically on pharmacists. The past decade has seen a growth in the number of Arab Israelis entering this profession – a large share of whom are employed in businesses that are owned or managed by Jews. On the basis of in-depth interviews with Jewish and Arab Israeli pharmacists and with the managers of pharmacies, the paper compares their work experiences along their career paths, as well as their perceptions of differences between the groups. The study points to the complexities of the professional integration process for Arab Israelis. On the one hand, the opening of higher education opportunities in Jordan –  which helps Arab Israelis overcome rigorous entrance requirements to study pharmacy in Israel – allows Arab Israelis to gain a professional education. There has also been a rise in the willingness of Jewish employers to hire them. On the other hand, studying in Jordan is less respected among Jewish employers than studying in Israel, and this makes it harder for Arab Israelis to find internships and employment. In addition, many employers are hesitant to hire them due to their lack of experience in the local market. In light of this, seeking internships and employment takes longer for Arab Israeli pharmacists than for their Jewish counterparts, and many find that they have to compromise on their place of employment and salary. These difficulties are intensified due to the lack of professional contacts, although Arab Israeli pharmacists who have studied in Israel also experience difficulties in finding internships and employment. In addition, those interviewed report instances of discrimination. For instance, candidates who wear a hijab reported prejudice on the part of Jewish customers, and difficulties stemming from a lack of an organizational policy that recognizes their culture and religion. The study also found that working together contributes to a positive change of attitudes by Jews towards Arab Israelis. In light of the findings, the paper recommends policy steps that can contribute to the integration of Arab Israelis into the pharmacist job market, such as specialized training and consideration for Muslim holidays.

Education and Employment Trends Among Ethiopian Israelis

The education level of those who came to Israel at an older age is low. Though their employment rate is high, many work in low paying and relatively low-status occupations.

The status of Ethiopian Israelis who grew up and were educated in Israel is better and their education is improving. Nevertheless, labor market integration is slower than among their peers who are not of Ethiopian origins.

The Importance of the Level of High School Math Studies to the Academic Studies and Future Careers of Israeli Students

The study found that employment was higher among those who took a bagrut [matriculation] exam of at least 3 units of math than among those who were tested at a lower level or did not take the bagrut exams at all, although there were no employment gaps between those who studied 3, 4 or 5 units of math. In contrast, there were substantial income gaps between each level of math study. Most of the difference was indirect: learning higher level math leads to choosing more rigorous academic studies, which, in turn, leads to employment at a higher wage level. In addition, studying 5 units of math is also positively and directly related to income (that is, through statistical analysis controlling for certain variables), particularly among women. A theoretical scenario analysis showed that moving a student from 4 to 5 units of math study is expected to increase wages by 10% – 6% of which is the direct effect and 4% is due to increased income from the fields of study typical for someone who learned 5 units of math (primarily computer sciences). Level of math study affects the choice of field of academic study more for women than for men, and women’s wages are also more impacted by their level of study. In order to encourage higher level math studies, there must be an improvement in the teaching level as well as a higher awareness of the importance of math studies among pupils and their families. Consideration should even be given to incentivizing the schools to teach  higher level math to more pupils.

 

Postponing retirement? Employment trends among Israel’s older adults

The Israeli population is younger than that of other developed countries, although a substantial increase in the share of older Israelis is expected in the coming years. In 2030, it is expected that Israel will have 233 people over 65 years of age per 1000 people in the working age population, a growth of over 45 percent in the relative share of the elderly population versus 2010. Growing life expectancy has led to mounting pressure on social security, health and pension systems in Israel. In response, it is important that older Israelis are able to continue participating in the labor market as long as they are physically and mentally capable of doing so.

In a study exploring changing employment patterns among Israel’s older adults between 2001 and 2011, Taub Center Deputy Director Prof. Ayal Kimhi and Taub Center researcher Kyrill Shraberman find that within the prime working age population of 35-54, the employment rate of Israeli men is substantially below that of the OECD, although this gap has narrowed since the first half of the previous decade. The employment rate among females of the same age in Israel was lower than that of the OECD until the mid-2000s, but has increased more rapidly since and is now higher than the OECD rate.

Rates of employment among those aged 55-74 have been steadily increasing in recent years in both Israel and the OECD, generally with more rapid increases seen in Israel. As shown in the first figure, employment rates for Israeli men and women aged 55-64 increased and were similar to those of the OECD during the first half of the 2000s. However, in the mid-2000s the rates for Israel began to break away from those of the OECD, growing more quickly and leading to a gap of over 6 percentage points in Israel’s favor.

Employment rates among both Jewish immigrant men (those who immigrated to Israel since 1990) and Jewish non-immigrant men in this age group were similar in 2011, at around 75 percent. Jewish immigrant men made particularly impressive strides in employment, having begun the decade with employment rates that were 15 percentage points below those of Jewish non-immigrant men. Arab Israeli men also had notable increases in employment rates beginning in 2007, although they still trailed Jewish non-immigrant and immigrant men by about 25 percentage points in 2011.

The employment rate trends among women aged 55-64 were similar to that of men, although at lower rates: about 60 percent employment for both Jewish immigrants and non-immigrants in 2011. While employment rates of Arab Israeli women doubled in the decade leading to 2011, they remain very low at around 12 percent in 2011. Employment trends Fig 1

As shown in the second figure, employment trends among men in the 65-74 year old group in Israel and the OECD are similar to those of men in the 55-64 age group. That is, Israeli employment rates are similar to those of OECD countries until 2004, then increase more rapidly – leading to a more than 5 percentage point gap in Israel’s favor in 2011. Nonetheless, there is a large difference in the employment rate itself between these two age groups. Among the 65-74 male population, the rate is over 40 percentage points lower than that of the younger group, although it is growing more rapidly. For women in the 65-74 age group, Israel has lagged behind the OECD average during the entire 2001-2011 period, although the gap has shrunk to just one percentage point in 2011 as a result of faster employment growth among Israeli women.

Employment rates among all three groups of Israeli men ages 65-74 grew in the previous decade. However, Jewish non-immigrant men widened the gap between their employment rates and those of Arab Israeli men – particularly during the first half of the decade, and maintained about a ten percentage point gap in their favor relative to immigrant men throughout this period. A similar pattern emerges among women in this age group. Employment rates of Jewish non-immigrant women rose from under 8 percent in 2001 to 14 percent in 2011, leaving them several percentage points higher than those of immigrant woman and much ahead of those of Arab Israeli women, fewer than 2 percent of whom were employed.

Employment trends Fig 2

Finally, Kimhi and Shraberman explore employment trends among those ages 75 and older. In contrast to the trends seen among men between 55-74 years of age and women between 55-64 years of age, employment rates in the OECD were consistently higher than Israeli rates throughout the decade. While employment rates for Jewish non-immigrant men ranged from 6 to 8 percent during the decade, those for Arab Israeli and Jewish immigrant men ranged from about 1 to 4 percent, with a slight upward trend in the rates for new immigrants in the latter half of the decade. With less than 2 percent of all Israeli women employed in this age group in 2011, there were minimal differences in the employment rates of non-immigrant Jews, immigrant Jews and Arab Israeli women over the past decade.

Increasing employment rates among older adults is leading to greater labor income for this population group – and in turn, reducing poverty rates in terms of market income (income before government transfers and taxes). As Ben-David and Bleikh show in the State of the Nation Report, 2013, market income poverty rates among the elderly declined relatively steadily over the past decade, although they still remain high at 51 percent in 2011.

Today, a number of factors are promoting continued labor market participation among older adults, including better health and jobs that are less physically demanding due to the change in occupational mix. In parallel, rising life expectancy, low capital market returns and uncertainty regarding the level of support from social security systems is leading older people to opt for continued employment. Kimhi and Shraberman suggest that Israeli policymakers can support these employment trends by promoting flexible work conditions and the use of tax credits to enable continued employment past the official retirement age.

Labor Income Inequality Trends in Israel

This period witnessed a growing return, or yield, on education, a factor which could lead to a rise in labor income inequality. Israeli labor income gaps actually declined somewhat, though, due to the fact that low-wage earners improved their status relative to higher-wage earners. One possible factor in the narrowing of labor income disparities was the rise in the minimum wage. Workers in income Deciles 7 and 8 experienced a wage decline, relative to lower- and higher-wage workers, and this led to a more polarized labor income distribution. This polarization trend is also evident in the distribution of work-hours by occupation; occupations associated with both low and high wages witnessed an increase in work-hours relative to work-hours in occupations characterized by mid-range wages. A breakdown by occupation shows that the education wage premium for low-income occupations increased, while for high-wage occupations there was a decline in the return on education.

This fact may also explain the relative wage increase experienced by low-wage earners. These trends indicate that higher education is now becoming economically advantageous to those in low-wage occupations.

This paper appears as a chapter in the Center’s annual publication, State of the Nation Report 2014, Dan Ben-David (editor).

The Shadow Economy in Israel

It is estimated that halving the size of the shadow economy would increase state revenues by 3-4 percent of GDP, about NIS 30-40 billion. With this additional income, the government would be able to increase public spending, reduce the tax burden and lower the national debt. The primary factors encouraging the shadow economy include a high marginal tax rate, cumbersome bureaucracy, insufficient enforcement, and flawed reporting norms. In order to reduce the size of the phenomenon, it is necessary to focus on three main areas: (1) improving the enforcement process: it is recommended that goals be set for the Israel Tax Authority both in terms of enforcement and in terms of improved service and more streamlined reporting, and that norms of transparency be applied with regard to meeting these goals; (2) changing the collection method: to make it more difficult for citizens to evade taxes, it is recommended that tax filing be made mandatory, that the system move to taxation on the basis of households (rather than individuals) and that it recognize expenses, and that information technology is leveraged to facilitate automated reporting and regulation; and (3) reducing the tax burden: it is recommended that tax rates be lowered for small businesses that use electronic means of reporting income in order to reduce incentives to conceal income.

This paper appears as a chapter in the Center’s annual publication, State of the Nation Report 2014, Dan Ben-David (editor).

Labor Market Reform in Israel and the Flexicurity Option

Flexicurity countries have higher levels and faster growth in labor productivity and the gap between these countries and Israel has been increasing for decades. These countries are also characterized by higher rates of employment and lower rates of poverty and income inequality than Israel – which raises a number of questions, chief among them: is the better socioeconomic performance in flexicurity countries due to flexicurity policies and could this approach be a viable option for Israel? This chapter explores these questions through an examination of the various attributes of flexicurity policies and a comparison of socioeconomic outcomes in flexicurity countries, other country groupings and Israel, and concludes with some relevant policy recommendations.

This paper appears as a chapter in the Center’s annual publication, State of the Nation Report 2014, Dan Ben-David (editor).

Government Versus Private Pensions

The comparison includes several measures: efficiency and enforcement of collection, the ability to enhance competition in the capital market in Israel, and the principles of government insurance versus private insurance and its significance for Israel.  The conclusion drawn from the analysis is that the government pension system has advantages over the private system, both in terms of the management costs and in terms of returns to savers.

(In Hebrew only)

Family Structure and Well-Being Across Israel’s Diverse Population

Some of the Brief’s highlights include:

  • Israel has the highest birth rates in the developed world (3.0 children per woman vs. the OECD average of 1.7) with a variety of government policies encouraging fertility.
  • The country provides a relatively supportive environment for working mothers that yield relatively high employment rates among Israeli women ages 25–44 with children.
  • One of the biggest challenges facing Israeli families is poverty, as one in five Israeli households and one in three Israeli children live below the poverty line. The problem is particularly pronounced for Arab-Israelis and Haredim – with differences in the challenges experienced by each of these groups.

Low productivity: A systemic problem across Israel’s economy

At the end of the day, one of the main goals of policy makers is to improve living standards (commonly measured by GDP per capita).  Increasing economic growth in the steady state is a result of steadily improving productivity.  One important measure of productivity is the average amount of GDP produced per hour worked, or what is generally referred to as labor productivity, which is also an important determinant of wages.  Taub Center Executive Director Prof. Dan Ben-David explored the issue of labor productivity in a study published in the most recent State of the Nation Report 2013.

The study finds that not only is labor productivity in Israel among the lowest in the developed world, but that a substantial labor productivity gap between the G7 countries and Israel has been progressively growing for over four decades.  Furthermore, while average hours worked per person have decreased steadily among the G7 countries over the last thirty years, the corresponding figure for Israel has fluctuated over time but remains at a similar level today as in the early 1980s.

An important contribution of Ben-David’s study is a holistic look at productivity across five business sectors that comprise a large portion of Israel’s economy.  Prior to this work, it was thought that the productivity gap may be due to a bloated government bureaucracy or to individual sectors where Israel performs poorly.  However, as the five panels of the figure indicate, labor productivity in Israel in four of the five business sectors is below all, or nearly all, eleven other developed OECD countries with relevant data since 1995.

In the manufacturing sector, which includes both high tech and more traditional industry, Israel has improved from last place in 1995, to second to last place, ahead of Italy in 2008.  Across countries, productivity is the highest in the financial intermediation, real estate, renting and business activities sector, relative to the four other sectors examined.  In this sector, Israel has moved from second to last place in 1995, to a tie with Denmark for last place in 2008.  In the sector encompassing wholesale and retail trade, repairs, hotels and restaurants, and transport, Israel has the lowest productivity throughout the entire period examined, and is falling further behind other developed countries.  The construction sector, which is dominated in Israel by a large number of unskilled foreign workers, is characterized by particularly low levels of labor productivity.  Throughout the period examined, Israel remained far behind the other eleven countries examined in this sector.  The one sector where Israel performs relatively better is agriculture, long a source of pride and innovation in the country, though Israel’s productivity in this sector has not been exceptional – remaining consistently among the middle of the eleven OECD countries examined.

Israel’s productivity is lower than the OECD average across the board, and the gap is particularly noticeable in the wholesale and retail trade, repairs, hotels and restaurants, and transport sector as well as in the construction sector, which both have productivity almost 40 percent lower than the OECD average.

Productivity Part A

Productivity Part B
Given that lower productivity is a ubiquitous phenomenon across the Israeli economy, there are clearly underlying country-wide factors that lead to such a result.  As shown in the State of the Nation Report 2013, this is due to a range of underlying factors, including lack of sufficient human capital due to poor basic education in general and for ultra-Orthodox and Arab Israeli students in particular.  Low investment in physical capital over the years and a cumbersome government bureaucracy make it more difficult to conduct business efficiently in the country.  Productivity is intimately tied with higher standards of living.  Thus, addressing the barriers to increased productivity is key towards improving the everyday life of Israelis.

Left behind: Declining higher education levels among the Haredim

The education of the Haredi (ultra-Orthodox) and their participation in Israel’s workforce is a subject of hot debate in Israeli society today.  But the discussions on this topic are not always based on accurate facts.  As such, in the State of the Nation Report 2013 Taub Center researcher Eitan Regev explored trends in education and employment among the Haredim using a unique, more precise method of identifying this population.

A number of key findings emerged.  First, as is the case for the non-Haredi population, higher education was very important to success in the labor market for Haredim, both in terms of employment and wages.  Employment rates of Haredi men aged 25-64 with an academic degree stood at 71 percent, double that of their counterparts without an academic degree.  A similar gap, though smaller, was shown for Haredi women.  The wages of Haredi men aged 25-64 in full-time employment were 80 percent higher for those holding an academic degree than f.or those without.

Given the importance of an academic degree to the economic integration of Haredi families, Regev explores the rates of higher education in this population.  In general, higher education rates among Haredim are much lower than that of other population groups.  As shown in the first figure, only 7.5 percent of Haredi men aged 25-44 had an academic degree in 2008, as compared to 11.8 percent of Muslim and Druze men, 23.6 percent of Christian Arab Israeli men, and 31.2 percent of non-Haredi Jewish men.  Large gaps in academic attainment also apply to Haredi women in this age bracket.  Interestingly, in today’s Israel, women aged 25-44 are more likely than men of that age to hold an academic degree within each population subgroup.

There is a striking contrast in trends between Haredim and the other groups with regards to higher education.  Among women in the Muslim and Druze, Christian Arab Israeli and non-Haredi Jewish population groups, there has been an increasing tendency to acquire an academic degree over time.  Among these groups, women aged 25-44 are more likely than their older counterparts aged 45-64 to hold academic degrees.  In sharp contrast, the share of academic degree holders among younger Haredi women (12.8 percent) is a third less than among older Haredi women (17.6 percent).

The situation among Haredi men is even starker.  In contrast to the conventional wisdom, the share of Haredi men with academic degrees is declining, not rising.  Even though more Haredi men are deciding to attain an academic degree, this is more than offset by the many more Haredim deciding not to do so.  As a result, while 15.1 percent of Haredi men aged 45-64 have an academic degree, only half of that, or 7.5 percent of younger Haredi men, have an academic degree.

Haredi education Fig 1

The share of academic degree holders among prime working-age Haredi men remained very low throughout the decade between 2002 and 2010, as indicated in the second figure.  Similarly, throughout the decade, a low rate of bagrut certificate recipients (i.e., high school matriculation) was also evident.  The largest group by far, and the only one showing a significant increase, from 31 to 47 percent of men in this age group, was that of Haredi men with no more than a primary school education. These trends are a result of more Haredi boys entering the yeshiva system after eighth grade, at which point they cease to receive any basic education in core curriculum subjects and focus solely on religious study.

Haredi education Fig 2 new

The phenomenon of declining shares of academic degree holders in the Haredi population was documented for the first time in the Regev study and has major implications for Israel’s economy.  When the younger generation of Haredi men increasingly has shorter lengths of formal studies and is less likely to hold academic degrees than the older generation, then its ability to find jobs in a progressively competitive and global market falls accordingly.  It is no coincidence that while over 80 percent of prime working age Haredi men were employed in the late 1970s, less than 50 percent are employed today – with a multi-decade employment decline mirroring that of completely uneducated non-Haredi men.  With the Haredi population growing more rapidly than the rest of the population, an increasing share of Israelis are not receiving the education and tools to participate in the economy.  This has some major negative ramifications for future national standards of living and poverty rates in Israel.

 

Pensions, Poverty, and the Elderly in Israel

Welfare and social security policies eliminate almost 90% of elderly poverty in the vast majority of countries examined, but have much less of an impact in Israel.  This brief examines this surprising dichotomy: why do Israel’s elderly have the second lowest poverty rates in terms of market income, but the highest poverty rates in terms of disposable income relative to the 21 OECD countries?

Educational Opportunity, Employment, and Income: 1995-2008

 The following questions are addressed:  Did the expansion of the Israeli education system during this period contribute to more equal educational opportunity among socioeconomic groups? And did the returns to education, in terms of income and occupational prestige, increase or decrease? The study is based on aggregate census data for two periods, 1983-1995 and 1995-2008.  The sample included native-born young Israelis, both Jewish and Arab Israeli.  The data show that despite considerable educational expansion, educational inequality among different socioeconomic groups increased significantly.  Moreover, occupational prestige at all education levels except the very lowest decreased on average, especially at the highest levels of education.  The latter change is explained by the fact that the demand for professional, academic, technical, and managerial workers grew only modestly leaving many newer graduates out of the field.  A more encouraging finding is that the average income for young Israelis grew during the period.  Much of this growth was due to the expansion of higher education, which increased the proportion of high-earning, highly educated individuals in the overall population.  Nevertheless, the higher educated earn less today (relative to those without an education) than they did in 1995, that is, the economic returns to education have declined.

This paper appears in the Center’s annual publication State of the Nation Report: Society, Economy and Policy 2013.

Employment and Income Trends Among Older Israelis

This chapter looks at the changes that occurred in the employment patterns and economic status of Israel’s older adults between 2001 and 2011.  The research indicates that the employment rates of people aged 55-64 rose over the course of this decade, particularly among new immigrants.  The employment rates of people aged 65-74 rose as well.  Per capita income for households headed by older adults increased significantly over the decade, due primarily to a rise in income from work, capital, and pensions.  The findings indicate that the rising percentage of older Israelis in the population does not necessarily herald an increase in economic distress within this age group or a heavier burden on the social services.  However, more flexibility is needed regarding terms of retirement, to enable those who wish and are able to continue working past the official retirement age.  Moreover, an improved safety net should be provided for those who are not able to provide for themselves after retirement.

This paper appears in the Center’s annual publication State of the Nation Report – Society, Economy and Policy 2013.

Women in the Labor Force: The Impact of Education on Employment Patterns and Wages

Education plays a major role in explaining women’s labor force participation patterns as well as the changes that have occurred both in women’s economic activity and in the composition of the labor force.  Although there has been a rise in the total female labor force participation rate, the economic activity of less-educated women is declining.  This situation is leading to polarization between highly-skilled women – who enjoy many employment opportunities and suitable working conditions – and women of lower skill levels.  At the same time, a significant rise in higher education rates has not necessarily created new employment opportunities.  Some academic-educated women have managed to enter traditionally male professional and administrative occupations that offer good working conditions, opportunities for advancement, and a high relative wage.  However, the growth rate of higher education appears to be exceeding that of demand for professional occupations, and many highly-educated women are settling for occupations that formerly required lower levels of skill.

This paper appears in the Center’s annual publication State of the Nation Report – Society, Economy and Policy 2013.

Education and Employment in the Haredi Sector

 A new and more precise method of identifying the Haredi population was developed, enabling a deeper analysis as well as a more comprehensive picture of employment and education patterns.  The findings point to a significant positive effect of formal education on the employment rates and wage levels of Haredi men and women.  Paradoxically, however, in recent decades there has been a gradual decline in formal education rates in this sector.  An in-depth examination of the Haredi labor market reveals several irregularities concerning the supply and demand for manpower.  Among Haredi men and women, there is both a considerable over-supply of manpower in the field of education and a lack of the tools and training that are necessary for integration in other fields.  These trends coincided with a sharp rise in the rate of Haredi men studying in yeshivas, and in their average length of study.  All of this indicates a gradual transition from the labor market to the world of Torah study.  Entrenchment of these patterns makes the return to the labor market a significant challenge.

This paper appears in the Center’s annual publication State of the Nation Report – Society, Economy and Policy 2013.

Israelis Working More, Making Less

Hence, average Israeli incomes are lower than would be expected given the country’s innovative ability.

A country’s total economic output (GDP) depends on the number of people who work and the amount that each working person produces.  As shown in the May 2011 Bulletin and updated by Taub Center Executive Director Dan Ben-David in the upcoming State of the Nation Report 2013, when the share of employed individuals in the working age population is relatively high, and the average amount produced during each work hour is relatively high – what is commonly referred to as labor productivity – then individuals can work fewer hours while their standard of living (as commonly measured by GDP per capita) may be higher.

While greater productivity is no guarantee of higher wages, small amounts produced per hour cannot support high hourly wages.  For wages to be high and for wages to rise over time, high and increasing productivity is necessary.

Across the Western world, the past several decades have been witness to declining employment rates among men accompanied by rising employment rates for women.  This has also been the case in Israel.  While female employment among the non-Haredim (i.e., non-ultra-Orthodox) is relatively high and has offset the very low rates of employment among Haredi and Arab Israeli women, the overall situation among Israeli men has been quite problematic.

As indicated in the first figure, employment among prime working age men – 35-54 year-olds – has declined in Israel at a considerably faster pace than in the G7 countries (the United States, Canada, the United Kingdom, Germany, France, Italy, and Japan).  Despite the negative employment bubbles coinciding with the huge immigration wave from the former Soviet Union in the early 1990s, and the very deep recession in Israel of a decade ago during the massive wave of terrorism accompanying the second intifada, the subsequent recoveries have not offset the much sharper long-term employment decline in Israel. (It is possible that a substantial part of the large 2012 employment increase is due to methodological survey improvements implemented that year by the country’s Central Bureau of Statistics and not the result of an actual rise in employment.) Even after the recent decade of recovery in Israel, and despite the G7’s descent into its worst recession since the Great Depression of the 1930s, the employment gap between Israel and the G7 is considerably greater than it was three to four decades ago.  Consequently, employment among prime working age Israelis is much lower than average employment in the leading developed countries.

E Productivity Fig 1

While fewer Israelis work compared to the G7 countries, those Israelis who are employed work many more hours per week, as can be seen in the second figure.  In fact, employed Israelis have been working more hours since the 1970s.  But as work hours in the G7 countries have been steadily declining over the past four decades, the number of hours worked by the average Israeli in 2012 was comparable to the number of hours worked roughly three decades earlier – though it has also been falling since the end of the 1990s.

E Productivity Fig 2

While employed Israelis work many more hours today than their compatriots in the G7 countries, Israeli labor productivity is rising at a much slower pace than average G7 productivity.  The amount produced by the average Israeli and the average G7 worker was nearly the same in the mid-1970s.  As can be seen in the third figure, Israeli labor productivity has been falling further and further behind the G7 for the past four decades (the sharp productivity decline in 2012 appears to be primarily a reflection of the substantial correction in labor force statistics implemented that year by the Central Bureau of Statistics) – and the question is why?

E Productivity Fig 3

After all, productivity growth requires innovation, and as the recent book by Senor and Singer states, Israel is indeed a “Start-Up Nation.1”  So how could a country with some of the world’s leading universities and cutting-edge high tech be falling steadily behind?  The answer is that there are really two Israel’s in one.  In addition to the “start-up nation” Israel, there is another segment of the population that is not receiving the tools or the conditions to work in a modern, competitive, global economy.  Not only is this portion of the population huge, it is growing and acting as a large and growing weight on the rest of the nation.  This weight is pulling the productivity and employment ever further away from the leading developed countries.

In addition, the poor state of Israel’s primary and secondary education system has played a major role in inhibiting the development of the country’s human capital infrastructure.  While the educational achievement of the country’s children in core curriculum subjects is poor overall, it is particularly low among Haredi and Arab Israeli pupils who now comprise almost half of the country’s primary school pupils – with enrollment increases in their schools far exceeding any growth in enrollment in the remaining schools.  An influx of large numbers of relatively uneducated and unskilled foreign workers – at one point reaching one out of every eight workers in the business sector – only exacerbates the issue of low human capital in the labor market (see “Israel’s Labor Market” by Dan Ben-David in the State of the Nation Report 2009). The relatively low skill level of a large portion of the local population mitigates the need for inundating the economy with additional workers from abroad who are similarly poorly educated, yet large numbers of foreign workers continue to receive work permits in the country.

As the fourth figure shows, there is also a severe problem with the country’s physical capital infrastructure.  Worker productivity is critically dependent on the availability of sufficient capital, which in turn requires a sufficient level of investment, or capital formation.  The strong positive relationship between capital formation and labor productivity is reflected in the figure – as is Israel’s very low position with regard to both in comparison with the remaining OECD countries.  So it should come as no surprise that a country with relatively low national levels of physical and human capital is exhibiting problematic productivity growth at the national level.

E Productivity Fig 4

One aspect of the poor state of Israel’s physical capital infrastructure is its road and rail network that have been neglected for decades (despite some increased investments in recent years).  As shown in the State of the Nation in Pictures 2013, while Israel has roughly half the vehicles per capita as the OECD average, it has over twice the congestion on its roads.  If sitting many hours in traffic makes it necessary to hire more truck drivers to transport the same number of goods – for example – then it should be evident that the driver’s productivity is subsequently lower, as must be the worker’s level of compensation.  The use of rail in Israel is even more limited in comparison with other developed countries.

The issues of relatively low employment, many more work hours by those who do work, and productivity that is steadily falling relative to the leading developed countries, all combine to create a growing national burden on the shoulders of those who bear it – a major issue that needs to be addressed systemically by Israel’s top policy makers.

Senor, Dan and Saul Singer (2011), The Start-Up Nation: the Story of Israel’s Economic Miracle, A council on Foreign Relations book, Twelve.

Is the Israeli Labor Market Segmented?

This allows us, in effect, to compare the low-wage and high-wage segments after “purging” the “noisy” observations. Assigning workers to simulated segments using the maximum estimated posterior probability led to segment shares that are meaningfully different than the estimated population shares of each segment. We propose an alternative method in which observations are weighted by their posterior probabilities and then included in all simulated segments. Using this method, we found quantitatively small but qualitatively reasonable differences in the characteristics of workers between the low-wage segment and the high-wage segment. The between-segment differences in wage equation coefficients, representing the returns to these worker attributes, were much larger than the differences in worker attributes themselves. For example, Jewish females and Arab males suffer considerable wage penalties in the high-wage segment, while Arab females suffer wage penalties in the low-wage segment. Returns to schooling are considerably higher for Jewish workers in the high-wage segment, while they are positive for Arab females only in the low-wage segment, and do not exist for Arab males in either segment. Altogether, the results indicate that much of the wage disparities in Israel are due to unobserved factors rather than to observable characteristics. They also lead to some policy-relevant insights about the links between schooling, ethnic minorities and wages.

Labor Market Trends: Employment Rate and Wage Disparities

Over the past few decades, the decline in male employment was concentrated amongst the less educated, while the rise in female employment has been attributed almost entirely to the rise in the level of education of the younger generations.  These trends are especially pronounced in the Arab sector.  The growing importance of education in the Israeli labor market is expressed also in the fact that the wage gap between more and less educated workers has not narrowed in the past decade despite the large growth in the share of educated workers.  An examination of the changes in wages by occupational group indicates a relative growth in demand for educated workers in specific occupations, something that has brought about a rise in wage gaps in those particular occupations.  The conclusion is that employment gaps and wage gaps in Israel are, to a large degree, correlated with education.  The skills that workers with no more than 12 years of schooling have do not allow them to integrate in a satisfactory way into the modern labor market.

This paper appears in the Center’s annual publication State of the Nation Report – Society, Economy and Policy 2011-2012.

Changes in Labor Force Survey Data and Their Meaning

The change brought about some significant differences in the data.  In particular, amongst Arab Israelis there was a dramatic jump in the unemployment rate; it was approximately two times greater in men and three times in women.  Following this, the estimates of the unemployment rate in the overall population also rose.  Labor force participation rates amongst all populations examined – men and women, Jews and Arabs – were higher than reported by the old survey method.  It thus seems that there is a more serious problem of unemployment in the Arab sector than what was reflected by the old survey and it is important to give greater emphasis to steps to deal with this unemployment.  At the same time, the picture of the labor force participation rates in Israel, an issue that is central to labor market problems, is somewhat better than it had been believed to be.

This paper appears in the Center’s annual publication State of the Nation Report – Society, Economy and Policy 2011-2012.

Reforming Foreign Worker Employment in Israel

 This new arrangement authorized the hiring of foreign workers on a fixed-quota basis, subject to various fees and employment levies, solely via licensed manpower corporations.The findings of the present study, which looked at the reform’s impact on foreign workers and their employers, indicate that the reform has significantly improved the employment conditions of foreign workers in the construction sector, reduced the profitability of switching to illegal employment frameworks, and created a financial incentive for workers to leave the country once their permitted employment period has ended. Further, the study makes recommendations regarding extending this arrangement to other sectors where foreign workers are employed.

Arab Israeli Unemployment Much Higher than Previously Thought

In January 2012, Israel’s Central Bureau of Statistics (CBS) began conducting its Labor Force Survey under new guidelines.  The changes included counting the entire labor force rather than only the civilian labor force, a more thorough and accurate interview process and broader geographical coverage.  The result is a sample more representative of the Israeli workforce as a whole.  Prof. Eran Yashiv, Chair of the Taub Center Economic Policy Program and a professor of economics and public policy at Tel-Aviv University, compared the data compiled for the new survey to the matching figures from the preceding year based on the old survey.  While periodic changes in survey methodology are normal and invariably show some minor discrepancies from previous results, Yashiv’s analysis shows that in this case, the new methodology generated surprising and strikingly different results.

Among the Jewish population – for both men and women alike – the new survey did not result in a markedly different reported unemployment rate.  In the Arab population, however, there was a dramatic hike in the unemployment figures: approximately doubling the previous rate among men, and tripling it among women.  This rise also implies an increase in the national unemployment rate.

The rate of labor force participation in Israel across all groups of society – men and women, Jews and Arabs – is somewhat higher than previous figures had indicated.  As the new CBS survey is considered more accurate and reliable than the previous survey, it appears that the true unemployment figures in the Arab population are indeed much higher than previously thought.  A corollary is that the share of Arabs among all unemployed Israelis is considerably higher as well – at around 30 percent, about double the earlier estimates.

There was some good news regarding participation rates.  Based on the new survey, it seems the actual labor force participation rate in Israel is roughly 4 percentage points higher than previous surveys have shown.  However, Yashiv points out that even this upwardly revised rate is still among the lowest of all OECD countries.  The comparison of the old and new surveys also shows that there was no real difference in the labor force participation rates among Arabs and Jews.

Taub researcher Prof. Yashiv feels that the findings suggest a few implications for current government policy.  Firstly, they show that the issue of Arab unemployment is much more serious than had been thought which means that there is more importance in the steps taken to tackle this problem.  Secondly, Israel’s labor force participation rate – a topic around which there has been considerable heated discussion– is a little higher than previously assumed although the improvement seen is not high enough to render useless the necessary public policy initiatives meant to address this problem.

 

 

Income Inequality Between and Within Population Groups: 1997-2010

At most, these gaps can explain a fifth of total inequality, while the remaining 80 percent are within population sub-groups. Among the notable gaps are those between households with various level of education of the head of household, although their contribution to inequality decreased somewhat over the years. Of secondary importance are gaps among population groups defined by nationality, gender and number of children. The importance of these gaps increased somewhat over the years. These results support the claim that an improved education system that will allow more people to compete for better-paying jobs is essential for reducing income gaps in Israel. Other policies that might contribute include job creation in the Arab sector, reducing commuting time between center and periphery through improved transportation infrastructure, making it easier for mothers to engage in gainful employment, and engaging the ultra-Orthodox males in the labor market. Still, further research is needed to better understand income disparities within population sub-groups and their determinants.

This research paper is available in Hebrew only.

Israeli Single Mothers – Smaller in Number and Poorer in Income

Single mothers are among the most vulnerable members of society. These mothers have a significantly greater burden of household duties than others, with no one to share in the tasks of housework and childcare; they also have considerably fewer economic resources since the amount of economic support they receive from the father is often quite minimal. In “Welfare and Employment among Single Mothers,” the former Chair of the Taub Center’s Social Welfare Policy Program, Professor Haya Stier, a Tel-Aviv University sociologist, examines how such mothers in Israel fare compared to single mothers in other developed countries.

One aspect of the study is demographic. Stier reveals that while the number of single mothers in Israel is rising, their share of the total population is still low on an international basis. The first figure shows that 8.9 percent of mothers in Israel are single, lower than the rate in three-quarters of the countries studied and less than half the rate of England, Sweden, Ireland, and the US. Another finding regards the composition of single mothers in Israel. Stier finds that only 14 percent of Israeli single mothers have never married; only two countries in the sample had a lower rate.

Eng single mothers fig 1

The study then turns to the economic circumstances of the mothers and to government policy. In the 1990s, Israeli policy was considerably more supportive of single mothers than it is today; the 1992 Single Parent Families Law granted special eligibility conditions for income support to single mothers. This legislation substantially improved the economic status of families headed by single mothers. It was also accompanied by a certain decline in single mothers’ labor market participation rates, but this decrease mainly characterized women whose chances of success in the labor market were already low.

In the early 2000s, benefits were considerably reduced, while programs encouraging greater women’s participation in the labor force were implemented. Labor force participation of Israeli single mothers rose and is currently high; in 2004-2005 it was 67 percent, greatly exceeding the 59 percent rate for mothers with partners.

A narrow focus on employment, though, may ignore the constraints faced by single mothers seeking employment, including for example, the presence of young children in the home, childcare costs, a lack of quality, subsidized childcare options, limited labor market mobility, and the like. Research findings indicate that although the early-2000s policy changes did help raise single mothers’ labor force participation rates, they nevertheless failed to improve their household incomes in a significant manner.

Accordingly, Prof. Stier shows in the second figure that Israeli households headed by single mothers have a poverty rate of 35 percent, about twice the rate for households where the mother lives with a partner. The Taub Center study concludes that Israeli single-parent families are relatively poor, compared both with Israeli two-partner families and with single-parent families in other Western countries. One reason is a comparatively low level of public support: single mothers in Israel obtain about 25 percent of their income from transfer payments, a rate lower than that for most countries studied by Stier. Israel was found to be among the lower ranking countries (e.g., US, Canada and Ireland) in terms of the level of support that it offers to single mothers, and in terms of the resources that it devotes to raising these mothers out of poverty.

Eng single mothers fig 2

Stier notes that Israeli policy has been oriented towards increasing employment of single mothers, yet due to the meager level of government benefits, increased employment has not been reflected in a commensurate increase in income and standard of living. She recommends that a comprehensive policy should be implemented. Such a policy would include ensuring the availability of quality childcare so as to empower single mothers to genuinely improve their standard of living through paid work, as well as guaranteeing an adequate level of income for all single mothers.

The State of Israel’s Education and its Implications

The Taub Center’s annual State of the Nation Reports have put a bright spotlight on the impact that education has in determining living standards and income gaps. This document summarizes main points of this issue through a brief visual roadmap that underlines the importance of education for Israel’s society and economy, the state of the country’s education, and the implications.

Welfare and Employment Among Single Mothers: Israel from a Comparative Perspective

Women raising their children alone attract considerable public attention as a group, due primarily to their economic vulnerability. This comparison will focus on the demographic characteristics of single mothers, both between Israel and other countries and within each country relative to mothers in two-partner families; the study will also look at single mothers’ economic status and their degree of reliance on state assistance. The family-type comparison will facilitate an understanding of the difficulties and constraints faced by single-parent families. The inter-country comparison will shed light on the causes of this group’s poverty, the group’s economic vulnerability, and possible ways of improving its economic status.

This appears as a chapter in the Center’s annual publication State of the Nation Report – Society, Economy and Policy 2010.

Working and Poor

The poverty rate among Israel’s working population is high and trending upward; working families currently account for most of Israel’s poor. Poverty among the employed stems from a combination of economic factors, in particular: low wage jobs and a lack of opportunities for low-skilled workers; demographic/family characteristics such as large families and a low percentage of two earner families; and, political factors, particularly the level of support provided to large families and to workers with employment difficulties. These factors lead to exceptionally high poverty rates among the working Arab population, which is characterized by barriers to employment, low levels of female participation in the labor market, and large families.

This appears as a chapter in the Center’s annual publication State of the Nation Report – Society, Economy and Policy 2010.

The Working Poor

A phenomenon that has become increasingly common in the developed world and in Israel, in particular, is that of the working poor. Today in Israel, in the majority of poor households headed by a person of working age, that person is employed. Professor Haya Stier, Chair of the Taub Center’s Social Welfare Policy Program, undertook an in-depth study of this phenomenon. The study will appear in its entirety in the upcoming State of the Nation Report 2010.

Poverty in Israel is defined by having a household income of less than half the national median household income, adjusted for family size. It is easy to see that families without any earners are very vulnerable to poverty, unless they have significant sources of income other than from work. Government assistance programs are not generally designed to keep recipients out of poverty but rather to guarantee a very basic level of subsistence or to supplement families with low income from work.  But families with wage earners can also find themselves below the poverty line. This will happen if earnings are low, or if there are many household members.

In terms of net incomes – that is, after taxes and welfare payments – Israel has a very high poverty rate, among the highest in the developed world, and poverty rates have risen considerably since the beginning of the decade. The proportion of poor families headed by an employed person (among those headed by a person between the ages of 25 and 64) has also risen considerably, so that overall, the number of working poor has seen a particularly sharp rise. The first figure shows the total portion of poor households headed by a person at work. In Israel today, the majority of poor families in this age group fall into this category.

3_3_fig_4_eng

One reason for this trend is the deliberate government policy of encouraging poor people to work rather than to live off of public assistance. The objective of this policy was to help people escape poverty, but so far one effect has been to move many families from the idle poor to the working poor, without much change in their standard of living. It is likely that the inducements to work involved too much “stick” (reduction of benefits) and too little “carrot” (improving the compensation from the return to work) and as a result, the program may have saved money for the Treasury but has not made a major impact on poverty levels.

Using disaggregated data, Stier discovered that the rise in the working poor has been to a large extent concentrated among Arab Israelis. The second figure shows that among Jewish Israelis, the proportion of working poor is considerably lower, and virtually unchanged. But among Arab Israelis, the share of poor rose since 1995 from about 20 percent to about 40 percent.

3_3_fig_5_eng

Among the reasons Stier finds for the high rate of working poor among Arabs are:

  1. Low labor force participation rates for women. In those Arab households where the woman is employed, poverty rates are actually quite low. Thus, the gap in working poor between Jewish and Arab Israelis is due in large measure to the low proportion of two-earner couples among Arab Israelis.
  2. Deterioration in earnings. Arab men are concentrated in low-skill jobs which have faced sharply lower demand in recent years, and in addition have faced competition from cheaper foreign workers who, in many cases, are employed in virtually identical jobs. (See the March 2011 Bulletin which presents findings that foreign workers have been displacing Arab men.)
  3. Demographic differences. As a whole, the Arab population is younger and a larger proportion of household heads in this community are younger. Forty-two percent of Arab household heads are under 35 years old and thus before their peak earning years, compared to only thirty three percent of Jewish household heads. Furthermore, the Arab families have more children on average, and for a given household income, households with more children are poorer.
  4. Loss of child allowances. Since Arab households with a working head of household tend to have more children than comparable Jewish households, the marked decline in child allowances in recent years has had a disproportionate impact on Arab Israeli working poor.

The complete findings of Professor Stier also include a detailed study of poverty in families with a working single-parent. Her study will be published in full in the Taub Center State of the Nation Report 2010.

Foreign Workers Displacing Less Educated Israelis

The number of foreign workers in Israel has risen from a negligible number two decades ago to today’s situation where foreign workers are estimated to fill over ten percent of the jobs in the Israeli business sector.

The policy of allowing – and even encouraging – foreign workers to work in Israel has been a controversial one, even from a strictly economic viewpoint. Opponents of the policy claim that these workers displace local workers, and thus benefit the employers at the expense of Israel’s most vulnerable population – its unskilled laborers. Proponents insist that foreign workers are mainly employed in sectors where Israelis are not willing to work.  Hence, goes their argument, the foreigners are sustaining vital local business sectors without harming anyone.

Taub Center Executive Director Dan Ben David took a closer at this issue in his article on the labor market in the Taub Center’s State of the Nation Report 2009. He found evidence of a link between changes in the share of non-Israeli workers in the business sector and changes in the share of relatively uneducated Arab Israeli men who are not employed (see figure).

Fig 3 Eng

The non-Israeli workers include both foreign workers, whose numbers were small until the early 1990’s, as well as Palestinian Arab workers. The non-employment rate in the figure refers to prime-working-aged Arab Israeli men with no more than 10 years of education. The curves track each other with relative consistency. The sharp increase in the share of foreign workers in the business sector during the latter half of the 1990s was immediately followed by a large rise in the rate of non-employment among relatively uneducated Arab Israeli men; the subsequent decline in the share of non-Israeli workers was followed by a more gradual decline in the share of non-employment among the Arab Israeli men.

The need to import foreign workers varies from country to country. The issue of local workers being crowded out of the labor market is less of a problem in countries with a shortage of unskilled labor. In Israel, where for decades a relatively large share of its working age population has lacked the primary skills and education to work in a modern economy, the large influx of foreign workers with remuneration levels below the mandatory minimum wage paid to Israeli workers leads to downward pressure on the wages of unskilled Israelis and to increased difficulties in their employment.

Does Rural Household Income Depend on Neighboring Urban Centers? Evidence from Israel

Migration flows can be affected by differential wages, housing costs and other amenities, and by commuting costs and costs of migration. An income-generating equation, which includes characteristics of nearby urban communities among the explanatory variables, is estimated for rural households in Israeli moshav villages using 2006 survey data. the results show that the population of nearby urban communities is significantly and positively associated with rural household per-capita income. The same is true for mean income in these communities. In addition, distance from urban communities affects rural income negatively, suggesting that commuting costs are important determinants of the direction of the net migration of high-income households.

Education, Employment and Long-Term Trends

The State of Israel faces several severe problems in the socio-economic realm: high levels of poverty and income inequality, and economic growth rates that are low – in relative terms – compared to leading developed nations. These problems are connected in many areas and in particular in the area of education.

Economic growth is accompanied by a steady and continuous process of structural change. As a result, the demand for educated and skilled workers increases while the relative demand for unskilled labor declines. As long as comprehensive measures to reduce the supply of uneducated and unskilled labor are not implemented, these workers will find it difficult to find employment and their wages will suffer. This will in turn have severe consequences for poverty and inequality.

Figure 1 (from the Taub Center’s State of the Nation Report: Society, Economy and Policy 2009) shows the relationship between education, employment and income for 2008 among individuals between the ages of 25 and 54.  The higher the level of education, the lower the rate of non-employment and the higher the income.

This relationship has been becoming much more pronounced over time, as is evident from Figure 2. The graph shows the average rate of non-employment within low-education groups among prime-working age men aged 35-54 from 1970 through 2008. Four decades ago, the percentage point differences in non-employment rates among the various education levels were very small compared to today. Non-employment was less than 10  percent for all groups.

Since then, non-employment rates among men with only 1-4 years of schooling have exhibited a five-fold increase, reaching approximately 50 percent today. There was also a significant increase in non-employment among men with 5-8 years of study, although their rates of non-employment still remained below those with 1-4 years of study. The increase in non-employment becomes more moderate as the level of education increases. The lowest rates of non-employment are among those with 16+ years of study (generally people with an academic degree).  In contrast with the other education groups, average rates of non-employment in the 16+ group have not increased since the mid-1990s.

A nation seeking to reduce rates of poverty and inequality at their source must increase the level of education among its population.  A person whose education is upgraded will have better prospects of finding employment and of obtaining a higher income – and reduced chances of living in poverty. As more and more individuals upgrade their education, there will be less competition for jobs among those who remain less educated, and they too will find that their prospects of garning employment and raising their incomes have improved.  As in other countries, the economic growth process and the increasing demand for educated workers guarantees a positive return to education even when the educated population in the economy grows.

While complementary stimulatory measures – such as a negative income tax for low-income workers and a tax on employment of foreign workers – can make a non-negligible contribution toward improving employment and wages among Israelis, only comprehensive policies dealing with the problem sources, including upgrading levels of education and skills in Israel, can bring about substantial changes in Israel’s long-term trends of poverty, inequality and economic growth.

Decrease in Female Non-Employment Over Past Three Decades

The employment situation among women aged 35-54 is very different from that of men, both in Israel and in the OECD countries. While men’s non-employment rates increased, women’s non-employment rates dropped considerably. Average rates of non-employment among women in the OECD declined from 47.5 percent in 1979 to 32.0 percent in 2008, a decrease of 15.5 percentage points. The main explanation for the large decline in non-employment rates among women has to do with increased access for women to education and the fact that more women obtain higher education. Higher education is associated with increased income, and as incomes rise, the price of choosing non-employment alternatives rises, encouraging more women to join the labor market. Other factors that decrease non-employment include opening public or subsidized day care centers and kindergartens, laws forbidding discrimination against women, fully or almost fully paid maternity leaves, and the expansion of the service sector in the economy.

The picture among Israeli women is dramatic. In 1979 non-employment among women was 56.0 percent, or 8.4 percent above the corresponding rate in the OECD Within three decades, the non-employment rate among Israeli women aged 35-54 fell to 31.0 percent, a decline of 25.0 percentage points, placing Israeli women in 2008 a full percentage point below the average for women in the OECD.

Two population groups contributed to the decrease in Israeli non-employment among women: non-haredi Jewish women and Israeli Arab women (Figure 5). In 1979 the rate of non-employment among non-haredi Jewish women was 51.2 percent, or 3.7 percent above the corresponding rate in the OECD. By 2008, their rate of non-employment dropped to 21.2 percent – a decline of 30.0 percentage points. The gap in non-employment rates between women in the OECD and non-haredi Jewish women in Israel has reversed since 1979. In 2008, non-employment rates among non-haredi Jewish women were 10.8 percentage points lower than those of the OECD.

Fig_5_v2

Among Arab Israeli women, 2008 non-employment rates were very high (75.7 percent). But 30 years ago, almost all Arab Israeli women of primary working age were not employed (95 percent), so a substantial change in their employment rates has taken place over the past three decades. In fact, from 1990 until 2008, the gap in non-employment rates between Arab Israeli women and non-haredi Jewish women was quite large, but it remained stable: the gap was at 54.3 percentage points in 1990, 54.8 percentage points in 1995, 50.9 percentage points in 2000, 54.6 percentage points in 2005, and 54.5 percentage points in 2008. In other words, for the past two decades, the rate of decrease in non-employment among Arab Israeli women was similar to that of non-haredi Jewish women – though rates of non-employment among Arab Israeli women still have a long way to go before they will resemble those of non-haredi Jewish women.

The main characteristic of non-employment among haredi women is its relative stability over the last three decades. On the one hand, they did not display the rise in non-employment that typified haredi men. On the other hand, they also did not display the substantial decrease in non-employment rates among women that occurred in other countries and in other sectors in Israel. In 1979, rates of non-employment among haredi women were 7.3 percentage points higher than those of non-haredi Jewish women, and in 2008 this gap increased considerably – reaching 32.2 percentage points.

Increase in Male Non-Employment Over Past Three Decades

Three decades ago, the rate of non-employment among prime working age (35-54) non-haredi men in Israel was almost identical to the average rate of non-employment among industrialized countries belonging to the OECD (8.47 percent in Israel compared with 8.07 percent in the OECD). Since then (Figure 4), the average rate of non-employment in the OECD grew by about one-half while nearly doubling among non-haredi Jews in Israel. The similarity that existed between Israel and the OECD three decades ago has all but disappeared.  Though relatively higher economic growth in Israel in recent years (as a result of an emergence from the deep recession of the past decade) led to recent reductions in Israeli non-employment rates, the rate of non-employment among non-haredi Jewish men (15 percent) was nonetheless about one-fourth higher than in the OECD (12 percent) in 2008.

Non-employment among Israeli Arab men grew from 15 percent in 1979 to 27 percent in 2008. Among the haredi males, the rate of non-employment in 2008 (65 percent) was more than three times the rate of no-employment three decades ago (21 percent).

Fig_4_v2

The substantial increase in government assistance program over the years has enabled a growing part of Israeli society to choose life styles of non-employment, while multi-year neglect of human capital infrastructures (especially education) and physical infrastructures (especially transportation) prevents many people from obtaining the tools and conditions necessary for coping successfully in a modern and competitive economy.

In the case of men with less than 12 years of education, part of the explanation for the increase in non-employment is the economic growth process itself, which has led to an increase in the demand for skilled and educated workers – with a relative drop in demand for unskilled and uneducated workers.  About half of Israel’s prime working-age population has no more than 12 years of education.  Another part of the explanation for the increase in male non-employment is the marked increase in the import of unskilled and uneducated workers from abroad – to the point that one out of every seven workers in the country’s business sector in 2008 was not Israeli.  This has had the effect of crowding out unskilled Israeli’s – in particular, Arab Israeli men – from the employment pool.

The issue of education is not just one relating to the quantity of years that each person has gone to school but also to the quality of education provided.  As detailed in the Taub Center’s recent State of the Nation Report, and highlighted in the November 2008 Bulletin (“The People of the Book and their Children’s Education”), the level of education in core curriculum subjects in Israel during the past decade has consistently been lower than in each of the 25 main OECD countries.  Achievements among Israeli Arab pupils have been even lower still, while haredi pupils do not even study the core curriculum.

The very high rates of non-employment among haredi Jewish men, and the fact that these non-employment rates have more than tripled over the past three decades makes this issue unique in a number of ways.  Not only are these rates high in comparison to other population groups within Israel, they are also very high compared to haredi Jewish populations abroad.  Financial assistance from the government to this group within Israel comes in a myriad of different forms, with many of these not transparent in the government budget.

The fact that the majority of prime-working age haredi adults find it possible to choose life-styles of non work – albeit, in poverty – while able to support nearly five times as many children under the age of one as non-haredi Jews (children numbering in the double digits is not an uncommon feature of haredi families in Israel) is indicative of the level of support provided these families.  Cutting off much of the support to a society who denies its children an education that would enable them to compete successfully in a modern economy is difficult enough when this group is still a relatively small portion of Israel’s population.  However, the gap in population growth rates among the different segments of Israeli society makes this issue much more problematic for the future when its relative size will make it the dominant segment of society – particularly in view of the needs of a modern society for doctors, engineers and scientists, some of the professions that today’s haredi education system has little hope of producing.

Unemployment Versus Non-Employment in Israel

For many years, unemployment rates in Israel were higher than the Western average. Even before the recession of the early 2000s, the unemployment rate in 2000 – a year of prosperity in Israel – reached 8.8 percent, compared with 6.1 percent on average in the OECD (the Organization for Economic Cooperation and Development – an organization composed of the world’s industrialized countries). With the outbreak of a major wave of terrorism and the concurrent onset of a deep recession during the first years of the past decade, unemployment in Israel reached 10.7 percent of the civilian workforce. Since then, unemployment rates began falling toward those of OECD. In 2008, unemployment rates in Israel were almost equal to the OECD: 6.1 percent in Israel and 5.9 percent in the OECD.

As the world entered the recent recession, the picture was reversed. By the second quarter of 2009, unemployment rates in Israel fell below the OECD average for the first time in decades: 7.7 percent in Israel versus 7.9 percent in the OECD (Figure 1). In fact, unemployment in Israel was lower than in most OECD countries, even as some of the latter reached double-digit unemployment rates – up to 11.9 percent in Ireland, 13.6 percent in Turkey and 17.9 percent in Spain.

fig 1

Ostensibly, Israel’s labor market is beginning to look like a typical Western labor market. But the actual picture is very different. While unemployment rates are one of the most common indicators for examining economic activity, they describe only part of the labor market. The working age population is composed of two groups: those participating in the labor force and those not participating in it. The majority of those participating in the labor market find employment and become employed, while others are unable to find work and become “unemployed.”

While Israel’s rate of unemployment is currently similar to that of the OECD, it does not follow that the employment rates of the working-age population are also similar – and here lies the main problem of Israel’s labor market. A very large share of Israel’s working age population does not participate in the labor force. Therefore employment rates in Israel are very low.

fig 2

Figure 2 shows rates of non-employment of men aged 35-54 in Israel and most OECD countries for 2008 (because of mandatory military service, many Israelis are still in college into their mid to late twenties, hence the focus here is on 35-54 year olds).  While unemployment rates are based only on those who participate in the labor force, rates of non-employment reflect the ratio of all non-employed – whether the individual participates in the labor force but is unable to find a job or does not participate in the labor force at all – for the entire prime working-age male population aged 35-54.  Whereas non-employment rates in the OECD fluctuate around an average of 11.9 percent, the corresponding rate in Israel reached 18.9 percent. Even Spain, the unemployment leader in Figure 1, is far below Israel in rates of non-employment.

Who is not employed in Israel? Conventional wisdom is that the issue begins and ends with the ultra-Orthodox Jews (haredim) and Israeli Arabs. Rates of non-employment among these population groups are indeed high. However most of Israel’s population is neither haredi nor Arab. As shown in Figure 3, even after controlling for the two groups, the 15.1 percent non-employment rate among non-haredi Jewish men is still higher by over one-quarter than the OECD average rate of 11.9 percent. This reflects a substantial difference between a large part of the Israeli society and much of the West in the ability to cope successfully in a modern and competitive economy. The picture differs considerably for non-haredi Jewish women, where the 21.2 percent non-employment rate is considerably lower than the 32 percent average for women in OECD countries.

fig 3

Israel’s Labor Market – Today, in the Past and in Comparison with the West

 Three decades ago, Israeli rates of non-employment among men were very similar to those of the OECD. this chapter shows the change – sometimes, substantial – in work patterns among non-ultra-Orthodox Jews, ultra-Orthodox Jews and Arab Israelis. Not all of the conventional wisdom on Israel’s labor market turns out to be correct. The relationship between education, employment and income is described here while the extent of education and employment among different population groups is detailed according to gender, religion and degree of religious observance. The phenomenon of foreign workers in Israel is examined and the negative income tax programs in Israel and the United States are compared.

This paper appears in the Center’s annual publication State of the Nation Report – Society, Economy and Policy 2009.

Ethnic Minorities and Rural Income Inequality: The Case of Israeli Arabs

Per capita income inequality within the rural Arab population is much lower than within the rural Jewish population. Belonging to the Arab minority explains between 10% and 16% of rural income inequality. Schooling, which is much lower among the rural Arab population, and household size, which is much higher among the rural Arab population, also explain significant fractions of inequality. Geographic location and gender of the head of household explain much smaller fractions. Simulations reveal that rural per capita income inequality could potentially be reduced by a uniform increase in schooling or by a uniform decrease in household size The equalizing effect of schooling is higher for Arab households, while the equalizing impact of reduced fertility is roughly similar for Jewish households and for Arab households. In order to succeed in reducing per capita income inequality, schooling-enhancing policies should be directed at the lower end of the schooling distribution, while fertility-reducing policies should be directed at high-fertility households.

How Minimum the Wage, How Negative the Tax?

Israel already has some of the highest rates of non-employment in the western world.  Its high rates of poverty and inequality have led to demands that the country’s minimum wage be substantially increased from its current NIS 3,850 to NIS 4,600 per month.  What might be the consequences of raising the minimum wage and are there alternatives that might be more effective?

In a country that is already not a strict enforcer of the current minimum wage, one might ask why there is a demand for a higher minimum wage rather than first and foremost a demand for more rigorous enforcement of the current minimum.  In addition, higher wages might lead firms to want to employ less workers as a result of the higher hiring costs – thereby potentially leading to higher wages for those who are working, but to higher rates of unemployment among those wishing to work but unable to find jobs.  This notion relating higher minimum wages with higher unemployment rates may make intuitive sense, but it has been very difficult to definitively prove or disprove empirically.

However, it is nonetheless possible to focus on the relative size of the current and proposed minimum wages and compare them with a number of other barometers.  For example, how do Israel’s current and proposed minimum wages compare to other countries?  An accurate comparison must take into account not only the minimum wages but also the standards of living in different countries.  One measure of the standard of living is a country’s median wage.

The ratio of the minimum wage to the median wage in 23 OECD countries is depicted in Figure 1.  In the United States, the minimum wage equals 34 percent of the median wage.  In the Netherlands, this ratio rises to 43%, while the OECD average ratio is 46%.  Israel’s current minimum wage is 58 percent of the country’s median wage – with only two OECD countries, New Zealand and France, with higher ratios of minimum to median wages (59 and 63 percent, respectively).  Should Israel decide to raise its minimum wage to the proposed level to NIS 4,600, then the ratio of its minimum wage to its median wage will be the highest in the western world.

From a domestic perspective, is the minimum wage sufficient for raising a family above the poverty line?  Figure 2 looks at the percent difference between a two-parent family’s income and the poverty line – assuming that both parents work and receive no more than the minimum wage plus a child allowance from the government for each child.

In families with no children, the existing minimum wage (still in force since 2008) yields the family an income that is over twice as high as the poverty line income (120 percent higher).  Families with three children receiving child allowances have incomes over 20 percent higher than the poverty line.  Only at seven children does the sum of two minimum wages for each parent plus child allowances yield an income roughly equaling the poverty line.  The proposed minimum wage hike increases the differences between family incomes and the poverty line for families of all sizes.

The real question revolves not just on whether or not the minimum wage should be increased, but on whether this is even the best way to approach the issue of low incomes.  One major alternative that has been implemented with relative success in the United States is the negative income tax – or, as it is called in the U.S., the Earned Income Tax Credit, EITC (though not the focus here, it should be noted that such a negative income tax program should be supplemented by a parallel program of upgrading education and providing professional training).

In the case of a family with two parents and two children, for example, the negative income tax rate in the States is 40 percent.  The attractiveness of this form of assistance is that it grows with income and becomes an increasing incentive to work.  An annual income of $5,000 yields an additional $2,000 from the government in the form of a negative income tax.  But if the income rises to $10,000, then the additional payment from the U.S, government rises to $4,000.

Figure 3 (from the Taub Center’s State of the Nation Report: Society, Economy and Policy 2009) compares between the American and Israeli versions of the negative income tax.  Both the negative income tax and the income bases are divided by the median wage to net out differences in living standards between the two countries.

The primary difference between the programs is in the degree of the incentives provided by each.  The United States government gives the maximum negative tax, 8 percent of the median wage, when the family’s income reaches 20 percent of the median wage. At a similar relative income level, the negative tax in Israel reaches only 1.2 percent of the median wage for families with three children or more, and even less (1 percent) for families with one to two children. In Israel the maximum amount is paid out only when income reaches 30 percent of the median wage. Not only does the negative tax begin much later in Israel, but the maximum negative tax in Israel is considerably lower: 3.5 percent of the median wage (less than one-half of the maximum negative tax in the United States) for families with 3+ children and only 2.4 percent of the median wage for families with fewer children.

The differences in approach between the two countries are substantial. The American model gives more at the beginning of the process to encourage entry into the labor market and it reaches the maximum payment much more quickly. In Israel it is possible to reach the maximum negative tax level only at much higher income levels. Even when the maximum negative income tax is reached in both countries, the Israeli model’s incentive to work is considerably smaller than the American incentive.

The absence of an serious negative income tax program in Israel may be more severe than simply money spent on an effort yielding minimal outcomes. Failure could lead to a decision to cancel such an expensive program altogether rather than reimplementing it properly and yielding the desired results – with all that this entails regarding the loss of an important policy tool for encouraging employment.

 

Employment and Wages – 2007

Thus, the civilian labor force participation rate rose from 54 percent at the beginning of the decade to 56.7 percent in the third quarter of 2007; employment rose from 2.2 million to 2.8 million; and the unemployment rate, after peaking at almost 11 percent in the second half of 2003, declined steadily to 7.3 percent in the third quarter of 2007 – the lowest rate since 1997. The national average wage, which declined during the recession years, also rebounded to NIS 7,813 per month (August 2007). Although the rapid economic growth that powered these trends began in the second half of 2003, labor markets tend to respond with a lag to economic recovery; thus, the improvement in the labor market was not felt until 2005. The outlook for the years to come is one of continued growth in employment and improvement in other economic indicators, provided that global and domestic economic growth continues.

This chapter takes a closer look at developments in the labor market and discusses aspects of Israel’s employment policy.

This paper appears as a chapter in the Center’s annual publication, Israel’s Social Services 2007.

Social Policy Toward Families of Working Parents with Preschool Children

The proposals are mostly built with a view not to exceed the present costs of the maternity allowance program, thus taking into account current constraints in public expenditure, while aiming at improving the relative economic situation of families of working parents at the middle and lower income levels. Some of the alternatives also offer a greater flexibility in the conditions of leave, so that families may use the leave and the attendant financial benefits at greater convenience.

This paper appears as a chapter in the Center’s annual publication, Israel’s Social Services 1986-1987, and is available upon request.

Wage Differentials in the Israeli Manufacturing Sector

This paper examines the industrial wage structure from several angles. The first is the distribution of wages in industry and its main sectors. The paper describes the highly heterogeneous structure of Israel’s industrial sectors with regard to the level and distribution of wages.

This paper appears as a chapter in the Center’s annual publication, Israel’s Social Services 1986-1987, and is available upon request.