Social Investment in Israel
Author: Johnny Gal, Shavit Madhala, Guy Yanay Policy Briefs

Executive Summary

The concept of social investment is based on the idea that the welfare state has an important role in increasing human capital so that individuals may reach their full potential and, in doing so, contribute to the growth of the economy.

Social expenditure can be divided into three categories: social protection, which includes assistance to those experiencing economic insecurity; social investment, including programs to strengthen individual skills, to advance social mobility, and to promote early childhood education; and other expenditures, which do not clearly fall into either category, like spending on the healthcare system.

This study looks at the level of spending on social investment in Israel as compared to other welfare states.  It then examines the advantages and limitations of social investment, and discusses the tendency of social investment programs to benefit already strong populations and not necessarily those living in poverty.

Social investment in Israel and in international comparison

In international comparison, Israel ranks high in the portion of social investment out of total social expenditure relative to other welfare states like Sweden and Denmark, but low in terms of actual expenditure on social investment. The former is the result of low overall public expenditure on social protection.

  • Between 1998 and 2017, spending on social investment in Israel grew from NIS 50 billion to NIS 104 billion, while expenditure on social protection grew from NIS 60 billion to NIS 110 billion.
  • While Denmark and Sweden consistently spend over 11% of GDP on social investment, Israel’s spending varies between only 6.7% and 8% of GDP.
  • Israel spent only about 4% of GDP per capita on social investment for working-age individuals (ages 20-64), similar to countries with the lowest rankings.
  • For individuals from birth to 19-years-old, Israel is ranked lowest, with social investment of about only 15% of GDP per capita (versus 26-27% in Sweden and Denmark).
  • Public expenditure on early childhood education and care for young children ages 0-4 is very low in Israel and stands at only about 8% of GDP per capita, in contrast to about 27% in other welfare countries.
  • Israel’s rate of investment in active labor market policies (ALMPs), which focus on integration into the labor market, is among the lowest in the OECD at about 0.17% of GDP, versus an OECD average of 0.54%.eng1

Limitations to social investment

Despite the benefits of social investment, it suffers from some limitations. First, it isn’t clear that contribution to economic growth or strengthening the labor market is the appropriate standard for evaluating social programs. More problematically, social investment policy may actually undermine efforts to tackle poverty and inequality if resources are diverted from social protection. Another critique raised by the researchers is that the major beneficiaries of some social investment programs are middle class, not those who need it the most.

Three key elements of social investment policies in Israel that primarily benefit the middle class are investment in daycares, the Saving for Every Child program, and higher education.

Daycares

The middle class utilize supervised daycare facilities more than weaker population groups.

  • 24% of households in the middle socioeconomic clusters have children in supervised facilities, compared to 17% in the lower clusters and 15% in the highest clusters.
  • The share of children from middle class families in daycare facilities is 41% although they represent only 31% of the population with children in this age group.
  • 41% of the Haredi (ultra-Orthodox) households with children in the relevant age group use daycare facilities, compared to 16% among non-Haredi Jews and only 8% among Arab Israelis.

Saving for Every Child

Though the “Saving for Every Child” program will increase the future incomes of children from families living in poverty, it may deepen social gaps.

  • There is a significant positive relationship between parents’ socioeconomic status and the expected savings from the program for the child, related to parental choices of where to invest the government money and whether to match monthly savings.
  • While less than a third of parents of children in the lowest income quintile add additional monthly savings, over 75% of parents in the highest quintile choose to do so.

Higher education

For the most part, those who benefit the most from investment in higher education are Jews in the middle to high socioeconomic strata.

  • The share of those continuing on to higher education in the middle and high socioeconomic clusters is higher by about 20 percentage points than the share among members of the weaker socioeconomic clusters.
  • The share of Jews continuing on to higher education stands at about 50%, versus about 30% among Arab Israelis (as of 2017).

In order to enjoy the advantages of social investment, welfare states need to address its limitations. They need to ensure both that social protection is sufficient to combat poverty and inequality in the present, and that social investment policies are effective and reach those who most need them.