The gap between Israel’s high and low skilled workers
Author: Taub Center Staff Bulletin Articles

Israel’s highly skilled workers have comparable skill levels to those of their peers in other developed countries, yet a large portion of working Israelis have exceptionally low skill levels – a worrisome finding that has been highlighted by the coronavirus crisis

There are many indications that Israel’s most highly skilled workers are doing quite well relative to highly skilled workers in other developed countries. However, at the same time, a large share of the working-age population in Israel have exceptionally low skill levels, and subsequently low wages. Alongside these troubling findings, the coronavirus crisis has highlighted that when the economy faces an unforeseen shock, it is often the workers with lower skills and wages who are forced ­out of the labor market. This only heightens the importance of improving skill levels in the general Israeli working population.

The OECD’s Survey of Adult Skills (PIAAC) measures skill levels of workers aged 16-65 in OECD countries, including Israel. An analysis of the survey shows that about 95% of workers in the top skill quintile (the top 20% of skill levels) in Israel are non-Haredi Jews, a much higher rate than their share in the population. In addition, about 60% of Israelis working in high tech come from this most highly skilled group.

The scores of the most highly skilled Israelis are similar to those of their peers in other developed countries and do not appear to be particularly exceptional. In fact, they are lower than those of the top quintile in the most highly developed OECD countries. Even the skills of the most highly achieving 5-10% of Israelis are not extraordinary compared to those of their peers in other developed countries. Perhaps most concerning, the skill level of workers in the top 20% of Arab Israelis is quite low and matches the achievement level of the 60th skill percentile in the Jewish population.

Still, highly skilled workers in Israel are generally able to find good jobs. They are likely to be employed in professions that utilize their skills and to be well compensated for their high skill levels. Among Israel’s exceptional workers, and in comparison with the highly skilled in other highly developed countries, a very high share are employed in engineering, science, and information and communications technology (ICT) industries and a relatively low share of them work in areas that do not require their high skill level and offer lower wages.

Eng graph 1Thus, despite the less than stellar achievements of the highest skilled Israelis relative to their peers in the OECD on the PIAAC skill survey, Israeli workers manage to integrate more successfully than their OECD peers into high-quality jobs. It is possible that this achievement reflects skills and abilities that are not well tested by the PIAAC survey, such as initiative and creativity that are highly valued in the labor market.

 

A characteristic that makes Israel stand out in international comparisons is that the return to high skills is unusually high; that is, a one standard deviation increase in the skill level of an already skilled individual at the 80th skill level percentile boosts that individual to the 99th percentile and translates into a 33% rise in wages for men, and 26% for women – both higher than the skill premium in other OECD countries.

As a result of the success of highly skilled workers in Israel in the labor market, their wages are comparable to those of their peers in other OECD countries. At the lower skill levels, however, wage levels in Israel are about 40-50% less than those of similarly skilled workers in the OECD.

This disparity is surprising given that a relatively high share of low skilled Israelis, in comparison to their peers in the OECD, have completed higher education. Nonetheless, Israel’s labor market does not compensate those with higher education and relatively low skills well, as the return to academic education for the low skilled non-Haredi Jewish population is close to zero. This demonstrates the difficulty in narrowing wage gaps through increased accessibility to higher education.
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The large gaps between Israel’s high and low skilled workers was cause for concern even before the coronavirus crisis, yet the economic shutdown and resulting spike in unemployment (including unpaid leave) further highlighted the precarious position of Israel’s low skilled workers. In fact, the average income of furloughed workers is about 40% lower than that of their un-furloughed peers. A prolonged period of low economic activity could leave many former employees, specifically those with lower skills, discouraged about the possibility of finding a job and exiting the labor force once their period of unemployment benefits expires.

To help with this, the Israeli Employment Service has been offering a wide variety of free online courses that could help advance some of the weaker populations, and particularly those in the periphery, towards future employment. These steps for improving worker skills are needed in Israel even during normal times and are all the more important during times of crisis. Perhaps one positive consequence of the coronavirus crisis will be bringing the issue of improving the skills of low skilled workers to the forefront of public discourse.