Ethics @ Work: More people per person

At the close of 2005, it looks like GDP for the year is about NIS 550.4 billion NIS. If we just turn those into dollars at the current exchange rate, we get about $120 billion, but we don't do things that way.

January 4, 2006 08:34
3 minute read.

At the close of 2005, it looks like GDP for the year is about NIS 550.4 billion NIS. If we just turn those into dollars at the current exchange rate, we get about $120 billion, but we don't do things that way. The reason is that dollars go a lot farther in Israel than in the US. (When I'm shopping in the US, I usually figure that prices for produce are about the same as in Israel, without adjusting for foreign currency! I often find that a dollar there buys about the same as a shekel here.) The Central Bureau of Statistics calculates something called "purchasing power parity" and estimates that we get about a third more bang for our buck here in Israel, so we really end up with $160 billion in equivalent national income. Meanwhile in the US GDP is almost $12 trillion, or about 70 times as much. Does that mean we're much poorer than America? Not yet. Israel is much smaller than the US, so we need a way to adjust for that. The usual way of adjusting for population size is using per capita GDP. If we remember that the US has almost 300 million residents, we learn that GDP per capita is about $40,000. In Israel, we have close to seven million citizens, so equivalent GDP per capita is about $23,000. If we decide that the objective of our Jewish State is to have a Western-style standard of living (other objectives are also conceivable, of course), we have a ways to go, but not really a long way. We have about 60 percent of US income per capita, a gap which could be rapidly closed with even moderately better growth than the US. Calculating GDP on a per capita basis is taken for granted, but actually it is a bit bizarre. If we were to divide GDP by the number of workers, or even the number of working-age people, we could get a clue as to how productive we are. Not surprisingly, if we do this the hard-working Americans push even farther ahead of us. But the general assumption is that a per capita measurement is intended to tell us how much benefit each citizen gets. The problem is that dividing by the number of people tells us how much "pie" accrues to each person, but not everyone's needs are the same. In particular, Israel is blessed with a lot more kids than the US, and a hugely greater number than in most of Europe. It is generally accepted that there are "economies of scale" in consumption: Two adults living together don't need two refrigerators, two stoves, etc. The Organization of Economic Cooperation and Development generally assumes that a second adult needs only half as much as the first, and kids under 15 need even less, 60% of a (second) adult. Using this scale, we discover that Israel, with its much larger young population, has 11% more "people per person" (real people per standard person) than the US. So we're even closer to a US standard of living than we think. Israel's family situation can give us a different perspective on many drab statistics. I pointed out in a previous column that Israel can be more relaxed about a "pay as you go" Social Security system than Western European countries, since we actually have a next generation who will be able to pay for us before we go. (It's also true that a disproportionate number of children belong to sectors where workplace participation is very low, but there are signs that this is changing and I'm still betting that I will get back the money I'm paying in to Social Security.) And the National Council for the Child points out that while Israel has more children living under the poverty line than most other countries of comparable development, we also have far fewer living in what we used to call "broken homes." (They inform us that only five out of 26 countries have a higher fraction of two-parent families.) I won't judge for others which kind of distress is worse for children, but I personally wouldn't trade our family situation for that of many other countries. [email protected] The writer is research director at the Business Ethics Center of Jerusalem (, an independent institute in The Jerusalem College of Technology. He is also a rabbi.

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