Israel’s economic forecast: Slowdown, high poverty

For years Israel’s GDP per capita grew by 2% to 2.5% per year; however, from 2012 to 2016 it slowed to an average annual growth rate of about .9%

December 28, 2016 06:16
Poverty Israel

A man in Jerusalem searching through the garbage. (photo credit: MARC ISRAEL SELLEM/THE JERUSALEM POST)


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Israel should expect slow economic growth in the coming years, according to a report released Wednesday by the Taub Center for Social Policy Studies in Israel.

The study, “State of the Nation 2016,” based primarily on Taub Center research compiled and edited by Prof. Avi Weiss, executive director of the Taub Center and a professor of economics at Bar-Ilan University, offers a snapshot of the socioeconomic condition in 2016.

According to the study, for years Israel’s GDP per capita grew by 2% to 2.5% per year; however, from 2012 to 2016 it slowed to an average annual growth rate of about .9% – a much slower rate than other developed countries with a similar per capita GDP.

Researcher Gilad Brand examined the sources of the slowdown and found that “the most important ingredient in economic growth over the past decade was an increase in the volume of employment,” which contributed about half of the growth between 2012 and 2015.

At the same time, he found a decline in the contribution of human capital to Israel’s economic growth and a slowdown in investment in physical capital per worker. He also found that productivity has declined as well – a trend that has continued since 2012.

The data showed that a large portion of new employees entering the economy have education and skills that are not relevant to the current labor market, which inhibits growth.

In the future, it is expected that those with education that does not meet the needs of the labor market will make up an even greater portion of the population – which in turn will decrease the quality of the workforce and reduce the potential for long-term growth, he concluded.

Furthermore, Bland found that the expansion in the labor market has reached a standstill, as the share of Israelis in the working-age population (25 to 64) is on the decline – a trend that is likely to intensify.

This process slows employment growth and is expected to detract 0.6% annually from potential growth through the end of the decade.

With regard to poverty and inequality, researcher John Gal stated that the issues of welfare and social security were not central priorities of the government these past two years, despite high poverty and inequality rates.

The study found that the government allocated some NIS 94 billion in 2015 toward social welfare, accounting for roughly one-fifth of total government expenditure.

Despite this, two years after the release of the recommendations of the Committee to Fight Poverty, headed by Eli Alalouf, only half of the recommendations have been fully or partially implemented.

The cost of implementing the committee’s recommendations was estimated at 7.4b.

NIS a year, yet the actual budget allocated by the government to date is only 1.9b. NIS.

“It seems that the main goal emerging from the recommendations – cutting the poverty rate in half over 10 years – does not have the capacity to be realized for budgetary reasons,” the study concluded.

Researcher Haim Bleikh found that the overall poverty level in Israel has not changed much between 2002 and 2014, while the composition of the poor population has significantly changed.

In 2002, the share of poor ultra-Orthodox and Arab households out of all poor households stood at 44%; by 2014, however, they comprised 54% of poor households, the report found.

This year’s report also focused heavily on education-related issues from preschool through to higher education.

“In the last decade, the educational system was abound with positive trends, but there are still quite a few areas – especially educational and social gaps that are not closing – that the education system must work hard to correct,” the study stated.

According to the report, the past decade has seen an increase of some 23% in the number of pupils and students in the education system.

Since 2005, the Education Ministry’s budget increased by some 86%.

The increase in education spending was mostly due to wage agreements with teacher organizations and the full implementation of the Free Compulsory Education Law for three- to four-year-olds. Between 2005 and 2012, both overall expenditure on education and spending per pupil in Israel grew at a faster rate than in the OECD. Most of the increased spending went to preschools, whose budget increased by 38%, and to primary schools and special education (the budget of each rose by about 20%).

The report stated that the most dramatic change in the education system this past decade is with regard to teachers, whose wages, as well as education level, has increased. However, the report found that Israeli teachers’ salaries are still below the OECD average wage: $28,281 in Israel, compared to a $42,675 average in the OECD.

On a positive note, the report found that there has been a rise in achievements on student assessment exams, both internally and internationally.

The share of pupils who qualified for matriculation certificates rose from 46% to 56% between 2006 and 2015. Students in the state religious education system, as well as Druse and Ethiopian students – for whom substantial funds were invested during this period – attained higher achievements than would have been expected on the basis of their socioeconomic profiles, the study found.

With regard to higher education, the report focused on the challenges facing ultra-Orthodox integration in academic studies.

According to researcher Eitan Regev, in the period between 2008 and 2014 the number of haredim newly enrolled in higher academic institutions increased almost threefold, from 1,122 to 3,227.

However, he found that the number of ultra-Orthodox citizens with an academic degree is much lower than previously estimated – only some 2.4% of haredi men and 8.3% of haredi women aged 25 to 35 had an academic degree in 2014, compared to 28% of secular men and 43% of secular women.

In recent years, admissions requirements have eased for haredi students entering academic studies, the report stated. As such, 53% of all haredi students were accepted to academic institutions in 2014 without matriculation and psychometric exams, a prerequisite for all other students, as compared to only 26% in 2000.

Due to a lack of quality core-curriculum studies and preparedness compared to other students, the research shows that the combined dropout rate of haredi students is nearly double that of non-haredi Jews, 58% compared to 30%.

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