Study: Infrastructure, red tape behind Israel’s low productivity

Israelis work more hours, produce less than G-7, OECD average.

By
September 8, 2013 18:46
1 minute read.
Women work at a factory in Israel

Women work at a factory in Israel 390. (photo credit: Ariel Jerozolimski)

Israel’s relatively low capital investment and extensive government bureaucracy are responsible for its low worker productivity, according to a new study.

“In addition to the problematic level of the country’s human capital infrastructure and to the multi-decade neglect of its transportation infrastructure, Israel’s capital formation is at the low end of the OECD,“ the Taub Center for Social Policy report released on Sunday said. “The country’s cumbersome governmental bureaucracy, requiring the diversion of even more resources away from actual production of goods and services, lower[s] productivity even further.”

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In Israel, it takes businesses two-anda- half times longer to open their doors than in the average OECD country.

Those Israelis that were part of the labor forced tended to work longer hours but produce less than their counterparts abroad, Taub Center Executive Director Dan Ben-David said. “Though Israelis who do participate in the labor force work more hours than workers in the leading Western countries, their productivity per hour worked is considerably less, and falling further and further behind (in relative terms) the G-7 labor productivity.”

The Taub study joins a growing chorus of reports that generally praise Israel’s economy for its innovative edge and investment in scientific research, but decry the difficulty of doing business and low levels of productivity.

Israel dropped one place in the World Economic Forum’s Global Competitiveness Index released last week, which listed inefficient government bureaucracy, inadequate access to financing, cumbersome tax regulations and restrictive labor regulations as the economy’s major impediments.

In May, the IMD World Competitiveness Ranking found that Israel was held back by low productivity and efficiency, high prices and poor basic infrastructure.

A Google-sponsored study in July put Israeli productivity 24th among the OECD’s 34 member states, though it blamed inadequate integration of information communication technology infrastructure into the economy.

“We’re very good at ICT as an industry, but very weak at ICT as a tool,” the study’s author Shally Tshuva said at the time. “In 25 years, we have not succeeded in lowering the productivity gap with Europe.”


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