Economic decline for Israel?

Longer lives and shrinking workforce pose threat to economy.

Elder care (photo credit:)
Elder care
(photo credit: )
A low rate of workforce participation and lack of long-term planning for pensions could lead Israel into economic decline, international experts on socioeconomic policy planning warned Sunday in Jerusalem. Mark Pearson, head of the Social Policy Division at the Organization for Economic Cooperation and Development (OECD) and Bernd Marin, executive director of the European Center for Social Welfare Policy and Research, both told The Jerusalem Post Israel was not alone in needing to better prepare for increasing life expectancy and shrinking workforces to avoid increasing poverty. The two experts are visiting this week for an annual conference on socioeconomic trends, organized by the Taub Center for Social Policy Studies in Israel, which is taking place on Monday and Tuesday. "While Israel has a demographic bonus and much of its longevity gains are absorbed by high fertility rates and immigration, it still has many unfavorable conditions and challenges to meet, such as an extremely low workforce participation, high poverty rates and an inequality of income distribution that even falls behind Turkey," said Marin, who visits Israel often as part of his research for the Vienna-based think tank. "In Israel, hundreds of thousands of able-bodied people do not work, and the low employment rate could aggravate the situation here," he said. "In fact, the low participation rate makes Israel more similar to Arab countries than to Western countries." Marin, whose center is loosely affiliated with the United Nations, said he would also emphasize at the conference the dangers of a growing elderly population combined with a shrinking prime-age workforce. "While individual longevity is expanding at an impressive rate everywhere, countries need to find a way to encourage people to work longer," he said. "And while increasing the retirement age is not always a popular sentiment, there is just no way around it." For Pearson, whose visit will also include meetings with senior government officials to explore Israel joining the OECD, the greatest threat to social stability in many countries is a precarious pension system, which could lead millions of people joining the workforce today into extreme poverty when they retire. "If we look at those entering the workforce today," he said, "their pensions will yield only a tiny amount by the time they are ready to retire." The only solution, Pearson said, was for people to work for more years than they currently do and for them to start saving on their own. "I know it is really boring for young people to think about pensions," he said, "but our real challenge is to see how to encourage young people to save more from an earlier age." While legislative changes mean that most workers, starting this year, will be entitled upon retirement to a pension from their employer in addition to one from the state, a recent study by the Joint Distribution Committee's Mashav Center warned that the government needs to do more to plan for demographic changes. The elderly population will climb from 10 percent of Israelis today to 13% by 2025, the center predicted.