Study: Israel has lowest productivity in OECD

Labor productivity in all employment sectors except for agriculture is the lowest among developed countries.

November 27, 2013 05:04
2 minute read.
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Israel’s labor productivity is the lowest among Organization for Economic Cooperation and Development (OECD) countries in nearly every business sector, according to a study released Wednesday in the Taub Center for Social Policy’s 2013 State of the Nation report.

Labor productivity is the amount of economic value an average worker produces in an hour.

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“In all employment sectors except for agriculture – that is in the building, manufacturing, wholesale and retail trade, hotels and restaurants, transportation, financial inter-mediation and real estate sectors – labor productivity in Israel is the lowest among developed countries with data for recent years,” the report by Taub director Dan Ben-David said.

Despite the dismal conclusions from the data, it did not take into account changes in the past five years; the most recent data available was from 2008.

Productivity is important because it is linked with overall economic growth and greater socioeconomic equality.

Increasing it depends on high levels of human capital – meaning a skilled and educated workforce – and capital investments. In Israel, poor education, lack of infrastructure in areas such as transportation and a cumbersome government bureaucracy are the primary reasons for low productivity, the study found.

Even when groups such as the ultra-Orthodox, who don’t study core subjects such as math, science and reading, and Arabs, whose education outcomes in Israel rival developing countries, Israel still falls near the bottom of the OECD results in testing scores.

Given demographic trends, the report said, the future of Israel’s productivity looks dire.

“Ultra-Orthodox Jews and Arab Israelis comprise almost half of the country’s primary school pupils, and these are not the only children in Israel receiving one of the worst basic educations in the Western world.”

Regarding infrastructure, Israel has 2.6 times the number of vehicles per kilometer of road than the OECD average.

More traffic jams mean more hours spent trying to get business done, and lower productivity.

“Add to this a very cumbersome governmental bureaucracy and the implication is that even more resources need to be diverted away from actual production of goods and services,” the report said.

The number of days required to open a new business (34) is second only to Spain, according to the study, and 2.5 times the OECD average of 13 days.

Finally, the larger economic problems of high market concentration, burdensome regulation and lack of competition push up prices, and pull down productivity.

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