Integrating ultra-Orthodox into labor force is ‘economic necessity'

Bank of Israel governor Prof. Amir Yaron has warned that the ultra-Orthodox community must be brought more fully into Israel's labor force if the country is to prosper.

Amir Yaron attends a ceremony whereby he is sworn in as Bank of Israel governor by Israel's President Reuven Rivlin, in the presence of Prime Minister Benjamin Netanyahu and Finance Minister Moshe Kahlon, in Jerusalem December 24, 2018. (photo credit: AMIR COHEN/REUTERS)
Amir Yaron attends a ceremony whereby he is sworn in as Bank of Israel governor by Israel's President Reuven Rivlin, in the presence of Prime Minister Benjamin Netanyahu and Finance Minister Moshe Kahlon, in Jerusalem December 24, 2018.
(photo credit: AMIR COHEN/REUTERS)
Integrating the growing ultra-Orthodox community into the country’s future labor force is an “economic necessity” for continued growth and prosperity, Bank of Israel Governor Amir Yaron has warned.
Speaking at The Marker Conference, Yaron said planning to improve the integration of ultra-Orthodox Jews must commence immediately, highlighting demographic forecasts for the coming decades.
“Israeli society as a whole, and obviously the ultra-Orthodox community within it, must recognize the economic necessity of integrating the ultra-Orthodox community in the future labor market,” said Yaron, who has headed the central bank since December 2018.
“The government also must create the proper incentives and make the necessary investments; and employers themselves, if they learn to adjust the work environment to the characteristics of ultra-Orthodox workers, will benefit from the abilities of those workers to join their ranks and maximize their full talents and abilities.”
The ultra-Orthodox share of the population is expected to reach one-third by 2065, but labor force participation rates trail far behind the Israeli and developed world average.
According to figures published in August 2019 by the Labor Ministry, only 50.2% of ultra-Orthodox men are currently employed. Employment among ultra-Orthodox women has increased significantly in recent years, with approximately 76% now employed, just below the high national average of 78.3%.
Significant wage gaps also exist between population groups. The average non-ultra-Orthodox Jewish man earns NIS 15,372 per month, compared with NIS 9,928 among women. Among the ultra-Orthodox community, the average wage for working men stands at NIS 8,467, compared with NIS 7,527 among ultra-Orthodox women.
“GDP per capita in Israel remains lower than the OECD average. The ultra-Orthodox share of the population is constantly increasing, and is expected to reach one-third by 2065,” said Yaron. “Without fully integrating the ultra-Orthodox [and other population groups] in the future labor market, we will not be able to come close to the standard of living of the wealthy countries, and there is even a concern that we will decline in that ranking over the years, since the ultra-Orthodox community is becoming more and more significant in terms of its size.”
Citing a simulation carried out by the Bank of Israel, Yaron said integrating ultra-Orthodox men into the labor market and providing them with an appropriate education will “significantly increase” per capita GDP, which has remained approximately 30% behind the upper half of OECD countries for almost a decade.
Severe income gaps also need to be tackled, Yaron added, both for the ultra-Orthodox community and for the Israeli economy as a whole. Only 7% of Israeli households are defined as ultra-Orthodox, but they represent approximately 16% of all households below the poverty line. The net income of households within the ultra-Orthodox community is 30% lower than secular households, but has to cover expenses for significantly larger families. Accordingly, direct tax payments by ultra-Orthodox households are just one-third of those paid by secular households.
“If the demographic trends are maintained and ultra-Orthodox participation in the labor market remains as it is today, maintaining tax revenues as a share of GDP will require a 16% increase in direct taxes in 2018 terms,” said Yaron. “This is a calculation we made in order to provide a sense of one of the economic implications that we will need to deal with if we don’t deal with the challenge of integrating the ultra-Orthodox community in the economy.”
While gaps in monthly wages between ultra-Orthodox women and their secular peers are now almost fully explained by fewer working hours, Yaron highlighted that increasing disparities between ultra-Orthodox and secular men are due to both fewer hours of work but also inferior earning capacity. Gaps in education, employment duration and basic skills, he added, begin with poor scholastic achievements and are subsequently reflected by low skills and wages.
Alongside labor market adjustments, Yaron also emphasized the importance of catering for ultra-Orthodox needs, as technology increasingly enters every sector of modern life. Citing the example of digital banking and restrictions on smartphones in the ultra-Orthodox community, the Bank of Israel has required banks to implement a solution whereby text messages are converted to voice messages.
“This solution enables the ultra-Orthodox customer to receive a password for his account on a ‘kosher’ cellphone, and to benefit from the advantages of receiving banking services remotely without having to go to the branch,” said Yaron. “This is, of course, a small example of an adjustment that succeeded in enabling important business activity while taking the characteristics of the ultra-Orthodox community into account. Such adjustments, which recognize and respect the ultra-Orthodox lifestyle, will help the process of integration into the economy succeed.”