OECD: Israel needs structural reform to boost growth

Report recommends pushing ahead on efforts to educate ultra-Orthodox Jews and Arabs and integrate them into the labor market, where slow progress was noted.

Ramat Gan general view (photo credit: RAMAT GAN MUNICIPALITY)
Ramat Gan general view
The Organization for Economic Cooperation and Development (OECD) on Monday recommended that Israel continue structural reforms to boost its growth potential.
In its annual Going for Growth report, released with the start of the G-20 meeting in Istanbul, the OECD found that most advanced economies were having trouble getting to the growth levels they enjoyed before the 2008 global financial crisis. Across the board, it recommended structural reforms to boost demand and strengthen growth, particularly in labor markets and product markets. Reforms, the report noted, were slowing down in the advanced economies even as they picked up in emerging economies.
“An ambitious reform agenda can help boost jobs, productivity and support demand, which is crucial to preventing the development of a vicious circle whereby weak demand and growing inequalities undermine potential growth and confidence, possibly leading to persistent stagnation,” OECD Secretary-General Angel Gurría said at the report’s launch event in Istanbul.
“We understand the difficulties many governments face in pushing for reforms, in a context of weak demand, limited budgetary leeway and high unemployment,” he said. “But we still see structural reforms – combined with effective fiscal and monetary policy – as part of an essential trilogy to boost growth.”
In its chapter focusing specifically on Israel, the OECD applauded the market-concentration reform that will break up pyramid companies within the next several years.
But it found that Israel still had a long way to go.
First, the report recommended pushing ahead on efforts to educate ultra-Orthodox Jews and Arabs and integrate them into the labor market, where slow progress was noted.
Monopolies and concentration should be broken up in the electricity market, it said, adding: “In telecoms, establish an independent regulator and increase competition in post, rail and water services.”
Government bureaucracy has to be cut back because it hampers the function of private markets. Negative income tax should be strengthened to encourage labor participation, the report said.
Regarding food prices, the OECD recommended lifting price controls, especially on staples.
“Remove remaining import barriers on food products.
Reduce agricultural production- based support such as guaranteed prices and quotas for products like milk, eggs and wheat,” the report said.
Labor productivity, where Israel is near the bottom of the scale, is the main driver of long-term growth, it said.
“The pursuit of comprehensive reform strategies can be one of the keys to addressing rising inequalities and the lingering social consequences of the crisis,” Gurría said. “Implementing reforms that raise the job opportunities and earnings potential of low-skilled workers, help young people get a step on the job ladder and improve the labor market opportunities of women will unlock growth potential in our economies and ensure that it is shared by all.”