The challenge of integrating haredim (ultra-Orthodox Jews) into the Israeli workforce has been a source of much public debate in recent years, and has often been linked to the issue of military service. Yet despite being a hot topic on which most Israelis have strong opinions, the causes for the current situation remain unfamiliar to many. In order to truly understand why haredi employment rates are low, and to develop appropriate solutions, we must look back and examine the changes haredi society has undergone in recent decades.The Taub Center’s newly released “State of the Nation Report 2013” describes a process of creeping radicalization which was manifested in a gradual and consistent transition from the labor market to the world of Torah study. Just 35 years ago, about 85 percent of haredi men of primary work age (35-54) were employed, as opposed to less than half today. Yeshiva attendance rates among haredim who are currently aged 75 or above were significantly lower than those of today’s young haredim aged 25-34 (56% and 90% respectively), and the average length of stay in yeshivot among the older generation was significantly shorter.However, the most surprising (and alarming) trend revealed in the Taub report was the sharp decline in the length and scope of formal studies. In the past decade alone, the share of individuals with a primary school education or less among haredi men of the primary working ages (35-54) rose from 31% to 47%. In parallel, the share of those completing secondary school dropped from 26% to 12% – a consistent and significant decline in the extent of secondary studies.This phenomenon was unique to the haredi sector and completely contrary to the trend of rising education levels in other developed countries and among non-haredi Israelis.The decline in formal studies is at first glance puzzling given the rise in the returns on education in recent decades. While 30 years ago employment possibilities did not depend heavily on one’s education and wage returns on education were lower, today’s labor market is significantly more education- oriented. As the Taub report demonstrates, this holds true for haredim and non-haredim alike. Among haredi men aged 25-64, the employment rate of those with an academic degree stands at 71%, as opposed to only 34% among those without an academic degree. Among haredim who are employed full-time, the average monthly pay of degree holders is about 80% higher than the pay of those without a degree (NIS 13,600 and NIS 7,600 respectively).Furthermore, when both haredi spouses have an academic degree, their household income is 2.6 times higher than that of a haredi household with no academic degree holders.So why are they acquiring less formal education? The answer is complex. The sources of this phenomenon date back to policy changes that were introduced in the late ‘70s. A significant increase in stipends to yeshiva students, coupled with broader exemption from military service granted to those who would remain in yeshivot and forgo joining the workforce – led to the sharp rise in yeshiva attendance rates and average length of study.This in turn led to a significant delay in haredi men’s entry into the workforce and induced the gradual decline in their employment rates. Thus, in contrast to other sectors today, haredi men’s employment rates reach their peak only as the men reach their fifties, and even then, the rates are rather low (only about 50%). These patterns are in sharp contrast to those of Christian and Muslim Arab Israelis, who reach much higher levels of employment (80%-90%) already in their twenties, and non-haredi Jews, who reach a similar peak in their thirties. Such a delayed entry into the workforce greatly diminishes the incentive to acquire an academic degree. A haredi man exiting yeshiva at the age of 40 faces much lower returns on investment in higher education given the shorter period of employment, and would therefore choose to forgo such an investment. Furthermore, since higher education had become less worthwhile, secondary studies would seem obsolete as well, and many haredi parents would instead choose to send their sons to small yeshivot, starting in ninth grade.This in turn led to a sharp decline in formal education rates, culminating in the present situation in which only 5% of young haredi men (ages 20-24), have a matriculation certificate (bagrut).Today, as their numbers grow and their (external and internal) financial resources dwindle, an increasing number of young haredim are attempting to join the workforce. Yet, the lack of proper tools and training makes this task very difficult.Their ability to acquire those basic skills when already in their 30s and married with children is significantly diminished compared to the ability to do so in high school.So what can we do about it? We can start by fixing the distorted policies that brought about this situation in the first place. In particular, the state must sever the linkage between military service exemptions and yeshiva studies. As long as specific benefits and exemptions are given to haredi yeshiva students, there exists an incentive for other young Israelis to declare themselves haredim and enroll in yeshivot. As long as the Israel Defense Forces’ definition of who is haredi depends on belonging to and studying at a yeshiva, the distortion that delays haredi men’s entry into the workforce is perpetuated.The state should therefore consider introducing several differential service schemes, open to all Israelis (haredim and non-haredim alike), varying in length of service and monthly remuneration in correspondence with the intensity of the job (risk and effort), and its necessity to the IDF. Such a solution would substantially diminish the current distortion within the haredi labor market and at the same time would present young haredim (and non-haredim) with the option of choosing a shorter (and less financially rewarding) service scheme.This in turn would also lead to a better allocation of public funds, by diminishing existing inefficiencies stemming from unnecessarily prolonged service periods of soldiers who serve in positions for which the IDF has little need. More importantly, the state should reexamine its position with respect to mandating core curriculum studies for all Israeli children, and adopting a more active policy that would ensure that they all receive the tools required for integration in the modern labor market. Such measures are particularly urgent with respect to post-primary formal education, which for haredi boys (grades 9-12) is virtually nonexistent nowadays.For young haredim who are past the age of high school, the state should promote more professional training and guidance programs, as well as supplementary education programs to help narrow the gaps in formal education.Finally, the state should reverse the skewed incentive mechanism that exacerbated these trends, by rewarding labor force participation rather than non-participation. This can be achieved by increasing the scope and magnitude of negative income tax benefits to low-income employed individuals and by reducing support to those who are able but unwilling to work.The latter, however, should be implemented with great caution, as many haredim today are willing but unable to find employment due to poor formal education and insufficient tools and training. The state cannot ignore their distress, and must recognize its responsibility in helping them acquire those tools and attain financial independence.The author is a researcher at the Taub Center for Social Policy Studies in Israel and a doctoral student in economics at the Hebrew University.