Education, Infrastructure, and Economy of Israel

The Launch Event for the 2018 OECD Economic Survey of Israel, jointly hosted by the Taub Center and the OECD

The Launch Event for the 2018 OECD Economic Survey of Israel, jointly hosted by the Taub Center and the OECD, was held on Sunday evening, March 11, at the Menachem Begin Heritage Center in Jerusalem. The event, moderated by Taub Center Director of Policy Analysis Liora Bowers, attracted an audience of over 50 participants, ranging from civil servants, academics and journalists to curious citizens. This is the third such joint event of the Taub Center and the OECD, reflecting a growing relationship between the two over the past five years.

The evening opened with remarks by Peter Jarrett, Head of Country Studies Division 1 at the OECD, as he presented the latest bi-annual country survey on Israel. Mr. Jarrett began by praising Israel’s macroeconomic and fiscal performance over the last decade, saying it is one of the best outcomes in the OECD, but quickly added that the high GDP growth may be partially explained by the population growth.

He further noted that unemployment is falling sharply and steadily, and that only six countries in the OECD are currently performing better in this regard. Mr. Jarrett concluded the generally positive introduction by highlighting Israel’s falling debt levels and low macro financial vulnerability, noting that the Bank of Israel is rightly maintaining low interest rates, but should be prepared to gradually increase when inflation becomes entrenched in its target range.

Yet, not everything was rosy in the OECD survey findings. Mr. Jarrett pointed to Israel’s sky-rocketing house-prices over the last decade, as well as large disparities between Israel’s different population groups, noting the OECD’s perspective that low spending reduces the government’s capacity to address social inequality.

“Above all, reforms and more public investment in education would improve the skills of Haredim and Arab Israelis, allowing them to find well-paid jobs,” he said, referring to the substantial gaps in labor-market outcomes and wages between disadvantaged population groups and the rest of society, predominantly due to differences in skill levels. According to Mr. Jarrett, education spending  per student is low in Israel compared to the OECD, even while the need is likely higher. He further stressed the need for strengthening work-based vocational training and increasing efforts to provide training for the unemployed.

Other major challenges facing Israel, according to the OECD findings, include the large infrastructure deficit, especially in public transportation, and the difficulties in doing business. Regarding infrastructure, the OECD recommendations range from ensuring that municipalities have adequate resources to finance local infrastructure services, to promoting automated road tolls. In order to improve the business environment in Israel, Mr. Jarrett stressed the need for streamlining bureaucracy.

The survey found that Israeli businesses have to make the highest number of tax payments in the OECD, and that time required to comply with tax regulation is also very high, and that this especially affects small and medium sized companies.

The evening then continued with remarks by Taub Center’s Executive Director, Prof. Avi Weiss. Drawing upon findings published in the State of the Nation Report, 2017, Prof. Weiss spoke about the two-sector economy of Israel. He noted that in Israel’s high-tech sector wages are 2.46 times higher than in the non high-tech business sector – a difference that is much higher than the OECD average.

Normally, “labor mobility shouldn’t allow this to happen, but in Israel labor mobility is quite low,” he explained. The strong shekel has hurt exports, which causes businesses to turn inwards. This in turn leads to less competition and low investments in advanced equipment.

Prof. Weiss went on to comment on the OECD report, in particular the recommendation to increase spending while not adding to the debt, asking, “the OECD report talks about increasing public investment in education and infrastructure. How can we raise public funding in these areas in a fiscally responsible way?” He noted that there is little room for spending increases at the current tax rate, especially when such a large share of the budget goes to security.

Prof. Weiss further stated that the OECD report doesn’t necessarily reflect the many positive developments we’ve seen in education, among Arab Israeli women in particular. Also among the ultra-Orthodox there have been improvements in recent years, such as the increased enrollment at academic institutions.

After Prof. Weiss’ remarks, a panel of experts on education and infrastructure was convened to comment on the OECD findings.

Prof. Reuben Gronau of Hebrew University, weighed in on infrastructure. He expressed his appreciation for the OECD Survey – calling it the most comprehensive report on Israel’s infrastructure he has ever seen – given how little published material there is to draw upon in this field.

Prof. Gronau then mentioned his own paper from 1998, on the public utilities sector in Israel, which he called “the reform that never was,” and noted that in some industries, such as the electricity industry, very few or no reforms have taken place in the past 20 years.     The “elephant in the room,” according to Prof. Gronau, is the political economy, noting the large role of Workers’ Unions in setting wages.

Nachum Blass, Principal Researcher at the Taub Center, expressed his admiration for the comprehensive work done by the OECD in this survey, and added a number of reservations.

He shared his perspective that there is too much reliance on international education comparisons, such as PISA and PIIAC. In Mr. Blass’ words, “the long-standing economic, cultural and social achievements of the Israeli society reflect a remarkable contrast to its equally longstanding low ranking in the international exams.”

He also commented on one of the OECD recommendation to make funding of Haredi schools conditional on teaching core studies, such as mathematics and English, noting the cultural and political challenges of imposing such incentives. He further stressed the need to provide assistance to those who decide to leave the Haredi lifestyle, pointing out a lack of such programs.

Taub Center Researcher, Hadas Fuchs, who authored recent reports on education and labor market trends among Arab Israelis, spoke of the need to look at gender when discussing both Arab Israelis and the Ultra-Orthodox.

“Haredi women acquire education with similar scores as non-Haredi women,” she noted, while adding that she found it difficult to be optimistic with regards to Haredi men since they don’t study the core subjects, and there are high dropout rates among those who do pursue academic degrees. Among Arab Israelis, there are also large differences between the achievements of men and women.

She noted that “women achieve much more academically, but study education at higher rates than men” where salaries are generally low. She suggested that we should look at ways to encourage women to study fields that lead to higher-paying jobs. However, the real focus should be on Arab Israeli men to understand what barriers they are facing.

The Taub Center is grateful for its ongoing relationship with the OECD and looks forward to continue working towards the shared goal of promoting research and meaningful dialogue on crucial policy areas with potential to improve the wellbeing of Israeli society.