Get a degree, find a job? Not so fast

Recent decades have seen a substantial rise in the share of Israelis attending academic institutions. This trend has not passed over any sector in Israeli society – and even in the Haredi sector recent changes were quite dramatic. However, the impressive growth in the number of Haredim studying for an academic degree in recent years has been and continues to be accompanied by significant challenges, as I’ve written about previously. One of these challenges lies in choosing a field of study that will provide quality employment opportunities with suitable wages in the future. It is important to note that a particularly high percentage of Haredi students, (especially those enrolled in private colleges) study law or business administration – fields in which the labor market is already saturated. Is this phenomenon a result of poor choices on the part of Haredi students, or does it stem from the limited supply of degree programs available to them?

It seems that both explanations are correct, but the latter sheds light on a larger problem in Israel’s higher education system. The excessive focus of academic institutions on a small number of (popular) fields of study is not only problematic for the Haredi experience in academia, but rather is a large-scale epidemic that affects all higher education in Israel.

The “College Revolution” in Israel began in 1995, in the wake of legislation that allowed, for the first time, non-university institutions to train students pursuing their bachelor’s, and later graduate, degrees. This has had some dramatic effects (some positive and some negative) on the Israeli labor market and on Israeli society as a whole. There is no doubt that increasing the supply and accessibility of higher education in the geographical and social periphery has increased the share of academically-educated workers in the labor force, improved human capital, and contributed to narrowing gaps. Even population groups that have refrained in the past from entering the labor market began to acquire an academic education and to gradually join the workforce. Thus, for example, in the past decade alone, the employment rate of Arab Israeli women has increased from 21% to 40%. However, alongside these positive trends, the “College Revolution” has come at a high price to the Israeli economy – one that is hidden beneath the surface. In order to understand this, we need to explore the situation in greater depth.

About two years ago, my colleague Gilad Brand and I investigated the problem of labor productivity in Israel and tried to understand why it is so low compared to other developed countries. Labor productivity is the average monetary value of an hour worked. This is a good measure of the level of efficiency and productivity of the worker, which is dependent on his training, professionalism, and the technological level of the equipment he uses. The higher the labor productivity, the higher workers’ wages will be and the higher the standard of living is in the country. In order to understand why labor productivity in Israel lags behind the rest of the developed world, we compared various industries in Israel to the corresponding industries in 12 OECD countries. The comparison focuses on problematic sectors whose contribution to the productivity gap is particularly large. Not surprisingly, in almost all sectors of the economy (except for the high-tech industries), labor productivity in Israel was lower. However, this finding in and of itself did not improve our understanding of the problem.

Our breakthrough came when we compared the relative size of the Israeli industries to the relative size of the corresponding industries in the OECD. We found that in Israel, a certain industry termed “other business services” is exceptionally large. In fact, about one quarter of all employees in Israel’s business sector are employed in this industry, compared with only one eighth in the OECD countries. Although this industry includes, among other things, occupations such as security guards, cleaning workers, and cooks, the majority of it is made up of academic occupations requiring high-skilled workers such as lawyers, accountants, economists, and managers.

It is important to emphasize that workers with an academic degree – and not security guards – make up the bulk of this industry and account for its inflated size. For example, in Israel there are three times more lawyers per 1000 people than in most developed countries. The share of accountants and business administration graduates is also exceptionally high in Israel.

Why is this problematic? Well, if the share of lawyers or accountants was doubled or tripled, the “economic pie” itself would not get bigger. These lawyers or accountants would not bring additional value to Israel’s economy as would, for instance, high-tech companies, industrial factories, or agriculture enterprises whose products can be exported. I’m not claiming that we don’t need lawyers or accountants, but if other developed countries do well with a third of what we have – why does the Israeli economy need so many people in these jobs? The simple answer is that it doesn’t. In fact, the excess of workers turning to these industries comes at the expense of the more productive industries that suffer from a lack of manpower – especially manufacturing.

How did we get into this situation? By allowing many private colleges to open in the 1990s, the State was able to provide access to higher education to a larger segment of the population, but never clearly defined the range of degree programs these institutions should offer. In fact, the prevailing assumption was that the market would adjust itself (according to the “invisible hand” principle), and that therefore the private colleges would inevitably offer their students degree programs that suit the needs of the labor market. The reality, however, is very different. Many private colleges have focused their attention and efforts on a limited number of study tracks with prestigious reputations (such as law, accounting, and business administration), which has enabled them to attract many students who are willing to pay large sums of money for the opportunity to acquire a desirable profession. In hindsight, it’s clear that these offerings are appealing but do not match the needs of the labor market (rather, it serves the interests of the colleges), and has led many graduates to find themselves with few real employment opportunities. Unfortunately, this grim reality is particularly damaging to Haredi students, especially those studying in private colleges.

How, therefore, is it possible to choose a study track that will provide a proper livelihood? The answer depends, of course, on the individual and the circumstances. It’s no secret that the high-tech and computer science sectors offer the highest salaries, but not everyone can become a programmer or a computer engineer (for those who can, I would strongly recommend doing so). Even for those who are not “computer geniuses” there are ways to enter the high-tech world. Software testers, for example, undergo a short training process in comparison to academic training, and earn respectable salaries. While Israel’s high-tech industry may be large compared to other countries, there is no shortage of available jobs. On the contrary, there is very high demand for more skilled workers. Nonetheless, it is clear that this sector alone will not provide employment for the vast majority of those looking for a job.

Where, then, are there other opportunities for good jobs with good wages? Well, in manufacturing. While the law and accounting firms are overflowing with college graduates, the manufacturing industry desperately needs more skilled workers. There is a serious lack of technicians, practical engineers, turners, welders, electricians, and machine operators in Israel. The training courses in these areas are relatively short – certainly in comparison to an academic degree – and the State subsidizes a large portion of the training costs or covers the costs in full. There is no need to pass a certain threshold on tests such as the bagrut or psychometric exams in order to be accepted into these training programs. Furthermore, at the end of the training, a worker can join the industry with a starting salary that is significantly higher than the starting salary for most workers with an academic degree.

If this is so, why is there such a severe shortage of workers in these industries? Firstly, it should be noted that until recently, the State didn’t provide enough training tracks for industrial workers, and the factories chose not to train those workers themselves. This is because worker turnover nowadays is faster than in the past and, therefore, it isn’t worthwhile for firms to invest in costly worker training. Secondly, non-academic professions in Israel have unjustly acquired an inferior reputation. Many people may remember that about three years ago, at a cabinet meeting on vocational training, Silvan Shalom admonished Prime Minister Netanyahu, saying: “Send your son to be a tinsmith or a welder…” (Calcalist, October 22, 2014). This statement accurately reflects the mentality of a large swath of the Israeli public. In a country where most young adults are engaged in an academic “arms race” – trying to keep up with their peers in the pursuit of additional degrees – manual labor has become an inferior and derided alternative.

But for those who can ignore the background noise and social stigma, short training courses and rapid integration into industries with respectable incomes are attractive. In fact, when weighing the costs and benefits, they may prefer this option over investing several years and tens of thousands of shekels to enter a saturated profession where good wages aren’t guaranteed. I’m not saying that acquiring an academic degree is not worthwhile. But I would also highly recommend that those considering their career paths find out in advance what future awaits them in the labor market.

This op-ed was published in the Times of Israel on October 23, 2017.

Dr. Eitan Regev is an economist and senior researcher at the Taub Center and…Read More