Now, as the political landscape is changing, the Taub Center is publishing A Picture of the Nation 2022. Which areas did Israel’s government deal with well and which areas remain challenges for a new government? A Picture of the Nation 2022 presents some of the most substantial trends in the areas of the economy, the labor market, health, demography, welfare, and education and five Spotlights on important findings in these areas. The sections dealing with macro-economics and the labor market describe events in 2021: the surprising recovery in the Israeli economy, though not in all areas; the increase in the debt-to-GDP ratio following many years of efforts to lowet it to an optimal level; and an exceptionally large drop in private consumption and imports. The high tech sector managed to minimize the impact of the crisis and to weather the storm, but this was not the case in some of other sectors.
The booklet, written by Prof. Avi Weiss, Taub Center President and professor of economics at Bar-Ilan University, provides an up-to-date picture of the State of Israel in 2022.
The Israeli economy recovered in 2021 with surprising speed, though this did not encompass all of the economic sectors. The rate of private consumption was well under its expected level had the pandemic not occurred and the need to provide assistance to adversely affected populations and businesses led to a substantial increase in the debt-to-GDP ratio.
- In 2020, there was an exceptionally large drop in the rate of growth as a result of the extreme lockdowns — Instead of a typical GDP growth rate of about 4%, the GDP dropped by more than 2% in 2020. Relative to other countries, there was a substantial decline in private consumption and imports — of 9.2% and 9.5%, respectively. Some of the drop in consumption is explained by an average decline of 34% in visits to retail outlets and in leisure activity, a larger decline than in other countries. On the other hand, exports declined by only 19%, thanks to the ability of the high tech industry to deliver their products even during the crisis.
- In contrast to the forecasts, the Israeli economy recovered rapidly in 2021 — GDP grew by about 6% between 2019 and 2021 instead of the expected growth rate of about 8% had there been no crisis. Private consumption has yet to return to its normal level.
- The deficit contracted more than expected in 2021 — As a result of the COVID-19 pandemic, the deficit grew at its highest rate since 1996, and the deficit for 2020 stood at 11.4% of GDP, as compared to 3.7% in 2019. In contrast, the deficit in 2021 shrank to 4.4% of GDP, significantly lower than the forecasts of the Bank of Israel and the Ministry of Finance (5.3% and 6.8%, respectively). As a result of the economic recovery in 2022, the deficit has turned into a surplus. In 2019, the government set a deficit target of 1.5% for 2024, but deferred it by two years as a result of the continuation of the coronavirus crisis.
- The expenditure used to deal with the COVID-19 pandemic was the largest in the State’s history — The total budget for dealing with the crisis stood at NIS 191.6 billion. By the end of April 2022, about 93% of this multi-year assistance plan budget had been utilized, a plan that includes a healthcare and civilian response, a social security net, business continuity, and accelerated business development.
- An increase in the debt-to-GDP ratio as a result of the assistance provided during the pandemic — The debt-to-GDP target of 60% was achieved prior to the pandemic. The substantial increase in expenditure and the sharp drop in GDP in 2020 raised the ratio sharply. The Ministry of Finance is recommending a rapid reduction in the deficit by means of expanding the tax base and reducing expenditure, while the Bank of Israel is proposing a more gradual reduction in the deficit. Another possibility is to increase public capital through massive investment in infrastructure, which will be financed by increasing the deficit by 2 percentage points. This will accelerate growth, but it will increase the debt-to-GDP ratio in the short run.
- The ratio of public capital to GDP is particularly low in Israel — The stock of public capital relative to GDP in Israel is lower by about 30 percentage points than in countries of similar size (Austria, Denmark, Finland, the Netherlands, and Sweden). Increasing public capital, including highways, public transportation, seaports, airports, etc., is essential to maintaining economic growth and raising the country’s standard of living.
- Israel pays a particularly low rate of interest on its debt — Increasing the investment in public capital can be financed at existing terms by a temporary increase in the deficit without endangering Israel’s status in the global capital market.
The effect of the COVID-19 pandemic on the labor market was substantial but short-lived. The employment of men was more affected than that of women; certain sectors have still not recovered while others did not experience any drop in business activity; and the effect of the pandemic on employment varied across geographic districts.
- More than 70,000 people remained without work as a result of the pandemic — Since May 2021, the share of workers who have given up on finding a job was about 1.2% of the population aged 15+. Certain employment sectors were seriously affected while others remained almost unaffected. Working from home became a more popular employment option, independent of the pandemic’s effect.
- Employment was most affected by the pandemic in the weakest geographic districts — The rate of employment in the Northern District fell by 13%, in the Southern District by 9%, and in Jerusalem by 7%. In the Center, Tel Aviv, and Haifa, there were declines of 4%–5%. Among Arab men, the sharp decline in employment began prior to the COVID-19 pandemic.
- The rate of employment rises with the level of education — Among individuals without a high school education, employment rates are lower than 40%. The rate rises to 70% among high school graduates, and to 80% among those with an academic degree. The rate of employment is about 90% among those with a PhD.
- The average hourly wage of Mizrahi Jews is higher — Ashkenazi Jews are on average more educated than Mizrahi Jews but Mizrahi Jews earn more on average at most levels of education. The average hourly wage of non-Jews is lower, regardless of their level of education.
Spotlight: Top Decile Wage Earners in Israel
Academic achievement and experience have a critical effect on the probability of being in the top wage decile; however, their effect on one’s position within this decile is close to negligible. What is needed in order to find oneself in the top wage decile?
- Women constitute only about one-quarter of the workers in the top wage decile — Women constitute about 56% of the workers in wage deciles 1–8 but only about 34% of the workers in the decile 9 and only about 27% of those in decile 10. In contrast, the share of Ashkenazi men increases by almost threefold from the lower deciles to the tenth decile and the share of other Jewish men almost doubles.
- Education and experience are the two critical factors in determining the likelihood of selecting into the top wage decile — About 72% of the workers in the top wage decile have an academic degree, which is one of the most important factors in determining entry to it.
- For non-Jews, the way to get into the top wage decile is to be self-employed — Among non-Jews, the share of self-employed in the top wage decile is 26%, as opposed to 16% in decile 9 and 9% in the deciles 1– Among the rest of the population, the average share of the self-employed is 12%, a figure that does not vary substantially across deciles.
Manpower in the medical professions is having difficulty keeping up with the population growth despite an increase in the number of doctors due to the opening of new medical schools and the increase in the number of medical students studying abroad. Thousands of lives per year could potentially be saved if Israel can adopt medical practices that are successful in other countries.
- Despite the increase in the number of physicians in Israel, their number is lower than the OECD average — Between 2000 and 2019, there was an increase of 26% in the number of physicians in Israel. At the end of 2020, the number of physicians under the age of 67 stood at about 31,800, of which more than 8,300 were interns. The share of physicians per thousand population in Israel is lower than the OECD average – 3.3 versus 3.5.
- Israel leads the OECD countries in the share of medical graduates who studied abroad — In the past few years there has been a rise in the number of immigrant physicians to Israel and Israeli physicians who have studied abroad. Alongside this, The number of medical students has doubled in the past decade as a result of the opening of new faculties of medicine in Tzfat and Ariel and the modification of additional hospitals to train physicians.
- About one-half of the physicians in Israel are over the age of 55 — The population of physicians in Israel has the highest average age among the developed countries and many physicians are approaching retirement age. About 49% are over the age of 55, in contrast to an average of 34% in the OECD.
- The positive effect of immigration from the former Soviet Union on the healthcare system is diminishing as the physicians who were part of the massive wave of immigration approach retirement. The shortage of physicians is primarily felt in the periphery and in medical fields such as anesthesiology, internal medicine, and pathology.
- The share of active nurses in Israel is among the lowest in the OECD. There are 5 active nurses per thousand population, as opposed to an average of 9.5 in the OECD. From a geographic perspective, the shortage is felt primarily in the periphery, while from a professional perspective, it is felt in public health and even more so among school nurses. Furthermore, there is a trend of academization in the nursing profession. Thus, the number of registered nurses is on the increase, while the number of practical nurses is diminishing. In 2020, the share of licensed nurses under the age of 67 was 6.3 per thousand population.
- A relative shortage of physicians in the periphery — The number of physicians per capita in the Southern and Northern Districts is significantly lower than in the other districts. Between 2018 and 2020, the number of physicians per thousand population in Tel Aviv was 5.8, as opposed to 3.0 and 2.5 in the Southern and Northern Districts, respectively. Between 2015 and 2017, the gap in the number of physicians widened between the Southern and Northern Districts and the rest of the country, apparently due to the gradual rollback of the periphery grants.
- In the lower socioeconomic groups, the Covid-19 vaccination rates are particularly low, while the proportion vaccinated among this group tends to be higher in the case of traditional vaccinations. There may be long-term implications in view of the physiological, mental, and socioeconomic effects of the virus.
- There is a potential to prevent thousands of deaths if medical practices that have been successful in other countries can be successfully adopted in Israel. In Israel, there is a very high level of mortality due to diabetes and it is among the poorest performing countries in the OECD in this regard. A reduction in mortality from diabetes to the median level among the 36 other countries in the ranking would prevent almost 3,400 deaths per year. This is higher than the number of deaths from the coronavirus in 2020. Further, thousands of deaths per year from other diseases could potentially also be prevented if medical practices that have succeeded in other countries can be successfully adopted in Israel.
There were high rates of mortality during the COVID-19 waves, but the overall mortality rate among COVID-19 patients was low. In 2020, there was a high rate of mortality among the elderly, while in 2021, there was actually an increase in mortality among the young.
- The number of deaths due to COVID-19 in 2021 was 73% higher than in the preceding year, despite the rapid vaccination program in Israel. In 2021, there was an increase in mortality among the young while the rate among the 75+ age group fell to almost pre-pandemic levels.
- The number of deaths in 2022 fell relative to 2021 — During the first two months of 2022 the number of deaths from COVID-19 was about 1,930, in contrast to about 2,400 during the same period in 2021.
- The rate of mortality from COVID-19 among confirmed patients in Israel was among the lowest in the world throughout the pandemic, evidence of the successful response by the Israeli healthcare system to the pandemic.
- An increase in fertility among Jewish women and the leveling off of the downward trend among Arab women — Early signs of the effect of the pandemic on rates of fertility in Israel show an increase in the fertility rate among Jewish/other women and the leveling of the downward trend among Arab women. The average number of children per woman in Israel is almost double that in the OECD. Future trends will show whether the coronavirus pandemic strengthened the trends in fertility in Israel over time or weakened them.
- A recovery in immigration to Israel, primarily from Ukraine and France — About 26,000 immigrants arrived in Israel in 2021, including the largest number of American immigrants since 1973. In the preceding year and in the shadow of the pandemic, there was a significant decrease in the number of immigrants, which was primarily due to the decline in immigration from Russia and Ukraine. The war between them is likely to lead to a renewal in the immigration from these two countries.
Spotlight: Violence and the Israeli Arab marriage market
The growing violence in Arab society can be traced to demographic and economic factors, including a large cohort of young adults and “social disengagement.” The widening of educational gaps between men and women and the lack of balance in the marriage market are worrisome signs that may contribute to an upward trend in violence.
- An increase in murder rates in the Arab sector and a decline in the Jewish sector — About 80% of total murders in 2020 and 2021 occurred among the Arab population, which constitutes only 21% of the population in Israel. Between 2016 and 2021, the number of murders doubled in Arab society. Part of the explanation lies in the growing number of 18–22-year-olds, who suffer from underemployment and are not enrolled in higher education.
- An imbalance is expected in the marriage market in Arab society — Based on demographic forecasts, during the 15-year period beginning in 2026 the number of potential grooms in Arab society will be far greater than the number of potential brides. The difficulty in finding a bride among Arab women in Israel is liable to become an additional factor contributing to sociopolitical instability.
- Arab women are more educated than Arab men — In 2021, Arab women constituted more than 67% of Arab undergraduate students and Ph.D. students and about 74% of Arab graduate students. Alongside the desirable social outcomes, the dominance of Arab women over Arab men in higher education is liable to make it even more difficult to find suitable marriage partners in Arab society.
- A rapid increase in the divorce rate in Arab society — Marriage in Arab society is becoming increasingly less stable and there has been a steep rise in the divorce rate. Based on this trend, the gross rate of divorce among Muslims is expected to exceed the level among Jews in 2023.
Spotlight: Israel’s Southern District
The population in Israel’s south is growing faster than that in other parts of the country. The Southern District is holding on to its residents and is no longer experiencing a negative migration balance. Many of the immigrants to the South are from the former Soviet Union and many are “first generation with an academic education.” The population of the Southern District tends to be relatively satisfied with their lives.
- The population in the Southern District is growing quickly relative to that in other districts — Since 2015, the population in the Southern District has grown by between 25,000 and 29,000 per year, which is faster than the national average. Among the Arab population, the increase has been about 3.8% per year as opposed to 1.8% among the Jewish/other population.
- The population in the Southern District is stable and there is no longer a net negative migration, as in previous decades — About 82% of the 4,335 immigrants to the Southern District in 2019 were from the former Soviet Union. The likelihood that immigrants to the South will be “first generation with an academic education” is larger than in other districts. About 10% of the residents aged 45–54 are not defined as Jews, Muslims, or Christians, which is the highest rate in Israel.
- The level of education among the labor force in the Southern District is the lowest in Israel. Only 40% of the Jewish residents of the Southern District aged 30–44 have a bachelor’s degree, in contrast to about 57% in the Tel Aviv and Central Districts.
- The percentage of high-paying jobs in manufacturing in the Southern District is the highest in the country — The likelihood of a worker in the Southern District being employed in high-end manufacturing is 76% higher than the national average.
The government’s social welfare expenditure in response to the COVID-19 pandemic was unprecedented. The high level of expenditure on welfare — and particularly on unemployment benefits — continued from the beginning of the pandemic until mid-2021. The target populations of social welfare programs are not always fully utilizing their rights.
- Unprecedented growth in the level of welfare expenditure — As part of the response to the COVID-19 pandemic, social welfare expenditure was increased by NIS 55 billion in 2020 relative to 2019. About 70% of the increase was designated for welfare and about 25% for healthcare.
- A significant increase in the income of the elderly living in poverty — In 2022, the government began implementing one of the main recommendations of the Elalouf Committee for the War Against Poverty. As a result of this measure, the basic old-age benefit together with income support was increased by NIS 972 per month for a couple and NIS 615 per month for a single individual relative to 2020.
- The number of recipients of unemployment insurance is lower than prior to the COVID-19 pandemic — The unemployment insurance program helped many to weather the crisis. Prior to the pandemic, the number of recipients of unemployment insurance benefits was about 75,000. In April 2020, that number reached a peak of 880,000 and by about a year and a half later it had declined to 53,000 as a result of the adjustments made to the structure of the unemployment insurance program.
- In 2021, the scope of vocational training grew after reaching a particularly low level during the first year of the crisis — During 2020, the number of participants in vocational training programs plummeted to slightly more than 6,900, due to the difficulty in fully utilizing the resources allocated to this program during the crisis. In 2021, the number of participants more than doubled to 14,738. Since low earners with a low level of education were those most adversely affected by the crisis, efficient use of the vocational training program can help to narrow socioeconomic gaps.
- The target populations of certain social welfare programs have low take-up — The take-up rates of rights among weaker population groups is particularly low in Israel and they are not receiving the assistance they are entitled to. The reason is apparently the complex bureaucracy involved.
The demographic composition of the education system in Israel and the distribution of students between the four education systems points has remained relatively stable. Nonetheless, based on students in Grade 1 it appears that Haredi (ultra-Orthodox Jewish) education is continuing to grow at a rapid pace, and, in contrast, Arab education is shrinking in size. The State and State-religious education systems are maintaining their relative sizes. The average age of teachers in Israel has risen and their level of education is higher than it was in the past. Furthermore, classes are smaller and more weekly teaching hours are being allocated per student.
- The share of primary school students not born in Israel dropped from 14% in 2001 to 5.2% currently. The parents of about 69% of students in these grades were both born in Israel.
- The allocation of resources to the Arab sector has grown and the gap between it and the Jewish sector is narrowing — Between 2000 and 2020, class size in the Arab sector declined relative to the Jewish sector. The narrowing of the gap is the result of a number of parallel processes: the reduced birth rate in Arab society, an increase in the size of the Arab middle class, larger budgets devoted to education in the Arab sector, and greater focus by the Ministry of Education on narrowing the gaps between the sectors.
- A decline in the number of young teachers and an increase in the average age of teachers in Israel, particularly in the Arab sector. In the 2000/2001 school year, the share of teachers under the age of 30 in the Arab sector stood at about 30.6% as compared to 11.4% in the 2020/2021 school year. The share of teachers above the age of 50 in this sector grew from 9.44% in 2000/2001 to 20% in 2020/2021. During this period, there was a significant increase in the share of teachers with a bachelor’s and master’s degree.
- The high school educational track accounts for 30% of the variation in wages — Graduates of the advanced science and technology track whose parents have an academic education have the highest chance of attaining at least a bachelor’s degree and also of attaining the highest average wage at age 33. One’s track in high school accounts for almost 30% of the gap in wages and it is the second most important explanatory factor after gender, which accounts for about 40%. An academic degree accounts for another 22%.
- There was a jump in the number of students registered for higher education in 2020 as a result of the COVID-19 crisis —The number of new bachelor’s students grew by 15.8% in 2020 and the number of graduate students grew by 16.9%, which is significantly higher than the average for the previous eight years.
- A significant increase in the number of Arab students in Israel — Between the 2009/2010 and 2020/2021 academic years, the number of Arab students registered in higher education in Israel grew by 122%, from 25,951 to 57,552. The increase was particularly large for graduate students, where the number of Arab students grew by 228%, from 3,270 to 10,735. There is a growing number of Arab students registered for higher education abroad
Spotlight: Education Frameworks for Young Children in Arab Society
The rate of attendance of early childhood education and care frameworks (ECEC) for very young children aged birth to 3 is particularly low in Arab society and the rate of utilization of the budget for the construction of daycare centers in the Arab municipalities is as well.
- Less than half of Arab children from birth to age 3 attend an early childhood education and care framework – About 46% versus 90% in the Jewish sector.
- The rate of attendance of Arab children in supervised educational frameworks is particularly low, as a result of bureaucratic barriers and obstacles in the conditions for eligibility. About 41% of children in supervised frameworks were placed there based on the Young Children At-Risk Law.
- The budget utilization rate for the construction of daycare centers in the Arab localities is very low — Even though the average allocation per child for this purpose is highest in the Arab localities, the implementation rate is the lowest, at only about half of the allocation. This is due to multiple barriers facing the Arab localities, which find it difficult to build a daycare center within their jurisdiction.
Spotlight: Special Education Budgeting in Israel
A weak spot in the education system in Israel is special education. The huge increase in the special education budget is primarily explained by the rapid increase in the number of special education students and in the number of students with high-budget disabilities within the total number of students in special education. In contrast to what has been recommended, the share of special education students who are integrated in regular classes is not increasing.
- A significant increase in the special education budget out of the total education budget — Between 2005 and 2019, the Ministry of Education budget grew from NIS 24.5 billion to NIS 47.6 billion. During that same period, the share of special education students grew from 6.5% to 10.7% of total students in the education system, while the share of the special education budget within the total Ministry of Education budget grew from 7% to 13.2%.
- A significant increase in the number of special education students — The increase in the budget is influenced by changes in the composition of the student population and by the growth in the number of students with disabilities that require particularly large budgets. The proportion of special education students learning in separate classes in regular schools and in schools for special education is stable at about 40%.
The Taub Center for Social Policy Studies in Israel is an independent, non-partisan socioeconomic research institute. The Center provides decision makers and the public with research and findings on some of the most critical issues facing Israel in the areas of education, health, welfare, labor markets and economic policy in order to impact the decision-making process in Israel and to advance the well-being of all Israelis.