Press Release: A Picture of the Nation 2021

Embargo until Wednesday (June 16) at 6:00 AM

This past year was one of crises and challenges that impacted many facets of life. The government of Israel allocated a great deal of resources to dealing with the COVID-19 pandemic; however, the crisis and the response to it had a major impact on the deficit, GDP, the rate of unemployment, disparities in the education system, and more. The next government will have to deal with a large deficit, a need to stabilize the labor market and to assist workers who left it, a changing education system, the question of whether to allocate additional resources to the healthcare system, and a variety of additional issues.

This booklet, written by Prof. Avi Weiss, the President of the Taub Center and a professor of economics at Bar-Ilan University, paints a broad picture of the nation’s economy in general, its labor market, and its situation in the realms of welfare, healthcare and education on the heels of the COVID crisis and the early stages of the recovery period.

Macroeconomic Trends

Although the crisis had a major impact on Israel in 2020, its scope was smaller than expected and Israel will be able to recover within a few years. Labor productivity actually increased.

• GDP per capita fell substantially, but it is expected to rise and nearly return to previous levels: GDP per capita fell by 4.2% in 2020, though it had been expected to grow by 1.2%. The vaccination against COVID-19 and the exit from the pandemic will make it possible for Israel to close most of the gap in the next few years. GDP is expected to rise by 6.5% in 2021 and by 5.8% in 2022.
• In order to restore the debt-to-GDP ratio to its 2019 level, it will be necessary to maintain small deficits and a high rate of economic growth in the coming decade: The deficit in Israel is particularly high relative to other developed countries while the national debt is relatively low. However, the rise in the deficit and the fall in GDP raised the debt-to-GDP ratio to 72% in 2020 and this year it is expected to increase further.
• Only 80% of the budget for dealing with the COVID crisis was utilized: The low rate of usage in the program for accelerating and developing the economy and the program for business continuity is liable to delay economic recovery and may constrain future growth engines.
• Israel provided large fiscal incentives, but the indirect assistance was limited: The total scope of intervention was modest and in particular state guarantees for borrowers in the private market were minimal. Israel left the management of risk to the banks and it is worth considering an expanded use of guarantees in order to assist the business sector in recovering from the crisis.
• The labor market sustained a serious blow, but labor productivity actually increased: During the pandemic, the number of workhours dropped sharply in all industries except high tech. Production, in contrast, did not fall to the same extent and the loss in production was not more than 8% in any month relative to 2019 levels. Labor productivity increased at all technology levels. In other words, production became more efficient with the highest profitability actually seen in traditional industries.
  

Health

Israel showed impressive achievements in healthcare, but there were also some failures. It is unclear whether the additional resources allocated to the healthcare system in response to the COVID-19 pandemic will continue to be allocated in the future.

• The infection rate per capita in Israel was among the highest in the OECD: Through June 9, 2021, almost 10% of the population in Israel had been infected. Israel was the first developed country to experience a second wave of COVID (in September) and, at the peak of that wave, Israel’s total rate of infection per capita was the highest among the OECD countries.
• The pattern of COVID infection per capita varied across population groups: The rate of infection in each of the eight Haredi (Jewish ultra-Orthodox) municipalities was higher than in any other type of municipality. In contrast, the highest rates of hospitalization were in fact in the Arab sector. For example, over 1% of the population in Abu Gosh was hospitalized. This reflects the high incidence of comorbidities, particularly diabetes and obesity, in the Arab sector. The lowest rates of hospitalization were recorded in Jewish non-Haredi municipalities. The low rate of hospitalization in the Haredi sector relative to its high rates of infection reflects its younger age profile: less than 2% of Haredim are in the 65+ age group versus the national average of 14%. In Bnei Brak, where more than 8% of the population are aged 65 or over, the rate of hospitalization was higher than in the other Haredi municipalities.
• The rate of mortality from COVID in Israel was lower than expected given the high levels of infection: This is due to the fact that the elderly population accounts for a smaller share of the total population than in other countries (about 8% versus close to 13% in the OECD). In addition, the cases of infection from July 2020 until the end of the year were concentrated primarily in the 20–55 age group, for whom the risk of mortality is close to zero. If the rates of infection had been in line with Israel’s age profile then the rate of mortality would have been about 30% higher.
• Israel’s failure in limiting the rates of infection had an effect on mortality: If the rates of infection had been similar to those in countries such as Italy and the UK, then the deaths of between 600 and 900 individuals (between 18 and 27% of all deaths) would have been avoided, as of the end of 2020.
• Israel’s vaccination program was implemented rapidly and successfully: During the first two months of the program, more than 90% of the 70+ age group and about 80% of the 50–70 age group received the first vaccination. Thanks to the age profile of the population, most of the elderly were vaccinated, although it will be difficult to achieve herd immunity as long as children — who make up 35% of the population — are not vaccinated.
  

The Labor Market

The rate of unemployment is falling but it will take years for it to return to its pre-crisis level. The unpaid leave policy that was adopted has weakened the connection between workers and employers and for many, a return to work is questionable.

• The rate of unemployment has fallen but will not return to its pre-crisis level in the next few years: The unemployment rate was particularly high at the end of 2020 — over 16%. This rate is expected to decline over the next two years but it will take a long time to return to the historic low reached in 2019 (3.8%).
• The variation in the impact on employment according to education level and age was amplified during the lockdowns: The rate of unemployment at the height of the first lockdown was 27% among university graduates as opposed to 41% among the rest of the labor force. The young (ages 18–29) were also particularly affected since they tend to be employed in temporary jobs or in industries that experienced the greatest impact (such as wait staff). Older workers (over 65) were also affected to a greater extent, presumably because they belong to a high-risk group.
• Haredi workers were particularly affected by the crisis: While Haredi men were dealt a strong blow, Haredi women were also greatly affected, despite their higher level of education, because a large share of them are employed in part-time positions. In contrast, since June, the unemployment rate among Arabs has been lower than among non-Haredi Jews, due to the recovery in the construction industry in the case of Arab men, and the high level of education and high level of employment in the public sector in the case of Arab women.
• The scope of remote working grew and is expected to continue growing: The share of employees working from home was low prior to the crisis although it has more than doubled since 2008 (from 2% to almost 4.5%). In general, the ability to work from home increases with salary level, although it is the highest-paid managers who have less possibility for working from home while in contrast lower-paid clerical workers have the greatest ability to work from home. An examination according to population group showed that women and Jews were more likely to work from home.
• The drop in labor market participation among the elderly: People continue to work after age 60 primarily for financial reasons, yet more than one-quarter of the employees in this age group continue working for personal and social reasons. Those who decide to retire do so because they have sufficient income, for health-related reasons, or because they have difficulty finding work in their own profession. The latter factor can be mitigated by employment programs to assist this population.
  

Welfare

The rate of unemployment fell but remained high; the rates of poverty and inequality are expected to grow.

• In 2020, the welfare budget grew by 42% and the number of recipients of unemployment benefits grew thirteen-fold. When the period of eligibility for unemployment benefits for those not working due to the COVID pandemic ends, it is expected that poverty and inequality will worsen, at least in the coming years. The long-term effects of the crisis are dependent to a large extent on the social policies adopted by the government following the crisis.
• The expenditure on social protection has grown and the expenditure on social investment is expected to grow: The expenditure on social protection as part of the assistance program for dealing with the COVID crisis in 2020 totaled about NIS 42 billion out of an allocation of NIS 49 billion while the expenditure on social investment stood at only NIS 2.5 billion out of the approximately NIS 4 billion allocated. In 2021, the expenditure on social investment is expected to grow somewhat with the adoption of new employment programs and the expansion of investment in vocational training programs financed by the Ministry of Labor, Social Affairs and Social Services. However, while there is strong emphasis on social investment in Israel — in which Israel is a leader alongside Sweden and Denmark — the level of the expenditure as a percentage of GDP is relatively low (less than 8% versus 11% in those countries).
  

Education

Most teachers have reported that remote teaching has been beneficial for them, and harmed weaker pupils. Many pupils and primarily those in the Arab sector lack the resources required for distance learning.

• Prior to the onset of the COVID pandemic, about one-half of teachers did not have any training in remote teaching: At the beginning of the crisis, 90% of the Jewish and Arab respondents to a survey carried out by the Taub Center and the Histadrut Teachers Union reported that they used remote teaching more than once a week during the lockdown.
• Remote teaching benefited teachers: Most of the teachers felt that remote teaching had a positive effect on their teaching skills, particularly on their self-confidence and confidence in their ability to overcome difficulties.
• Among students, the strong became stronger and the weak became weaker: The teachers unanimously reported that remote teaching advances stronger students and harms weaker students and this is particularly true in the case of students from weaker socioeconomic backgrounds.
• Many students do not have the resources required for remote learning, especially within the Arab population: The teachers reported that more than 80% of Arab students suffer from some kind of shortage in the resources needed for remote learning and that about 40% even suffered from a severe shortage. In addition to a lack of equipment and infrastructure, students from weaker socio-economic backgrounds also suffered from a lack of quiet space in which to learn and from sufficient parental assistance.
• If principals were given autonomy in decision making with regard to the allocation of teaching hours, they would be able to reduce classroom size significantly: However, the possibility of reducing class size largely depends on locating sufficient physical space to hold classes. For example, a decision to set the maximum class size at 25 students per class will require an addition of 9,633 classrooms in the primary education system and 4,112 classrooms in middle school. Currently vacant spaces — some of which are located inside schools and the rest in nearby buildings — can cover some of this, but the rest would require new construction.
• Differential budgeting of some weekly hours according to socioeconomic background: The weekly number of hours allocated to students in the official primarily education system includes a significant differential budgeting component and the budget per student increases with the number of students from weak socioeconomic backgrounds in the school. In the schools that serve the highest socioeconomic quintile, a class of 20 pupils is allocated 29 weekly teaching hours, in contrast to 39 hours in schools that serve the lowest quintile.
  

Physicians in Israel

The number of physicians in Israel has grown but has not kept up with the increase in the population. The share of Arab physicians is approaching their share in the total population.

• Fewer physicians per capita, more specialists: The number of practicing physicians grew by 31% from 2000 to 2016 while the number of practicing specialists grew by 67%. However, after adjusting for the rate of population growth, a drop of 8% in the number of practicing physicians per 1,000 population and an increase of about 15% in the number of practicing specialists is seen.
• The share of practicing physicians who are past retirement age has grown and this is expected to have an effect on the number of workhours among interns: The share of practicing physicians who are past retirement age has grown from 4% to 12%, but they are working only 33 hours per week on average, in contrast to more than 40 and even 50 hours per week in other age groups. This is liable to bring about an increase in the average number of workhours among interns and young physicians.
• More Arab physicians: The share of Arab physicians among total practicing physicians grew to about 15% in 2016 and is approaching the total share of Arab Israelis within the overall population (21%).
• The share of medical graduates who studied in Israel has fallen continuously and is now at a level of 51%. One-tenth of Israeli-born medical graduates studied in Hungary and a growing number of studied in Jordan (7% of all new physicians).
  

Overeducation

Graduates in liberal arts and the social sciences, as well as immigrants with low Hebrew language proficiency, have the highest probability of being overeducated. Overeducation can also be viewed as underemployment – people taking jobs whose educational requirements are below their education level.  

• Graduates in liberal arts and the social sciences have the highest chance of being overeducated, in contrast to graduates of medicine, law, mathematics, statistics and computer science who have the lowest probability.
• There is a negative correlation between commuting time and overeducation: Worker mobility makes it possible to search for a job in a wider radius, thereby lowering the likelihood of working in a job that does not match one’s education.
• Overeducation is connected to age: Overeducation is more common among the young who are at the beginning of their careers and among those aged 45+ who are switching jobs. Among older workers, the main reason for overeducation is the degradation of their skills due to technological progress, in addition to ageism.
• Level of fluency in Hebrew has a significant effect: A low level of Hebrew proficiency among immigrants leads to high levels of overeducation. The rate of overeducation among Arabs is no different than among Jews born in Israel.
  

Early Childhood in Israel

Over 11% of the population in Israel are children age six or under and development during this period has a significant effect on academic achievement, socioeconomic status, and health outcomes later in life. Israel is breaking negative records with respect to the number of children per preschool teacher and auxiliary staff in preschools and holds the record for highest  participation rates of children in early childhood educational frameworks.

• A record level of participation in preschools: More than one-half of children ages birth to two attend an early childhood educational framework; 31% of them are less than a year old. This is in contrast to 35% and 9% respectively in the OECD. The share of 3 to 5-year-olds in preschools in Israel is 99% (in contrast to 87% in the OECD). A child in Israel spends 40 hours a week and more in an early childhood educational framework and therefore the quality of these frameworks is of critical importance.
• The public expenditure per child in the early childhood education system is among the lowest in the OECD. The ratio of children to number of staff in preschools is particularly high — about 5 staff members per 29 children on average, which is 23% less than the average in other countries. The high ratio in Israel affects the satisfaction of staff members with their work and their availability for each child’s unique needs.
• A record low in the number of early childhood teachers: About 45% of the staff in preschools are assistants who are characterized by low levels of education; only 34% are preschool teachers, and this reflects the lowest percentage of certified teachers among the countries studied.
• Most of the preschool teachers have higher education, most of the assistants do not: While most of the preschool teachers (95%) have a bachelor’s degree or higher, which is higher than the rate in other countries, the share of teacher assistants with a high school education or less is particularly high (70% as opposed to 25% in other countries).
• Age of entry into preschool has an effect on abilities: Children who enter preschool at a very early age or a very late age have lower achievements in reading relative to those who enter preschool at age 3–4.
  

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.