Press Release: Picture of the Nation 2020

Embargo until May 20 (Wednesday) at 6:00am

To read the full publication, click here (password: taub2050)

A Picture of the Nation 2020, which was published today by the Taub Center for Social Policy Studies in Israel, presents up-to-date data on Israel’s society and economy in the midst of a challenging year whose implications are still largely unknown and will continue to unfold well into the future.

The booklet, generously supported by the Koret Foundation, presents findings that outline a complex picture of Israeli society, including Israel’s situation before the coronavirus crisis as well as its expected effects in the areas of health, macroeconomics, welfare, the labor market, and education.

The booklet was written by Prof. Avi Weiss, President of the Taub Center and Professor of Economics at Bar-Ilan University.

Health

The outbreak of the coronavirus pandemic reveals the strengths and weaknesses of Israel’s healthcare system in times of crisis, and it allows us to identify the changes needed for it to function properly on a regular basis as well as in a time of emergency. Israel’s young age structure and the relatively good health of the population have helped the country cope with the pandemic. Simultaneously, the health system’s weaknesses – shortages in budgets, infrastructure and manpower – posed a risk in fighting the virus. Beyond developing policies to contend directly with the virus, it is important to take actions in order to reduce indirect mortality because of delayed regular screening and treatments.

• The coronavirus is more dangerous for older people, and Israel’s population is relatively young – only 25% of the population is over age 50, and 35% are under the age of 20. In addition, those infected in Israel have been relatively young; for example, 36% of infected individuals were ages 30 or younger, compared to 5% in Italy. This combination results in a very low mortality rate per capita from the coronavirus – 2.9 per 100,000 people by May 16 – about 5% of the mortality rate in Spain, less than 10% of the rate in Italy and France, and less than 20% in the U.S.
• To examine the spread of the virus in Israel, a country characterized by a diverse population, the Taub Center examined confirmed infection rates in Jewish and non-Jewish regions, and found that infection rates were higher in Jewish areas. As of May 12, 22% of all infections in Israel were from Haredi (ultra-Orthodox) towns and 26% were from mixed cities with large Haredi populations (Jerusalem, Bet Shemesh, and Safed). Furthermore, 55% of the increase in the national infection rate between March 31 and May 12 came from these areas, which constitute only 19% of the total population. Arab and Bedouin localities contributed 9% to the increase in the national infection rate during this period.

• Israel’s healthcare system entered the coronavirus outbreak in a vulnerable state, with a public health expenditure that is low relative to the OECD average, and to the average in countries with similar healthcare systems (about 7.4% of GDP, compared to 8.9% and 11%, respectively), and thus there is a real risk of significant indirect collateral damage from the pandemic.
• The acute care hospitalization system is in a dire situation, with a low number of acute care hospital beds per 1,000 population (2.2 as opposed to 3.6 in the OECD, and 4.1 in the similar countries – Germany, Belgium, the Netherlands, France, and Switzerland).
• The bed occupancy rate is high (94% versus 75% in the OECD and the similar countries), and hospital stays are relatively short (5.2 days compared to 6.7 days in the OECD and 6.2 in the similar countries). This means that the hospitalization system is already working at full capacity in regular days, with limited ability to deal with emergencies. Israel’s relative success in “flattening the curve” and reducing the burden on hospitals can be partially attributed to its social distancing policies.
• The pressure on the acute care hospitals is manifest also in the number of visits to emergency rooms in Israel, which is high relative to other countries, and the percentage of those admitted to the hospital who spent at least 5 hours in the emergency room increased by 152% between 2008 and 2018. This indicates an increase in the severity of cases arriving in emergency rooms, a decline in the emergency room’s ability to respond to arriving patients, and a decrease in the ability of the hospital departments to receive patients.
• The pressure in the inpatient wards and emergency rooms is not only the result of a low ratio of beds to population, but also of a low cost of hospitalization due to a distorted inpatient cost mechanism (the “cap”) – regulated by the state – by which the cost of hospitalization (at the margins) is lower for the health funds than potential alternative community care, including nursing homes and home hospitalization. This indeed weakens community medicine which is preferable because of health aspects such as preventing infections, social aspects such as staying in the family and community, and economic aspects such as low costs.
• Healthcare prices in Israel are relatively low: the level of healthcare prices in Israel is 53% higher than the OECD average and 26% higher than the average in countries with a similar healthcare system.

Macroeconomics

Israel’s economy was strong before the coronavirus crisis, but not as strong as might be expected – GDP has grown nicely, but the growth rate has been declining for the last decade, and when taking into account the growth in the population, GDP per capita has grown less than the average in OECD countries. Price levels have fallen but are still high. Inequality has fallen, but it remains high compared to most developed countries. The government’s decision to shut down the economy in the wake of the coronavirus pandemic led to unemployment (including those placed on unpaid leave) reaching 25% in mid-April, a fall in GDP and a deepening of the budget deficit.

• Over the past decade there has been a steady decline in GDP per capita growth, which averaged 1.5% in the years 2017-2019, and a decline in the contribution of human capital to economic growth. Due to the new situation, GDP is expected to decline by 5.3% in 2020 (and by 7.2% in GDP per capita) and increase by 8.7% in 2021 (by 6.8% in GDP per capita).
• Growth in labor productivity slowed in the early 2000s due, among other things, to the entrance of low-skilled populations into the labor market. The low level of productivity indicates a lack of private investment in physical capital in the economy – a situation that is expected to continue for a long time due to the corona crisis.
• Public capital as seen in, among other things, infrastructure, transportation, and communications, has dropped to half the average OECD levels relative to GDP. Doubling public capital could erase the gap in productivity per worker. According to Taub Center President Prof. Avi Weiss, the crisis is likely to reduce the gap, due to large public investment expected in the health system. In addition, it appears that transportation investments will also accelerate.
• Since 2014, the rise in prices has halted due to reforms to increase competition and ease import restrictions, and yet prices in Israel are still about 12% higher than would be expected in countries with a similar level of income. The effect of the coronavirus crisis on prices in Israel is dependent on the extent of the negative impact on supply and demand, competition, and competitive imports. The effect is expected to be relatively mild in the housing sector.
• The increase in nominal wages in the past decade has largely been translated into an improvement in real wages; that is, in the purchasing power of workers. This trend is expected to halt as a result of the coronavirus crisis, which has already led to widespread unemployment. The entrance of second wage earners into the labor market and the rise in real wages at the lower end of the income distribution improved the situation of the weaker socioeconomic strata and thus reduced inequality, unlike in other countries where income increased among the stronger socioeconomic strata. The coronavirus crisis is likely to reduce wages, which will mainly harm workers who are new to the labor market, many of whom will be pushed out, accordingly resulting in increased inequality.
  

• When the coronavirus crisis struck, Israel’s deficit was higher than the targeted deficit level – standing at over 4% of GDP – and, due to the crisis, it is expected to reach about 11% of GDP in 2020. However, Israel’s low debt-to-GDP ratio – 60% – allows the government to turn to capital markets as a source of funding for the large deficit that will be created by the decline in tax revenues and the growing need to support the business sector and households. The debt-to-GDP ratio is expected to grow to about 75%.

Demography

• By 2040 Israel’s population is expected to grow from its current size of about 9 million to about 12.8 million, over 1.4 million of whom will be over age 70. The growth rate of the older population in the Arab sector is expected to be much higher than in the Jewish sector, and the ratio of Jews over 70 to Arabs in this age group is expected to decline from 11.4 in 2017 to 6.2 in 2040.
• A large group of working-age adults (18-64) is expected to enter the labor market, with the working-age population increasing from 4.8 million in 2017 to 7 million in 2040. This will pose a challenge to the Israeli economy in the areas of higher education, employment, and housing.
• The number of students enrolled in higher education in Israel is already high, and if the current enrollment rates are maintained within each population sector, by 2040 this number will increase by 53% – from about 51,000 students in 2018 to about 78,000 in 2040.
• In order to increase enrollment rates in some of the sectors, as proposed by many policymakers, there will need to be a substantial increase in the supply of learning slots – from a 54% increase in enrollment capacity if the enrollment rate of Arab students increases to two-thirds the rate of non-Haredi Jewish students to a 120% increase if all groups reach the enrollment levels of non-Haredi Jewish women.
  

Social Welfare

The coronavirus crisis has affected the well-being of many individuals and families in Israel. Over a million Israelis have been laid off or put on unpaid leave, and disadvantaged populations such as the elderly and disabled are suffering from social isolation, the cessation of certain treatments, and a lack of resources and support. The government has taken steps such as easing requirements to receive unemployment benefits and providing grants for self-employed and older workers, but solutions have not been provided for all who need them, and the burden on social services is increasing. Restoring Israeli society and the economy to normal will necessitate changes in welfare policy, including increasing the budget for social services, programs to aid integration into the labor market, and support systems.

• Israel’s poverty rate in disposable income remains among the highest in the OECD, despite measures taken by the government to reduce it. Since 2000, social expenditure has grown from 16% of GDP to 18% – however, it remains lower than in all OECD countries except four that (like Israel) have low tax rates. Due to the coronavirus crisis, it is estimated that social spending devoted to creating a safety net for the unemployed will reach NIS 23.5 billion, equivalent to more than a quarter of social security expenditure in Israel last year.
• The universal “Saving for Every Child” program does not encounter problems with benefit take-up, but the lack of focus on the population living in poverty or families with many children has implications for the program’s potential to seed future social mobility. The State allows parents to deposit a monthly sum equal to the sum deposited by the State, but fewer than a third of parents in the lowest quintile do so, compared to 65% of parents in the highest quintile. Also, families in the lower quintiles generally do not invest the funds in accounts with a higher expected return (that involve higher risk).

• Until 2018, 5,700 families from across the country participated in the Ministry of Labor, Social Affairs and Social Services’ “Families First program”, designed to improve the economic situation of families living in poverty, many of them from the Arab sector and the Northern region of the country. In most of the participant families, parents have 12 years of schooling, and about 40% have four or more children. Much of the aid in Haredi and Arab Israeli families was used towards employment, and Arab Israeli families used a large portion for meeting basic needs.

Labor market

The labor market before the coronavirus was strong, characterized by high labor force participation rates with the exception of Arab Israelis (especially women) and Haredi men. However, since the crisis, many have been laid off or put on unpaid leave – more than a million people have applied for unemployment benefits, and the unemployment rate (including those put on unpaid leave) climbed above 25%. Many businesses are facing bankruptcy and it seems that the implications of the crisis will be felt far into the future. It is estimated that at least 20% of the newly unemployed will not be able to return to their jobs. However, the crisis is also an opportunity to develop the infrastructure to allow for working remotely and create opportunities to do so for workers from the geographic periphery, such as Arab Israeli workers living in the north of the country, whose employment opportunities are limited.

• Real wages continued to rise in 2019. The biggest increase was in the information and communications industry, which includes computer programming, where wages rose 7% in 2019. It is still unclear to what extent the crisis will reduce wages in the private and public sectors in 2020 and beyond.
• Employment rates among non-Haredi Jews and Haredi women in Israel are high, despite the fact that Israel has the highest fertility rate of any OECD country. Non-Haredi Jews and Arab Israeli men also work many hours compared to the OECD, and the OECD has ranked Israel in the fourth lowest place in terms of work-life balance.

• In 83% of non-Haredi Jewish heterosexual coupled households with children, both parents work (more than half of them in full-time positions), compared with 39% among Haredim and 34% among Arab Israelis. In 43% of Haredi households, no parent is employed full time. “In recent years, until the outbreak of the crisis, the employment rate of Israeli mothers increased greatly, but the number of working hours declines as the number of children increases. Long working hours in Israel make it difficult to raise children, and it seems that women are still the main caregivers,” says Prof. Avi Weiss.

• The achievements of the highest-skilled workers in the economy – 95% of them non-Haredi Jews – are similar to the average achievements of the highest-skilled workers in the OECD, but lower than the achievements of this group in the most developed countries. Among skilled Arab Israeli workers, the picture is more bleak, and their skill level matches the achievement level of the 60^th skill percentile in the Jewish population.
• The salaries of Israel’s most highly skilled workers are similar to those of their OECD peers, but it seems that “outstanding” Israeli workers manage to integrate into higher-wage fields more than their counterparts in other countries. In contrast, low-skilled workers earn about 50% less than their OECD counterparts, and their skill level is also lower.
• The labor market is changing due to new automation processes and technologies and, in a number of tasks, humans are being pushed aside. At the same time, the importance of skills that are irreplaceable by technology has grown. The group of workers most at risk of losing their jobs because of automation are Arab Israeli men, half of whom are employed in high-risk occupations (such as construction and machine operation). In terms of gender, in the non-Haredi Jewish population, there is a higher share of high-risk jobs among women than among men, while among Arab Israelis and Haredim, the gender gap tends to favor women.
• Labor market demand and supply are affected, among others, by external policies and factors. As demonstrated by the coronavirus crisis, some of the jobs that were defined as essential and where work continued as normal during the economic closure, such as supermarket cashiers and shelf-stockers, are actually classified as being at high risk of disappearing from the labor market in the future. If technology had been more developed, fewer people would have been required to put themselves at risk and go to work. “In the aftermath of the crisis we can expect to see various effects on demand, such as an increase in the need for employment advisors and employment agencies, in light of the many workers who were pushed out of the labor market” explains Taub Center President Prof. Avi Weiss.
• Required skills in the future labor market include complex problem-solving, the ability to teach others and to plan for them, the ability to influence and advise others, and the ability to use a computer. The latter became particularly evident during the crisis when many were asked to work from home and to expand their use of digital resources. “Many businesses and workers without computer skills were left behind,” says Prof. Avi Weiss, adding: “It is still too early to assess how the crisis will affect workers from different sectors and different population groups, but it is likely that the harm to workers who have not acquired computer skills will be more severe.” Although the State offers a number of training opportunities to workers, though fewer than are offered in other countries, those most in need of skills do not acquire them mainly because of high costs and lack of time. The current crisis has provided an opportunity – which the government has indeed taken advantage of – to offer virtual training to workers stuck at home because of the situation.

Education

Israel’s education system is in deep crisis following the coronavirus outbreak, and it may be undergoing a serious revolution. It seems that digital resources will become essential teaching tools, while the classroom and school playground will be focal centers for social contact. The revolution presents opportunities but also risks, such as widening gaps between students and the loss of a “safe space” for some. Prior to the crisis the education system benefited from an increase in resources, but not all population groups benefited equally. There are mixed signs regarding achievement gaps between Arab and Jewish students.

• Since 2010 the education budget has increased and the number of students per classroom has decreased. In the coming years these developments are expected to slow substantially due to cuts in public service budgets that will be necessary to finance the extensive damage from the coronavirus pandemic.
• Between 2012 and 2018, the Hebrew education budget in secondary schools grew by 42% while in the Arab education stream it grew by 38%. The gap in average budget between the two sectors stands at 29%. Per-student spending in elementary school is comparable to the OECD average, but in secondary school the gap is large.
• Teachers’ wages in Israel are very low compared to the OECD at all education levels, especially among new teachers in elementary schools. A starting teachers’ salary is about $21,000, compared to about $32,000 in the OECD, and in secondary education it is about $23,000, as compared to $36,000 in the OECD. Among veteran teachers there is almost no difference in salary between Israel and the OECD.

• An examination of PISA exam results shows that, after rising for a number of years, there has been a decline in the achievements of Arab Israeli students since 2015 while, among Jewish students, achievements increased and then stabilized. This growing gap between Jewish and Arab students is at odds with the corresponding decreases in gaps in budgeting, dropout rates, and Meitzav and bagrut exam performance, and requires further investigation.
• Children growing up in poverty during the first two years of life suffer from very low educational achievements in the fifth grade. This is in comparison to children who did not experience poverty at this age, and controlling for family income during later childhood and for other socio-demographic variables, such as parental education and family size. It is interesting to note that poverty during ages 3-5 does not affect future achievements to the same degree.

To read the full booklet, click here.

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.

For details, or to arrange an interview, please contact Anat Sella-Koren, Director of Marketing, Communications and Government Relations at the Taub Center for Social Policy Studies in Israel: 050-690-9749.