Press Release: The Picture of the Nation 2019

The Taub Center for Social Policy Studies in Israel publishes A Picture of the Nation 2019 today. The booklet, written by Taub Center President and Bar-Ilan University Professor of Economics Avi Weiss, presents up-to-date data on Israel’s society and economy in the country’s 71st year .

The findings in the booklet, which is generously supported by the Koret Foundation, paint a complex picture of Israeli society, including improving trends alongside challenges that the next government will face.

Israel has a higher birth rate, a high employment rate, and high education levels, as well as an improvement in the standard of living. In contrast, student achievements on international tests remain relatively low (although they have improved over time), the health system is facing difficulties as inequalities in accessibility grow, and it is more difficult for households to lift themselves out of poverty than in other OECD countries.

Macroeconomics and the standard of living

The Israeli economy is stronger than at the beginning of the decade. Household incomes have risen and price levels are declining relative to other developed countries (although prices are still high), but it is questionable whether this positive trend will continue.

• A sharp rise in the standard of living: in the past few years, there has been a rise in household income and consumption levels. Between 2012 and 2017, the net real income of households in the middle income quintile rose by about 22%, and in the lowest quintile by about 19% (versus an increase of only 14% in the highest quintile). Incomes rose primarily as a result of increased income from labor, whose source was a rapid rise in wages and employment levels.
• In many OECD countries, it has become more difficult to purchase a home over the past two decades, while in Israel the ability to purchase a home over this entire period has largely remained the same. With this, purchasing a home has become much more difficult in the last decade. That is, at the beginning of the period, Israelis’ disposable income rose faster than housing prices, and since 2007 the situation has reversed and housing prices have risen faster than incomes.
• Based on early estimations, in 2018 GDP grew faster than the average in OECD countries: 3.3% versus 2.9%. Nevertheless, per capita GDP, the more significant metric for determining standard of living, grew by only 1.3% annually versus an average rate of 2.2% in the OECD.
• After an extended period of increases in employment rates, it is unlikely that additional improvements in the standard of living will be realized without an increase in labor productivity. Since 2000, the annual growth rate in labor productivity in Israel was low relative to what could have been expected given its level in 2000: it was 1.2% per year instead of an expected level of about 2% per year.
• One of the greatest challenges facing the new government is dealing with the deficit, which stands at 3.8%. This is the highest level in recent years, with the deficit having ranged between 2% and 3% following the fiscal discipline that characterized the government budget. Foreign debt level in previous years has also been particularly low. Recent government commitments – primarily in the areas of wages and security – will likely lead to a reversal of these trends: the deficit is expected to rise, which is liable to lead to a downgrading of Israel’s international credit rating, raise debt financing costs and impact growth negatively.
  

Israel’s fertility patterns break records and paradigms

Israel’s fertility rates are unusually high relative to other developed countries, even among Israel’s secular and religiously traditional Jewish population. These rates largely do not conform to international paradigms.

• Israel tops the fertility charts: in 2015, the Total Fertility Rate (TFR) was 3.1 children per woman, which places Israel at the top of OECD countries, by far.
• The source of the rise in TFR is mostly secular and traditional Jewish women; their TFR has never fallen below 2.2 (which is higher than all the other OECD countries) and has actually risen over the past 20 years.
• A unique combination of high standard of living and high TFR: in countries where the per capita GDP is similar to Israel’s, the TFR level is much lower (1.24-2.02 children per woman), while in countries with a similar TFR level to Israel’s, the average per capita GDP is one-fifth of Israel’s.
• A rise in mother’s age at first birth does not translate into a lower fertility rate among Jewish women in Israel: between 1994 and 2016, the average age at first birth rose by about three years among both Christian and Druze women and by about one year among Muslim women, and total fertility rates showed a corresponding decline (by about 6%, 41% and 30%, respectively). In contrast, among Jewish women, the expected relationship between age at first birth and TFR is severed: age at first birth rose by about 2.8 years while the TFR also rose, by about 0.4 children.
• More educated Jews in Israel do not have fewer children: corresponding to worldwide trends, among Arab Israelis, the highest fertility rates are among those with the lowest education levels, while those with a university degree have fewest children. In contrast, among non-Haredi Jewish women, those who complete high school or college have the same fertility ratesgraph – check if there us one

Education

Israeli student achievements have improved and the gaps between them and OECD students have narrowed; achievements have remained low, though, relative to other developed countries. Expenditure per student has risen but remains low relative to the OECD level.

• Israel’s student population has increased by 44% since 2000: this is an average annual growth rate of 2%, which is above the norm in developed and developing countries. The most rapid growth has been in the Bedouin and Haredi education sectors.
• The number of children attending preschool rose by about 81% between 2000 and 2015: in the last decade, the share of these students in the Arab education system has declined, while the share of students in Hebrew State education has risen.
• Expenditure per student in Israel continues to rise: since 2010, the increase in per student expenditure was faster than in other OECD countries, although the level of expenditure remains lower than average (as of 2015). Nevertheless, developments since 2015 – such as the new teacher wage agreements, school activities during vacations, and others – are expected to increase the average expenditure per student in Israel such that at least in elementary schools it will approach the OECD average in the next few years.
• Test scores have improved and gaps have narrowed: since 2008, student achievement scores on the Meitzav exams have improved, and test score dispersion has narrowed – that is, gaps have lessened. The greatest advance has been in 8^th grade science scores (17.4%).
• International achievements have also improved, though not sufficiently: in almost all international tests, student scores have improved more in Israel than in other countries. Nevertheless, in almost all cases, Israeli student scores remain below the average of the countries that participated in 2001 and 2015.
  

• Druze students lead in terms of bagrut qualification rates: bagrut qualification rates have increased overall from about 41% to about 56%. In Druze education, this rate has more than doubled and today is the highest of all education sectors (about 66%). The rate has also doubled in the Bedouin schools, though it remains the lowest of all education sectors (about 32%).
• In most industry sectors, workers with high skills enjoy greater returns to education relative to workers with low skills. An exception is in the education field where the return to education is much higher for those with low skill levels.

Expanding technological-vocational education in high schools

The goal of the Ministry of Education to expand technological-vocational education in high schools has largely succeeded, although the expansion is not identical across all education sectors.

• The Druze and the Bedouin girls lead: the share of female students in the high technology track rose most markedly in the Arab education sector, and especially among Druze (from 8% to 31%) and Bedouin (from 6% to 21%) girls.
  
  • Student backgrounds matter, especially among those in Hebrew education: students in the high technology track come from the strongest socioeconomic backgrounds, while those in the low track come from the weakest backgrounds. Socioeconomic profiles of Arab and Druze students in the high technology track are much weaker than of their Hebrew education peers, yet, despite these differences, bagrut qualification rates are similar at around 90% (as of 2017).
• Technology education has expanded: in the last decade there has been a substantial rise in the share of students in technology education – in the Hebrew education sector it has increased to 38%, and in the Arab education sector to 46%. The majority of the increase has been in the high technology track (characterized by high achievements), while the share of students in the low technology track has remained stable (3%).
• A large portion of Haredi and Arab Israeli women work in education: the share of Haredi women working in the education field stands at 45%. This rate is high relative to non-Haredi women, but lower than past rates, and it has neared that among Arab Israeli women (38%). The decline indicates a gradual process of employment diversification, which can also be seen in the increase in Haredi women studying in the technology track in high school.
• The best men to high tech; the best women less: in 2017, only a third of those employed in high tech were women (an international phenomenon), the majority non-Haredi Jews. At the same time, there has been an increase in the share of Haredi women in the field – from less than 1% a decade ago to a little over 3% today. It is surprising to note that Arab Israeli women, who study science at high rates in high school, do not yet continue in the field – among other reasons because a large portion of them live in the north of the country and most high tech employment is in the center.
• Arab Israeli women are working more; Haredi men are not: the share of Arab Israeli women who are working has risen consistently and is close to the government goal set in 2010 for 2020 (41%). Among Haredi men, on the other hand, the increased employment that was so notable at the beginning of the decade has stopped and their rate stands at 49% – very far from the government goal for 2020 (63%). This is one of the greatest challenges facing the Israeli economy.
• Fewer students in Arab education than in Hebrew education take 5-unit math bagrut exams: in 2017, 19% of students in Hebrew education took 5-units of math versus only 8% in Arab education. The greatest increase in the portion of those taking the math bagrut at the highest level was from the high technology track students (an increase of about 60% in 12 years), and only 6% of those taking high level math bagrut exams studied in academic schools without a science major.

Employment hits new highs

The share of employment and labor force participation rates continue to rise and unemployment is at near-record lows.

• Arab Israeli women are working more; Haredi men are not: the share of Arab Israeli women who are working has risen consistently and is close to the government goal set in 2010 for 2020 (41%). Among Haredi men, on the other hand, the increased employment that was so notable at the beginning of the decade has stopped and their rate stands at 49% – very far from the government goal for 2020 (63%). This is one of the greatest challenges facing the Israeli economy.
• The best men to high tech; the best women less: in 2017, only a third of those employed in high tech were women (an international phenomenon), the majority non-Haredi Jews. At the same time, there has been an increase in the share of Haredi women in the field – from less than 1% a decade ago to a little over 3% today. It is surprising to note that Arab Israeli women, who study science at high rates in high school, do not continue in the field – among other reasons because a large portion of them live in the north of the country and most high tech employment is in the center.
• A large portion of Haredi and Arab Israeli women work in education: the share of Haredi women working in the education field stands at 45%. This rate is high relative to non-Haredi women, but lower than past rates, and it has neared that among Arab Israeli women (38%). The decline indicates a gradual process of employment diversification, which can also be seen in the increase of Haredi women studying in the technology track in high school.
• Commuters experience traffic jams: road congestion is rising, and in the past 30 years the number of workers who work outside their place of residence has tripled (while the population has only doubled). The increases in commuters have been accompanied by an increase in private car use, and the number of private cars has risen faster than the development of roads. At the same time, the price of public transportation has declined, and, in the past decade, the share of those commuting by train has increased.

High tech – the economy’s engine?

The government wants to expand employment in the high tech sector to improve Israel’s economy. But most of the high skill workers with the requisite skills are either already working in high tech or are working in other lucrative positions, and it appears that in order to expand employment in this sector, it will be necessary to improve the skill level of the Israeli labor force by interventions earlier on in the education process.

• High tech is dominated by men: the share of high tech employment in Israel is the highest in the OECD (8%). Among workers at the highest skill level (as measured by the PIAAC, Survey of Adult Skills), more than one-quarter of the men and 12% of the women are employed in high tech, which places Israel higher than any other country for both men and women.
• Gaps between workers are high: workers in the highest skill quintile are similar in skill level to the mean among high skill workers in the OECD, while for workers in the lower skill quintiles the gaps grow and skill levels are considerably lower than the levels of their OECD peers. This is especially true with regard to Arab Israelis. In order to close these gaps, skill levels in the overall population will have to be raised in future generations through the education system, and in particular amongst the weaker segments.
• A large majority of those at the highest skill level who are not employed in high tech is employed in other lucrative positions, so it is not reasonable to assume that they will move into high tech. Alternate solutions will, therefore, have to be found for the shortage of workers in this sector.
  

Health indicators are good, but there are concerns about the healthcare system

Israelis’ health is good: life expectancy in Israel is high and infant mortality rates are low. Nevertheless, there is a deep concern that the situation will change with the rapid aging of the population and increasing medical needs alongside the slow growth of resources.

• Healthcare expenditures have increased relatively little: since 1995, the percentage of GDP spent on healthcare remained about 7% while in the OECD countries it increased from 7% to 9%, and to 11% in those countries with similar healthcare systems to Israel. The rapid aging of the Israeli population alongside rising physician wages will likely require a rise in the share of government expenditure to prevent the current levels of care from deteriorating.
• Physician wages are rising, and the costs of healthcare are rising accordingly: between 2011 and 2018, the Healthcare Price Index rose by about 9% while the Consumer Price Index rose by only 4%. The increase was primarily due to rising physician wages.
• In Israel, there is a common practice of referring patients from the public system to the private one, and physicians have an incentive t olimit their work hours in the public system to have more time for their private practices. This creates wage pressure in the public system: between 2011 and 2017, the wages of physicians in the public sector increased by about 42% (in contrast to an increase of about 15% in the average market wage).
• Financer, operator, supervisor: the state finances hospitals (through budgets to the kupot holim, that then pay for hospitalization), is the owner of the majority of general hospital beds, and is the supervisor of all hospitals. These multiple roles constitute a conflict of interests.
• In Israel there are fewer hospitalization beds per 1,000 population than in the OECD: Israel has 3 beds per 1,000 population versus an OECD average of 4.8. The number of beds per 1,000 population is declining – in Israel and in the other countries examined – largely as the result of technological changes.
• Israel leads in terms of bed occupancy rates among the OECD countries (except for Ireland): 94% in 2016 (versus 75% on average in the OECD). In contrast, average length of hospitalization is shorter in Israel: 5.2 days versus an OECD average of 6.7 days. This leads to crowding and long waiting times even in emergency rooms.
• May you never need it (especially in the periphery): the number of beds per person in the periphery (north and south) is the lowest in the country, and in Jerusalem it is the highest. What is more, the greatest average distance from the towns to the hospitals is in the northern district. Differences between the center and the periphery in the distance from towns to hospitals are also correlated with longer waiting times for medical procedures and treatments in the periphery.
  

Social welfare

The levels of poverty and inequality have declined in recent years and social investment has increased, but Israel is still far from the targets set by the Committee for the War Against Poverty.

• The poverty line is rising, welfare benefits are not: increases in income support benefits have not kept up with the rising poverty line and the average wage, and, in fact, the gap between them has grown for over a decade. In 2000, the amount of income support and the child allowance for a couple with one child was about 70% of the poverty line, while in 2017, it is 40%. In addition, the number of families receiving the benefit has been halved in the past 20 years, while the incidence of poverty has only decreased by about 10%.
• In Israel, it is exceptionally difficult to escape poverty: to increase their income above the poverty line, a household in the lowest income decile has to work many more hours than households in the OECD, as there is a large gap between household incomes in the poorest income decile and the median income quintile, which determines the poverty line.

• Limited policies of social investment: the government promotes social investment through the development of human capital, but steps have not been taken to improve the safety net for those who are not in the labor market – unemployment benefits and income support.
• Investments in early childhood: the expenditure for building and refurbishing buildings as day care centers grew between 2011 and 2017 from NIS 2 million to NIS 260 million, with the adoption of the recommendations of the Trajtenberg Committee and in order to encourage employment.
• Low investment in training: expenditure on active labor market policies (ALMP) is among the lowest of the OECD countries. Although there is a notable rise in spending on vocational training, Israel’s expenditure remains below the OECD average (0.06% of GDP in Israel versus an OECD average of 0.13%).
• The weakest populations are on the verge of bankruptcy due to high debt: among households in the lowest decile that are in debt, the ratio between the average debt and income is close to 8.0 – that is, their debts are far greater than their annual income, and it is doubtful whether they will be able to repay their debts.

Pension gender gaps

The pension system has universal components that benefit women, but due to employment differences between men and women and their impact on private pensions, and due to differences in retirement ages, gender gaps are created in pension income that work to women’s disadvantage.

• Women earn less – in their jobs and from their pensions: data from Menorah Mivtachim for 2017 show distinct gender differences in pension savings that tend to increase with age. The gap stems from differences in employment characteristics – fewer women work, women work fewer hours and for lower hourly wages.
  
  • Women lose money during extended career breaks for maternity leave and childcare: the way in which pension rights are accrued during career breaks for maternity leave and childcare has an impact on the pension gender gap. A woman with two children who takes a 5-year career break for childcare (who according to the law cannot make pension contributions during this period), will receive about 90% of the pension of a woman with no career breaks. This is low relative to the OECD average.
  • It pays for women to delay retirement: a woman who delays her retirement to after age 62 (the retirement age set by the government) can receive as much as 40% in additional old-age benefits. In contrast, a man can receive at most an additional 15% for pushing off his retirement after age 67. Hence, a woman who delays her retirement until age 70 will receive a pension benefit that is 22% higher than a man who does the same.
  • The retirement age of 67 for a man is the highest in the OECD, and the retirement age of 62 for women is among the lowest. Israel is one of only three OECD countries that does not intend to eliminate the retirement age gap between men and women.
• According to a simulation by Menorah Mivtachim, delaying retirement for a married woman to age 67 reduces the employment portion of the pension gender gap from 45% to 20% (and to 13% if one also takes into account the contribution of the old-age allowance). It seems that raising women’s retirement age would improve the retirement situation for most working women, and it is possible to find solutions for women who would be harmed by the policy change (e.g., those who are unable to continue working due to health, education or ageist issues).

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.