Foreign Workers Displacing Less Educated Israelis

The number of foreign workers in Israel has risen from a negligible number two decades ago to today’s situation where foreign workers are estimated to fill over ten percent of the jobs in the Israeli business sector.

The policy of allowing – and even encouraging – foreign workers to work in Israel has been a controversial one, even from a strictly economic viewpoint. Opponents of the policy claim that these workers displace local workers, and thus benefit the employers at the expense of Israel’s most vulnerable population – its unskilled laborers. Proponents insist that foreign workers are mainly employed in sectors where Israelis are not willing to work.  Hence, goes their argument, the foreigners are sustaining vital local business sectors without harming anyone.

Taub Center Executive Director Dan Ben David took a closer at this issue in his article on the labor market in the Taub Center’s State of the Nation Report 2009. He found evidence of a link between changes in the share of non-Israeli workers in the business sector and changes in the share of relatively uneducated Arab Israeli men who are not employed (see figure).

The non-Israeli workers include both foreign workers, whose numbers were small until the early 1990’s, as well as Palestinian Arab workers. The non-employment rate in the figure refers to prime-working-aged Arab Israeli men with no more than 10 years of education. The curves track each other with relative consistency. The sharp increase in the share of foreign workers in the business sector during the latter half of the 1990s was immediately followed by a large rise in the rate of non-employment among relatively uneducated Arab Israeli men; the subsequent decline in the share of non-Israeli workers was followed by a more gradual decline in the share of non-employment among the Arab Israeli men.

The need to import foreign workers varies from country to country. The issue of local workers being crowded out of the labor market is less of a problem in countries with a shortage of unskilled labor. In Israel, where for decades a relatively large share of its working age population has lacked the primary skills and education to work in a modern economy, the large influx of foreign workers with remuneration levels below the mandatory minimum wage paid to Israeli workers leads to downward pressure on the wages of unskilled Israelis and to increased difficulties in their employment.