The connection between human capital and employment and wages has led to a great deal of discussion in economic research over the past few years. This study examines the subject in the current Israeli situation, based on employment and income data on Israelis prior to the Covid-19 crisis. The research shows that, for many working-age Israeli men and women, the path to employment and a profession that maximizes their skills is through the higher education system. As academic degrees garner greater weight in the opportunities for Israeli workers, it behooves us to make higher education more accessible to everyone who wishes to pursue it.
Background data: Employment and education
- In the past decades, there has been an aggregate rise in the labor market participation rate in Israel. The sharpest rise was among the Arab and Haredi (ultra-Orthodox Jewish) populations, and more so among women than among men (in the two populations). In the Arab population, the share of women participating in the labor market has grown two-fold – from 20% to 40% – and among Haredi women, there was a 60% rise – from 50% to almost 80%.
- In the latest period, there has been a decline in the participation rate of Arabs in the labor market – a trend that grew stronger during the Covid-19 crisis.
- From the perspective of education levels, in the past two decades there has been a substantial rise in the share of those qualifying for bagrut certification – from less than half of those aged 17 to about 70%.
- The number of students studying for a first degree grew during this period by about 50%, and the number of those studying for higher degrees grew by about 80%.
- The growth in higher education was especially high among the Arab population (the share of students in the Jewish population was already quite high).
Study findings: The relation between education, experience, employment, and wages
The study examined employment rates and wage levels by highest academic degree as well as the worker’s experience. The overall findings included results of a two-stage estimation model controlling for a variety of background variables including occupation and industry sector, gender, ethnic origin and sector, and geographic location. Here are some of the findings:
- Employment rates by highest academic degree show a continuous rise in the likelihood of being employed in work that corresponds with the education level, although the rise becomes more moderate as full employment is reached. So, for example, among those who did not complete high school, participation rates stand at less than 40%; the highest participation rates are among those holding a third academic degree – nearly 90% are employed.
- Similarly, it is evident that expected wages rise with each additional degree or certification, while controlling for background variables and the likelihood of working narrows the expected returns in wages. For example, relative to someone who did not complete high school, completing high school (without a bagrut certificate) brings 12% higher wages (versus 8% without controls); non-academic certification – 26% (38%); a first degree – 45% (89%); a second degree – 61% (149%); and a third degree matches the highest income levels in about 90% (264%).
- In this context, note that average wages of those with a bagrut certificate is lower than those who completed high school without a bagrut, although the difference is not statistically significant. It is possible that this finding indicates that a bagrut certificate lacks a great deal of value when it is not followed by further education.
- Dividing by gender does not significantly change the results, while men and women can expect the same returns for various levels of education. Nevertheless, a reminder that monthly wages of women are on average lower that men’s wages.
- Almost no statistically significant differences were found between Jews of different backgrounds and no significant differences were found between Jews and non-Jews in terms of returns to education (although the wage level of non-Jews is substantially lower than that of Jews, but the relative wages are similar at each education level). The share of workers who did not complete high school among Mizrahi Jews is double the share of non-Mizrahi Jews who failed to complete high school, and among Arabs, the share is nearly double that of Mizrahi Jews.
- With regard to the influence of experience, the model shows that there is a positive return to each year of experience which is exhausted after about 31 years (at its highest point, wages are about 60%-70% higher than wages at the start of the career). Among those with an academic degree, highest wage level is reached after 24 years with a similar overall rise in wages. Likewise, in this regard, there are some substantial differences between population groups. Jews of mixed origin and third generation benefit from a wage rise that continued for about 30 years and at its height is 76% higher than starting wages. In contrast, the experience of Mizrahi workers is exhausted after about 36 years, with a maximum rise of about 78%, and Ashkenazi workers reach their highest level after 37 years with a return of 105%. Experience of non-Jews reaches its height after 25 years, with a maximum wage rise of about only 25%.
The study findings attest to the significant and continuous connection between human capital factors and employment and wages. It seems apparent that for very many Israeli men and women of working age, the way to finding employment and a profession that matches their skills is through formal education. As academic degrees continue to carry weight in Israeli workers’ occupational opportunities, it becomes increasingly worthwhile to make higher education accessible to all those who wish to pursue it – from a geographic, technological (increasing online learning), economic, and social perspective.