Summaries of chapters in the “State of the Nation Report” 2016

Gender Differences in the Labor Market: Wages and Employment Polarization

Hadas Fuchs

This chapter examines the determinants of the gender wage gap based on individual and demographic characteristics of workers – including the use of a unique database that includes bagrut and psychometric scores, which serve to a certain extent as an indicator of each worker’s qualifications. In general, Israel’s labor market is becoming more equal from a gender perspective. Women’s employment rates continue to rise, and Jewish women have nearly reached the same employment rates as Jewish men. In addition, the wage gap has been decreasing. The gross wage gap was 39% in 2014 – a gap mostly explained by the different characteristics of female and male workers in the labor market. After controlling for different variables, especially the differences in working hours and choice of occupations between the genders, the wage gap dropped to 13%.

Most of the wage gap is explained by the different characteristics of men and women in the labor market. The most influential factor in explaining the gap is the disparity in working hours between men and women, followed by differences in occupation choice between the genders. While the wage gap is almost nonexistent in the field of education, in industries such as medicine and engineering, the gender wage gap is higher than 20 percent. In other words, although it seems that gender wage gaps exist in at least some occupations, most of the wage gap is related to differences in the number of working hours and in differences in the occupation pursued (which begins to take shape at an early age).

Achievement in mathematical subjects, where men have a large advantage, also has an impact on the wage gap. The lower achievements of women in math and science extend back as far as high school with fewer girls taking high level bagrut exams in math and science and continuing on to academic studies and work in these fields. Although the share of women in academia is overall higher than men, the share of female students in the technology fields has not changed over the years and stands at only 20%-30%. The study found that there is a majority of male workers in the technological fields, which are the most profitable, and even among female graduates with a degree in computer science, there was a drop in those actually working in the field.

Challenges of Haredi Integration in Academic Studies

Eitan Regev

In recent years, there has been an impressive growth in the number of Haredi (ultra-Orthodox) students in higher education. Between 2008 and 2014 the number of ­­Haredim newly enrolled in academic learning institutions nearly tripled: from 1,122 to 3,227. In 2014, approximately 1,600 Haredi women and 450 Haredi men successfully completed their academic studies – as compared with only 650 Haredi women and 200 Haredi men in 2012. Yet, despite the significant growth in Haredi students, the percentage of university graduates among Haredim (especially men) remains quite low. As of 2014, only about 2.5% of Haredi men and 8% of Haredi women among those aged 25-35 had an academic degree – as compared with 28% of secular men and 43% of secular women.

About 58% of ultra-Orthodox students drop out of their academic studies (academic preparatory (mechina) programs and degree programs), as compared to 30% among non-Haredi Jews. Compared to the general population, a smaller percentage of Haredi students study at universities and a larger percentage study at academic colleges (primarily on Haredi campuses) and at the Open University, which has stringent academic requirements but enrollment that is open to all. Approximately 44% of Haredi dropouts studied in academic colleges and roughly another 40% studied at the Open University.

The majority of Haredi students are accepted to higher education institutions without bagrut or psychometric exam scores – which is due not only to the fact that most study at academic colleges, but also to the fact that the admissions requirements are much easier at the Haredi campuses than for the overall student population. About 79% of Haredi students at academic colleges were accepted without bagrut or psychometric exam scores.

The fact that the majority of Haredi male students do not study core curriculum subjects in high school impacts their ability to complete an academic degree. Without a change in their basic education, it seems that their drop-out rates will remain high. Achievement among Haredim in English (as a second language) is particularly low; when comparing scores on the psychometric English section, a large gap was found between secular and Haredi students (20 points out of 100) compared with a 6-7 point gap for math and near equal performance on the Hebrew verbal section. However, mechina programs and adequate support during academic studies could improve Haredi students’ chances of success.

Is Less Really More? On the Relationship between Class Size and Educational Achievement in Israel
Reut Shafrir, Yossi Shavit and Carmel Blank

The impact of class size on pupil achievement has been a matter of concern to education professionals for many years. Parents and teachers argue that large classes are detrimental to learning, but education researchers have yet to reach an unequivocal conclusion on the topic. The main challenge in assessing the relationship between class size and pupil performance is controlling for class placement, which is not random and could therefore potentially distort findings.

The present study looks at the topic in the Israeli context, through a hierarchical analysis of the scores of pupils who took the Israeli Meitzav exams in 2006 and 2009 using three models: a model containing only class size, a model controlling for background variables such as prior achievements and parental educational levels, and a model that also includes interaction variables aimed at determining whether class size has a different effect on pupils from populations with weaker educational abilities and lower socioeconomic status than pupils with high educational abilities from higher ­­­socioeconomic status.

The findings indicate that, when controlling statistically for parental education levels and prior attainments, the relationship between class size and achievement is not significant. Thus, small classes do not seem to enhance the achievement of their students. The hypothesis that the impact of class size on achievement varies between social strata and between stronger and weaker pupils was also refuted: no difference in the relationship between class size and achievement was found among the groups.

It is important to note that the study’s findings indicate that class size in and of itself does not ensure improved pupil achievement. Small classes could facilitate the use of teaching methods that may help students achieve – for example, individualized or small-group instruction. However, it is unclear whether teachers working in small classes do, in fact, take advantage of the possibilities that such classes present, including the teaching methods suited to them. They might be using forms of pedagogy similar to those commonly employed in large classes, and effectively neutralizing the small-class advantage.

Private Expenditure on Healthcare in Israel

Dov Chernichovsky, Haim Bleikh and Eitan Regev

National healthcare expenditures can be split into two categories: public expenditures, funded by the state, and private expenditures funded by individuals (either via out-of-pocket payments or insurance premiums). The average monthly household expenditure on healthcare in Israel is NIS 906 (in 2014 prices), which represents about 5.9% of average household income, as compared with 3.9% in 1997.

The public health expenditure per capita rose from NIS 4,819 (in 2014 prices) in 1995 to NIS 6,377 in 2014, with an average annual growth rate of about 1.3%. In contrast private expenditures rose during the same period from a total of NIS 2,247 (in 2014 prices) to NIS 3,634 – an average annual growth rate of 2.6%; in other words, double the growth rate of the public expenditures.

Private spending on supplementary care that is not included in the universal health basket (mainly dental care) and for parallel services (i.e., private services for care that is also available through the publicly funded health basket) is higher in places where the availability and use of public services is lower – namely, among Arab Israelis and also to some extent among Haredim. On the other hand, the higher relative spending on parallel and supplementary services among those with higher incomes supports the hypothesis that the public system is insufficient, according to them, either in the type or quality of care provided.

Household Expenditures on Preschool Education

Kyrill Shraberman and Nachum Blass

Israel’s education system is, for the most part, operated and funded by the state and local authorities through the State Education Law and the Compulsory Education Law. For most of the state’s existence, the laws applied to children aged 5 and over, except for special cases. However, in the 2012-2013 school year, the government decided on full implementation of the Compulsory Education Law for children aged 3-4, in keeping with the recommendations of the Trajtenberg Committee.

The rise in the number of 3-4-year-old children enrolled in public preschools and afternoon programs since the 2012-2013 school year, along with an overall decline in parental payments for preschool education, indicates that extending implementation of the Compulsory Education Law to absolute coverage of the entire relevant population has indeed benefited the target population, i.e. parents of 3-4-year-olds. However, parents working in a full-time job are still forced to finance a large share of their children’s activities in the afternoon hours (not included in the policy change), and these payments, to a large extent, offset most of the reduction in preschool tuition.

Furthermore, the law has had different effects on different population groups in Israel. Since its implementation, the burden of preschool expenditures increased for those in the middle quintiles to a greater extent than for those in the lowest (first) and highest (fifth) quintiles. Households of higher economic standing enjoyed most of the expenditure decline since less-affluent households already received government support before the full implementation of the law. Moreover, due to limited spots in public preschools or due to a rise in incomes, there was a surge in demand for private preschools in the periphery. This, in turn, increased the relative preschool expenditure burden for households in the periphery during the research period, nearly reaching the level of burden on households in central Israel. Although the expenditure burden is substantially lower among Arab Israeli households, the disparities have been shrinking since 2012, largely due to an expenditure burden reduction in the Jewish sector. The share of children in preschool in the Arab Israeli sector is lower (79% in the 2013-2014 school year) than in the Jewish sector (89% in the same school year).

It is important to note that implementation of the law was followed by reports of crowded preschool classes and questions regarding the quality of service relative to years past. However, beyond the impact that the law’s implementation may have at the household level, the researchers of the study add that the economy as a whole will benefit from the increase in preschool attendance which will ultimately lead to upgraded human capital in Israel.

Despite the rise in public expenditure on preschool education, the national resources allocated to preschool education, relative to GDP, did not change. This resulted in a rise in the public share at the expense of the private share, in financing preschool education.

Israel’s Economic Growth: On the Way to a Lost Decade?

Gilad Brand

The growth in GDP per capita in Israel fell in recent years, and this chapter attempts to examine if this figure indicates a decline in the long-term potential growth of the economy.

Of the components underlying GDP growth in recent years, the increase due to employment rates was the largest, and accounted for about half of all growth in the past five years.  This increase was largely due to the rise in labor market participation among women and population groups who generally have low participation rates.  Expansion in higher education was a key component of growth in the past, but estimates show that the contribution of human capital to growth is gradually decreasing alongside a slowdown in the rise of educational attainment.

Capital stock per hour worked was on the rise in recent years, yet came to a standstill in 2014-2015.  Increased investment in the Israeli economy is essential so that it can enjoy stable growth from competitive advantages based on technological advancements, rather than on the low cost of labor.  However, these developments are interrelated, and the steep rise in the supply of low wage workers detracts from the incentive to invest in capital and advanced technologies.

In the short term, economic growth depends on the global environment. The slowdown in international trade in recent years weakened demand in tradable industries, weighing down overall growth.  The sharp rise in labor market participation rates in recent years has supported economic growth thus far, but signs indicate that this channel is nearly exhausted and, without any changes in existing conditions, the probability of a further slowdown increases.  Long-term growth is possible even under these conditions, but it depends on active policies and the implementation of reforms that will support such growth.

Public Welfare Expenditure

John Gal and Shavit Madhala-Brik

This chapter surveys developments in government welfare services over the past fifteen years. Israeli public spending on welfare services – spending that funds a variety of benefits and social services (alongside healthcare and education) – constituted one-fifth of Israeli governmental expenditure in 2015, and amounted to 94 billion shekels. Social insurance programs, most of which are operated by the National Insurance Institute, account for 80% of the total expenditure. Over the past year, expenditure on social security programs increased, and additional changes in this area are expected for 2017. Some other welfare spheres also witnessed moderate spending increases in 2015, most notably expenditures on negative income tax, day care centers, and employment programs.

Social welfare spending declined by 30% in the early 2000s, and then stabilized at relatively low levels relative to GDP and to total government expenditure. Among the components of social welfare spending, there was a major—80% —drop in Ministry of Construction and Housing expenditure between 2000 and 2015. However, during that period the Ministry of Labor and Social Welfare expenditure per service-recipient-household and as a share of total government expenditure increased, as did Ministry of Economy expenditures on daycare centers and home daycare (mishpachtonim).

Overall, Israel’s welfare expenditure level remains low, relative both to other welfare states and to the needs of the target populations.

This chapter also analyzes implementation of the Elalouf Committee (War Against Poverty) recommendations. The findings indicate that, during the first two years after the Committee submitted its report, half of the recommendations were implemented in part or in full. During 2015 and 2016, the anti-poverty budget additions to all Israeli government ministries amounted to 434 million shekels and 1.9 billion shekels, respectively, in comparison to the 7.4 billion shekels per year that the Committee recommended. It is doubtful whether this addition, only a quarter of the recommended sum, will bring about the substantial reduction in Israeli poverty rates, which was the Elalouf Committee’s overarching goal.

Welfare expenditure data, as surveyed in this chapter, point to stability and moderate growth in government spending in the various welfare spheres. Most of the growth reflects demographic changes, while a small portion stems from legislative developments (due to the social justice protests and the Elalouf Committee recommendations) and changing demand for services (exemplified by the declining number of new immigrants).

Poverty and Inequality in Israel: Trends and Decompositions

Haim Bleikh

This study examines the trends in inequality and poverty rates between 2002 and 2014. Most of the analyses relate to the working age population, whose contribution to income inequality and to long-term changes in it is the greatest, as well as to the elderly population. The method used in this analysis is an estimation of the share of the three central population groups – Haredim (ultra-Orthodox Jews), Arab Israelis and non-Haredi Jews – in changes in the poverty and inequality indices over time.

Among the working age population, market income inequality (inequality in income from employment, occupational pensions and capital, before the deduction of compulsory payments) decreased consistently over the period examined, but the decline was only reflected in disposable income (income plus transfer payments, after the deduction of direct taxes) in recent years. The decline coincided with the adoption of two key policy measures after 2003: pension cuts and a reduction in direct taxes. Because of these policy changes, there was a change in the composition of household income (income from work increased, while government support decreased).

The findings show that the overall poverty level in Israel has not changed between 2002 and 2014. However, the composition of the poor population has changed substantially. In 2002, the share of poor Haredi and Arab Israeli households out of all poor households stood at 44%; in 2014, they comprised 54% of poor households. This represents an increase that exceeds the rise in this group’s share in the overall population of working age households.

The chapter also presents findings relating to the population over age 60. Over the years, there has been a decline in the inequality and poverty indices in market income among the elderly population. Large discrepancies were found in the income levels between different groups in this age segment, particularly between long-time Jewish residents and new immigrants and Arab Israelis. Most of the gap can be explained by differences in income from occupational pensions and work between each group, even though there was an increase in pension eligibility among new immigrants. In addition to differences in income, there are large disparities in home ownership between the groups: high rates of home ownership among long-time residents and Arab Israelis, compared with low rates among new immigrants.

The Outsourcing of Welfare Services: Trends and Changes

Shavit Madhala-Brik and John Gal

The privatization of social welfare services is a process that has been on-going since the 1980s. This chapter sheds light on the phenomenon and concentrates on the privatization process as it relates to an array of services of the Ministry of Labor and Social Affairs. At the center of the analysis stand two questions: (1) What are the activity patterns of for-profit and nonprofit agencies working in this field? (2) Can we identify trends in market concentration in welfare service provision?

The study’s findings indicate that the extent of services that are outsourced by the Ministry has grown over the years: from 70% of the Ministry’s total expenditure in 2000 to about 80% in 2015. The majority of service providers to this ministry are veterans in the field, and they garner about 96% of the total payments for outsourced services. The findings relating to concentration levels indicate that competition among service providers in the field of personal social services is limited. The majority of the 50 largest providers, whose share among all of the outsourced service providers is about 2%, have provided services for many years and they garner about 46% of the total expenditures for outsourced services.

It is evident that there is no particular preference for nonprofit agencies in this process, and that in the eyes of policy makers there is no essential difference between for-profit and nonprofit agencies. The analysis of providers showed that most of them are for-profit providers. Nonetheless, the distribution of payments between the two kinds of providers indicates that about half of the payments went to nonprofits. In the years that were examined, there was a rise in the number of nonprofits working with the Ministry, and a simultaneous drop in the number of for-profit providers.

While competition among service providers is limited, the concentration indexes tested for the various departments indicate that competition does exist and is actually increasing with time. The research and results of the analysis raise the question of the importance of competition in the social service markets. On the one hand, the existence of competition between service providers is one of the justifications for privatization. On the other hand, in the series of interviews conducted for the study, it emerged that providers are selected mainly on the basis of their experience and expertise in providing the services. Thus, in a domain of services where there is a satisfactory provider, competition is of little importance. Moreover, it is argued that, in the social services, it is important to maintain continuity of care by a single service provider instead of encouraging turnover. This is meant to prevent upheavals due to staff changes, for instance, that could harm service recipients, especially when it comes to institutional settings.

Twelve years of the National Task Force for the Advancement of Education in Israel (the Dovrat Committee): What has changed?

Nachum Blass

Twelve years have passed since the National Task Force for the Advancement of Education in Israel (the Dovrat Committee) submitted its recommendations to the government. In that time, the education system has gone through unprecedented change: the teacher’s unions have signed new agreements that changed their employment conditions and improved their salaries; the Ministry of Education’s budget has grown in absolute terms as well as in terms of budget per pupil; the National Authority for Measurement and Evaluation (RAMA) was established to monitor student achievements and the Israel Institute for School Leadership (“Avnei Rosha”) was established for enhanced training of school principals; and after a lengthy teachers’ strike, there has been slow movement toward reducing classroom size.

Not all of the committee’s recommendations were implemented – some were rejected or not carried out – yet , Blass found similarities and sometimes almost correspondence between the recommendations and real developments, albeit with a lag of several years. This does not necessarily indicate a direct and immediate causal relationship between the two.

Among the Dovrat Committee’s main recommendations related to teachers’ working conditions and training were: a substantial wage hike, a 36-40 hour work week, changes in the teacher promotion track, and improvement of the teacher training process. In actuality, real wages of teachers in Israel increased between 2005 and 2013 – by 26% for primary school teachers, 19% for middle school teachers, and 10% for high school teachers. Jewish primary school teachers increased their average work time from 75% of a full-time position to 78% while for Arab Israeli teachers it increased from 80% to 85%. Applications to teacher training institutions have increased in recent years, most notably among those applying for academic tracks, with an 81% rise in graduates as compared to 2009.

Between 2000 and 2016, the nominal Ministry of Education budget grew at an unprecedented rate of 142%, and the real budget by 86%. The number of pupils per full-time teacher position dropped from 13.8 in 2007 to 12.7 in 2014 – a 9 percent drop. Taking into account the growth in the number of teachers and average teaching hours, it is clear that the number of hours per pupil also rose – evidence of the increase of educational spending directly for pupils.

These changes have been reflected in improved pupil achievement on Meitzav exams and in Israel’s ranking in international exams, as well as higher satisfaction rates among teachers with their salaries and their status. In turn, there has been a rise in professionals seeking retraining in the field of education.

A Healthy Food Basket in Israel

Janetta Azarieva, Ben Ariyan, Rivka Goldschmit, Avidor Ginsberg, Ron Milman, and Dov Chernichovsky

Access to a healthy food basket, which guarantees adequate nutrition, is essential for optimal physical, mental, cognitive and social functioning and is a fundamental right in a modern society, similar to access to education and health services. This chapter lays the foundation for defining such a basket, and analyzes its significance in terms of household budgets. This basket is built to ensure adequate nutrition at as low a cost as possible, taking into account dietary patterns in Israel. The basket includes all the major food groups: grains, vegetables, dairy protein, animal protein, legumes and fats.

On average, the required spending to purchase a healthy food basket decreases as household income increases, as in Israel, there is a negative correlation between household size and household income. In other words, in the top decile the average required spending to purchase a healthy food basket is the lowest, because the number of household members in this decile is the lowest, at 2.46. In contrast, in the lowest decile, the average number of household members is the highest. Based on the recommended number of servings per day, the average monthly cost of a healthy food basket is NIS 844 for an adult and NIS 737 for a child (in 2015 prices). Currently the composition of households in the different income levels means that the cost of a healthy food basket for a family in the top decile is NIS 2,040 per month and for a family in the lowest decile, about NIS 3,450.

A comparison of actual spending on food shows that in the upper income quintiles (quintiles 4 & 5), actual spending is higher than what would be required to fund a healthy food basket, or lower by only a few percentage points (quintile 3). In contrast, in the lowest two quintiles (and particularly in the lowest quintile), the actual spending is 22% lower than the recommended amount. It is difficult to identify if the gap in spending arises from a preference for cheaper (and often less healthy) food and different priorities or if the spending gap is a result of economic hardship.

Why is men’s life expectancy so high in Israel?

Alex Weinreb

This chapter examines the factors responsible for the high life expectancy of Israeli men, with Israel ranked among the top five countries in the world in this area. World Health Organization figures show that, in 2013, life expectancy for Israeli men was 80.2 years – this places Israel at the top of world rankings alongside Sweden, just after San Marino and very close to Iceland, Switzerland, Australia, and Japan.

An analysis based on a sample of 170 countries shows that levels of wealth, education, and inequality in a country, as well as its demographic and health characteristics, are not sufficient to explain the highly-ranked life expectancy of Israeli men, which is about 7 years higher than predicted by the model.

The second model, which tests geographical characteristics and religiosity in the country, explains about 3 years of the high life expectancy. The third model takes into account mandatory military service in different countries (according to data from 1990). This model produced a number of findings: (1) In countries that had mandatory military service in 1990, life expectancy was 1.5 years higher in 2013 than in countries without mandatory service. (2) The length of military service matters. In the case of Israel, a variable representing the interaction between military spending as a percent of GDP and length of military service explained 3.6 years of life expectancy. These data support the hypothesis that military service can improve the physical fitness of men, and therefore reduces their chances of death from diseases associated with low levels of physical activity.

Mandatory military service is not a cure all, and there are many causes of death that even extensive and intense physical fitness programs will not prevent against. Some of these include diseases for which Israel ranks very poorly, such as sepsis and kidney disease. Treatment for these diseases requires regular investment in health. In addition, one cannot expect that military service will naturally eliminate the unwanted health effects of poor diet or lack of exercise, especially during childhood.