Bank of Israel says education funds needed to boost human capital, workforce

Central bank governor underlines need for investment in early childhood education and vulnerable populations to improve workforce

Sharon Wrobel is a tech reporter for The Times of Israel.

Illustrative image of a kindergarten in Petah Tikvah. (Screen capture/YouTube)
Illustrative image of a kindergarten in Petah Tikvah. (Screen capture/YouTube)

Bank of Israel governor Amir Yaron on Monday emphasized the importance of investing in the country’s education system to improve the human capital of young people, which he described as one of the main growth engines of the economy.

Speaking at a conference on human capital and the labor market held by the central bank’s research department, Yaron said that the bank is working vigorously to submit updated recommendations on how to boost human capital to the incoming government.

Narrowing the gaps between Israel and other advanced economies — in terms of skills, labor productivity, income inequality, and the incidence of poverty — needs to start with investment in early education, the governor recommended.

“Although the rate of educated people in Israel is one of the highest in developed countries, the achievements of students in the education system are low compared to the rest of the world and the level of basic skills of the workers in the economy is also lower than the average in the Organisation for Economic Co-operation and Development (OECD),” Yaron said.

“The skills gap starts at a young age, so treatment of the problem must start at a young age to prevent the persistence and growth of the gap at later ages.”

Yaron’s remarks come amid concern among current and former education officials that under the prospective right-wing, religious coalition, Haredi parties will receive unprecedented authority over aspects of ultra-Orthodox education and more funding will be shifted to education of non-core subjects.

Meanwhile, Avi Maoz of the Noam party has been seeking to oversee Israel’s “Jewish national identity,” with authority over substantive educational programming in Israel’s schools, while pushing an anti-LGBTQ agenda.

Furthermore, parties in the incoming right-religious coalition are said to have struck a deal to sharply raise the stipends that the state grants to yeshiva students, who spend their days studying instead of working.

Also speaking at the conference Bank of Israel Research Department Director Prof. Michel Strawczynski lamented that “in recent years, Israel has not scored well on international tests examining basic knowledge in the main fields that affect the functioning of the labor market, either among pupils or among adults.”

Bank of Israel Governor Amir Yaron speaks during a press conference in Jerusalem, on April 11, 2022. (Flash90)

“In addition, the expected composition of the population in the next thirty years poses a particularly significant challenge in view of the growth of weaker groups that will comprise a major part of the working-age population,” said Strawczynski.

“The most significant challenge for the economy looking forward is to create the conditions for the young population to obtain the proper tools to deal with the challenges of the future economy.”

“These include knowledge in professions that can be used in the high technology industries,” he remarked.

Strawczynski emphasized the need for reforms and policy tools to change the “apparent direction,” which he said was “particularly relevant for the new government currently being formed.”

The Israeli education system is historically characterized by disparities between the sectoral systems, which include the state secular, Haredi, Arab, Bedouin, and Druze education systems.

The differences are reflected in learning material, educational inputs and budgets leading to differences in educational outcomes and skills between pupils from strong and weak socioeconomic backgrounds.

Many of the pupils from weak socioeconomic backgrounds belong to the Arab or Haredi sectors, which show gaps in achievement and basic skills for moving onto higher education to have better chances to integrate into the labor market.

The main recommendations suggested by the Bank of Israel focus on early childhood education. Yaron called for the need to allocate state expenditure to support state programs for toddlers up to the age of two, which he said was particularly low compared to international standards.

“The literature shows that the contribution of early childhood education frameworks is expressed mainly among weak populations and therefore, thinking in ‘cost-benefit’ terms, it is important to focus the government’s early childhood activity on low socio-economic strata, condition it on the exhaustion of work capacity and avoid blanket subsidies,” Yaron said.

Additionally, Yaron pointed out that the quality of teaching in Israel must be improved in an effort to boost human capital in Israel.

The governor said an infrastructure for effective teacher evaluation should be established which is based both on their success in improving grades and skills among students and on their success in promoting other educational goals.

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