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Joblessness of Arabs, ultra-Orthodox harms economy, central bank warns

‘We must act now,’ says Bank of Israel chief Karnit Flug, projecting decline in market growth in coming decades

Bank of Israel Governor Karnit Flug speaks during a press conference in Jerusalem on March 31, 2015. (Yonatan Sindel/Flash90)
Bank of Israel Governor Karnit Flug speaks during a press conference in Jerusalem on March 31, 2015. (Yonatan Sindel/Flash90)

Israel’s central bank chief said Monday that demographic changes such as aging and the growth of Arab and ultra-Orthodox Jewish populations were threatening the country’s long-term growth prospects.

Karnit Flug said the low employment rate among ultra-Orthodox men and Arab women in particular was hindering growth and while both segments were showing increased employment, without a drastic change Israel would suffer compared to other developed nations.

“The projected trends will reduce market growth in the coming decades,” Flug said, according to The Marker. “In order to ensure our economic future we must look courageously at the current situation and act now in order to ensure increased productivity which will allow a steady rise in the standard of living for all citizens of the country.”

Arabs make up about 20 percent of Israel’s 8 million citizens. The ultra-Orthodox are about 10 percent. Both are among the fastest-growing segments of society. The bank’s demographic forecast predicts that within 50 years, Israel’s non-ultra-Orthodox Jewish population will drop from the 70 percent to just 50 percent.

Ultra-Orthodox men often avoid the workforce and collect welfare stipends while continuing to study religious texts full time. Due to its high birthrates and unemployment, the ultra-Orthodox community is among the poorest in Israel. Ultra-Orthodox leaders insist their young men serve the nation through prayer and study, thus preserving Jewish learning and heritage. They say outside forces are putting their ancient brand of Judaism under siege and that integration into the secular military and workforce will undermine their lifestyle.

Flug noted that the per capita GDP in Israel lags behind the OECD average by 13 percent, and that the country isn’t managing to close the gap due to low productivity, the Marker reported. She said branches of the economy targeting the domestic market “are less exposed to global competition or to competition whatsoever,” citing the construction, electricity, water and food industries as having low productivity in Israel.

The previous government passed landmark legislation that aimed to gradually incorporate the ultra-Orthodox into the military and boost their employment figures. Now, with ultra-Orthodox parties back in government, they are determined to roll back those measures.

Arabs, meanwhile, complain of poor education systems and lack of employment opportunities compared to Israeli Jews.

A separate Finance Ministry report warns that these trends could lead Israel toward Greece-style bankruptcy. The report says that if Israel fails to integrate the ultra-Orthodox and Arabs into the workforce, government revenues will increasingly lag behind spending as tax revenues shrink.

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