Israel is at the top of OECD countries when it comes to health and subjective well-being, but near the bottom in terms of air quality, education and skills and the quality of housing.
These findings emerged from a 144-page Economic Survey of Israel released on Wednesday by the Organization for Economic Cooperation and Development, an intergovernmental organization of 36 of the world’s industrialized, high-income, and mostly democratic countries.
The latest survey, updating the last such study released in 2018, found that while Israel’s economy was strong before the coronavirus, it is expected to shrink by 6 percent in 2020 and recovery is likely to be slow.
“The downturn hit at a time when the economy was performing well, with GDP growth close to potential, record-low unemployment, and relatively low public debt. However, the crisis threatens to aggravate Israel’s underlying challenges of high poverty, large income gaps and wide productivity disparity between its vibrant high-tech sector and lagging sheltered sectors.”
In comparison with other OECD countries, Israel scores high when it comes to the health of its citizens (4 out of 36) and their subjective well-being (11 out of 36). Israel scores near the bottom of the OECD when it comes to education and skills (29 out of 36), environmental quality (35 out of 36) and at the very bottom in terms of housing quality and cost.
The study also found that Israelis have relatively poor work-life balance (26 out of 36), with the average Israeli working 1,898 hours per year (compared to 1,726 hours average for the OECD). While about 65 percent of Israeli men aged 15 and over are employed (about average for the OECD) the figure for Israeli women is 57.3 percent compared to a 49.9 percent average for the OECD, even as Israeli women have the organization’s highest birthrate by far.
Coronavirus deals a harsh blow
Over a million workers were laid off when the first wave of coronavirus cases hit Israel in March. While many have found new work, the unemployment rate remains at about 12 percent and there are fewer job openings than usual.
“A reallocation of labour across sectors might be required during the recovery, as activities requiring face-to-face contact, such as hospitality and food services (accounting for 2.5% of GDP) may face extended low demand, while other sectors, such as health and digital services, will benefit from rising demand. Reallocation will take time and require retraining especially since about a third of employees who have been on furlough or laid-off in June have been low-skilled workers,” said the report.
The survey said that Israel is effectively a two-tier economy with productivity levels in the high-tech sector higher than the OECD average while the rest of the economy, which employs most of the workforce, lags behind. The coronavirus crisis will only make things worse, the survey warned.
“The COVID-19 crisis may further exacerbate this disparity as the high-tech sectors were less affected and better able to cope with the crisis,” the report said. “As the COVID-19 pandemic has shown once again, the low-skilled are often the first to lose their job in a crisis.”
This productivity gap, the report says, is the result of a long-term disparity in educational outcomes.
“The skills of Israel’s adult population, as measured by PIAAC, are relatively weak in international comparison. Moreover, there is a wide variation, as some Israelis have outstanding skills, while a large number are comparatively low-skilled. This contributes to severe labour market duality, with high-wage jobs in the highly productive high-tech sector and low-quality, low-wage jobs in low-productivity, often non-tradable sectors
According to the report, the share of Israelis employed in high-tech is 9% but this figure is limited only by the fact that there are not enough skilled employees to fill a surplus of high-tech jobs. According to the survey, since the mid-2000s, more than 15% of all job openings in high-tech sectors go unfilled.
Many of Israel’s low-skilled workers are concentrated in the Haredi and Arab sectors, the report said. It recommended offering high-quality teachers financial and other incentives to take jobs teaching students from less advantaged backgrounds.
“To attract good teachers to such schools some OECD countries supplement generous financial incentives with other measures such as smaller classes or more teaching assistants. Wage rises should be accompanied by measures that promote better teaching methods,” it said
High congestion, high pollution
The study described traffic congestion in Israel as “one of the worst in the OECD,” and said that “Tel Aviv is now the fourth most congested city in the OECD with negative consequences for productivity and well-being. The commuting time required to travel to work outside one’s residential locality has increased by one-third since 2005.”
This, in part, has created a situation where Israelis are exposed to much higher air pollution than in most other OECD countries.
“Education outcomes for children exposed to higher air pollution are substantially and lastingly lower; pollution also affects students’ subsequent labor market performance in Israel. Applying recent EU evidence to Israel suggests worker productivity could be at least 5% higher if average exposure was below the WHO threshold,” the survey said.