TAUB CENTER

for Social Policy Studies in Israel

The Rosshandler Bulletin Series

Taub Center Bulletin | Volume 3, Number 3 | May 2011

In This Issue:

Fewer workers who work more with a lower standard of living

The working poor

(page 1)

(page 6)

In Israel, a lesser share of people work than is common in the West. Those who are employed work more hours a week than do workers in most other OECD countries while the countrys average standard of living is lower than in the majority of OECD countries.

Israel has experienced a marked increase in the share of poor families headed by an employed person. The rise in the working poor has been to a large extent concentrated among Arab Israelis. The high rate of working poor among Arab Israelis reflects a challenging combination of disadvantages.

In Memoriam: Henry Taub

(page 8)

Fewer workers who work more with a lower standard of living

In Israel, a lesser share of people work than is common in the West. Those who are employed work more hours a week than do workers in most other OECD countries while the countrys average standard of living is lower than in the majority of OECD countries. s Taub Center Executive Director Professor Dan Ben-David shows in the Taub Centers State of the Nation Report 2009, Israels living standards are not only lower than those of the G7 countries (the seven leading economies of the world), they have also been rising at a slower rate over the past decades, leaving Israel farther and farther behind the leading countries. What are some of the primary factors distinguishing between living standards in Israel and in other

developed countries? A graph published in 2003 by Ben-David and updated here compares Israel with 24 OECD countries in 2009. When it comes to standards of living the common measure for these is GDP per capita 21 of these 24 OECD countries have higher standards of living (this measure is shown as the horizontal axis of the graph). The share of Israelis who are employed is below all but four of the other OECD countries (see red triangles

on the graph). On the other hand, Israelis who work tend to put in more hours of work each week than do workers in all but two of the other countries, regardless of whether those countries are wealthier or poorer than Israel (the blue squares on the graph). The primary factor determining standards of living in a country is productivity. One measure of productivity is labor productivity (defined as GDP per hour worked). The strong link between productivity and standards of living that exists across countries and is visually evident in the figure (by the green circles) is not a coincidence. The more productive a worker is, the more he or she can be compensated and the higher the standard of living. This is a major reason why productivity is lower in the three OECD countries

with lower living standards than Israels and why it is increasingly higher in the wealthier OECD countries. This figure shows an interesting relationship that appears to hold across modern Western economies: in countries in which a greater share of the population is employed, and each person on average is more productive, then employed individuals tend to work fewer hours during the week and the countrys average living standards is nonetheless higher.

Lagging productivity
Israels productivity picture is one of a steadily increasing gap that has developed between itself and the G7 countries (the second figure on the next page). The relatively slower productivity growth since the

Living standards and the labor force, 2009

24 OECD countries relative to Israel (Israel=100)
Germany United Kingdom Belgium Denmark Canada Austria Sweden

200
New Zealand G Greece M i Mexico

150 125 100 75 50

Israel Israel

50

75

125 150 GDP per capita (relative to Israel)

100

Japan p It l Italy Spain Finland F France

175

employment rates relative to Israel (ages 35-54) work hours per employed person relative to Israel Output per hour relative to Israel (labor productivity)

Source: Dan Ben-David (2003). Israels Long-Run Socio-Economic Trajectories. The Economic Quarterly, March (graph is updated to 2009). Data: Israels Central Bureau of Statistics, Bank of Israel and the OECD.

TAUB CENTER for Social Policy Studies in Israel

Norway y

Korea

175

Iceland Australia N th l d Netherlands

Portugal

Switzerland United States

Ireland

200

1970s has translated into relatively slower economic growth, with Israels standard of living falling farther and farther behind the G7 countries. The irony is, as Dan Ben-David shows in the Taub Centers State of the Nation Report, that Israel invests extensively in research and development and, in certain areas, its creativity and innovation surpass those of the Wests leading economies. But while some sectors of Israels economy are cutting edge, the overall human capital and physical infrastructures have not kept pace. Increasingly congested roads (see January 2011 Bulletin) lead to higher transport costs and consequently lower productivity. Low levels of education and insufficient skills among large and growing segments of Israeli

society reduce their ability to produce and incomes tend to reflect this. As a result, even when there are some areas in which the Israeli economy can successfully compete on a global scale, the heavy weight of the unskilled population enters the calculations of the national average. It turns out that the more advanced sectors of Israels economy are unable, on their own, to raise the countrys average standard of living to the highest Western levels. On the contrary. The large unskilled population pulls the national growth path downwards, so it is no coincidence that Israels long-run economic growth path has been lower and flatter than those of the advanced Western economies.

Labor productivity, 1970-2008

GDP per hour in dollars*

45

G7
40 35 30 25 20 15 1970

Israel

1975

1980

1985

1990

1995

2000

2005

2010

* 2005 prices, according to purchasing power parity. Source: Dan Ben-David (2010). A Macro Perspective of Israel Society and Economy. in Dan Ben-David (Ed.). State of the Nation Report 2009, Taub Center for Social Policy Studies in Israel. Data: OECD, Bank of Israel, Israels Central Bureau of Statistics.

The Rosshandler Bulletin Series, Vol. 3, No. 3 , May 2011

Low employment
The employment picture in Israel is a problematic one, particularly for men. Though Israeli unemployment rates are below the OECD average, they only measure the share of individuals who cannot find employment out of those looking for work. However, there is a very large segment of the Israeli population that is not even looking for work. Thus, the more relevant measure is non-employment which includes the unemployed, those who are not participating in the labor force and those not looking for work. As highlighted in the June 2010 issue of the Bulletin, the share of non-employed Israelis out of the primeworking age (35-54 year old) male population is more than half as much more than it is in the West: 19 percent were not employed in Israel in 2008, versus 12 percent non-employment in the OECD. Two groups stand out in particular in this regard, Arab Israeli and haredi (or ultraOrthodox) men. In 2008, 27 percent of prime working age Arab Israeli men were not employed (double the share in 1979) while 65 percent of haredi men of the same age were not employed (over three times the share of non-employed haredi men in 1979). It is important to note that even among non-haredi Jewish men, who are still the large majority in Israel, the share of non-employed (15 percent) is one-quarter more than the OECD average of 12 percent. Three decades ago, in 1979, the share of non-employment among non-haredi Jewish Israeli men was the same as the OECD average. This means that there has been a deterioration in relative male employment rates across the board in Israel. The marked increase in male non-employment has coincided with a multi-decade decline in the employment of lesseducated and unskilled Israelis and steady multi-decade increases in welfare benefits per capita. The result is that relatively fewer shoulders bear the weight of Israels economy and must work more hours to do so.

While the Israelis who work do so for more hours a week than is common in the West, the trend among Israeli men is towards fewer weekly work hours today than a decade ago (third figure, on the next page). In his study that will appear in the upcoming State of the Nation Report, Ayal Kimhi finds that non-haredi Jewish men, who represent the largest group of males in Israel, worked an average of 49.3 hours a week in 1998. By 2009, this fell by more than three percent, to 47.6 hours. Weekly work hours among Arab Israeli men were below those of the non-haredi Jewish men in 1998 and in 2009, falling by one percent over this period, from 45.8 hours a week in 1998 to 45.3 hours in 2009.

Haredim and the labor force

The employment situation among haredi men is considerably different than for the other population groups. Not only are their rates of employment very low, the Kimhi study shows those who work do so for considerably fewer hours per week than the other groups, seven percent less than Arab Israelis and 14 percent below non-haredi Jews in 1998. In addition, the drop in haredi hours of work per week, of five hours a 12 percent fall was sharpest among all groups. As a result, even among those relatively few haredi men who are employed, they worked fewer hours a week in the past than the other groups, and they reduced their weekly work load by far more over the past decade. Hence, not only has there been a widening gap in employment rates between haredim and other men, this relative deterioration in employment is also evident in a large and increasing gap in hours worked. As a result of the diverging work norms among haredim and others, it is not surprising that an increasing share of haredi families are falling below the poverty line. The issue of haredim and work is becoming increasingly problematical as their share in the population rapidly

TAUB CENTER for Social Policy Studies in Israel

increases. Ultra-Orthodox children represent one-fifth of all primary school pupils today, with an increase in enrollment of 51 percent over the past decade alone compared to a decline of three percent during this same decade in the State non-religious schools (whose share fell to just 39 percent of the total in 2008). As this major segment of the population rapidly increases, their ability and willingness to be engaged in a modern competitive society has become a major issue that needs to be reckoned with by Israeli society and its leadership. When this is coupled with the fact that the haredim refuse to allow their children to study core curriculum subjects at levels that could facilitate their integration into a

modern and competitive economy, the implications for future labor productivity growth that would enable higher compensation are not encouraging. The combined result of problematic employment habits and poor education is that there are increasing pressures for raising overall government assistance to these families, with all of the attendant tax and welfare implications that this has for the rest of Israeli society. In light of the fact that the haredi population is increasing at a faster pace than all other segments of Israels population, what happens to this group is beginning to have wider repercussions on the average standards of living for Israeli society as a whole.

Weekly work hours, 1998 and 2009

ages 35-54

49.3 47.6 45.8 45.3 42.5

37.5

36.8

37.8

37.4 34.8

29.7 29.7
1998 2009 1998 2009 1998 2009 1998 2009 1998 2009 1998 2009

Jews Arab non-haredim Israelis r di

Jews haredim r di

Jews Arab non-haredim Israelis r di

Jews haredim r di

men

women

Source: Ayal Kimhi (2011). forthcoming in the State of the Nation Report 2010. Data: Israels Central Bureau of Statistics.

The Rosshandler Bulletin Series, Vol. 3, No. 3 , May 2011

The working poor

Israel has experienced a marked increase in the share of poor families headed by an employed person. The rise in the working poor has been to a large extent concentrated among Arab Israelis. The high rate of working poor among Arab Israelis reflects a challenging combination of disadvantages. phenomenon that has become increasingly common in the developed world and in Israel, in particular, is that of the working poor. Today in Israel, in the majority of poor households headed by a person of working age, that person is employed. Professor Haya Stier, Chair of the Taub Centers Social Welfare Policy Program, undertook an in-depth study of this phenomenon. The study will appear in its entirety in the upcoming State of the Nation Report 2010. Poverty in Israel is defined by having a household income of less than half the national median household income, adjusted for family size. It is easy to see that families without any earners are very vulnerable to poverty, unless they have significant sources of income other than from work. Government assistance programs are not generally designed to keep recipients out of poverty but rather to guarantee a very basic level of subsistence or to supplement families with low income from work. But families with wage earners can also find themselves below the poverty line. This will happen if earnings are low, or if there are many household members.

In terms of net incomes that is, after taxes and welfare payments Israel has a very high poverty rate, among the highest in the developed world, and poverty rates have risen considerably since the beginning of the decade. The proportion of poor families headed by an employed person (among those headed by a person between the ages of 25 and 64) has also risen considerably, so that overall, the number of working poor has seen a particularly sharp rise. The first figure shows the total portion of poor households headed by a person at work. In Israel today, the majority of poor families in this age group fall into this category. One reason for this trend is the deliberate government policy of encouraging poor people to work rather than to live off of public assistance. The objective of this policy was to help people escape poverty, but so far one effect has been to move many families from the idle poor to the working poor, without much change in their standard of living. It is likely that the inducements to work involved too much stick (reduction of benefits) and too little carrot (improving the compensation from the return to work) and as a result, the program

Poor households headed by a wage earner as percent of all poor households, 1995-2009 for families headed by person aged 25-64
60%

55%

50%

45%

40% 1995 1997 1999 2001 2003 2005 2007 2009

Source: Haya Stier (2011). forthcoming in the State of the Nation Report 2010. Data : Israels Central Bureau of Statistics.

TAUB CENTER for Social Policy Studies in Israel

may have saved money for the Treasury but has not made a major impact on poverty levels. Using disaggregated data, Stier discovered that the rise in the working poor has been to a large extent concentrated among Arab Israelis. The second figure shows that among Jewish Israelis, the proportion of working poor is considerably lower, and virtually unchanged. But among Arab Israelis, the share of poor rose since 1995 from about 20 percent to about 40 percent. Among the reasons Stier finds for the high rate of working poor among Arabs are: 1 Low labor force participation rates for women. In those Arab households where the woman is employed, poverty rates are actually quite low. Thus, the gap in working poor between Jewish and Arab Israelis is due in large measure to the low proportion of two-earner couples among Arab Israelis. 2 Deterioration in earnings. Arab men are concentrated in low-skill jobs which have faced sharply lower demand in recent years, and in addition have faced competition from cheaper foreign workers who, in many cases, are employed in virtually

identical jobs. (See the March 2011 Bulletin which presents findings that foreign workers have been displacing Arab men.) 3 Demographic differences. As a whole, the Arab population is younger and a larger proportion of household heads in this community are younger. Forty-two percent of Arab household heads are under 35 years old and thus before their peak earning years, compared to only thirty three percent of Jewish household heads. Furthermore, the Arab families have more children on average, and for a given household income, households with more children are poorer. 4 Loss of child allowances. Since Arab households with a working head of household tend to have more children than comparable Jewish households, the marked decline in child allowances in recent years has had a disproportionate impact on Arab Israeli working poor. The complete findings of Professor Stier also include a detailed study of poverty in families with a working single-parent. Her study will be published in full in the Taub Center State of the Nation Report 2010.

Poverty rate in the population and amongst household headed by a wage earner, 1995-2009 by sector, head of household aged 25-64
60%

Arabs total population

50% 40% 30% 20% 10%

Arabs wage earners

Jews total population Jews wage earners

0% 1995 1997 1999 2001 2003 2005 2007 2009

Source: Haya Stier (2011). forthcoming in the State of the Nation Report 2010. Data : Israels Central Bureau of Statistics.

The Rosshandler Bulletin Series, Vol. 3, No. 3 , May 2011

Henry Taub: The passing of a gentle giant

It is with a heavy heart and deep sadness that we parted from Henry Taub (zl), one of the leading founders of the Taub Center, and a great supporter of Israel and Israeli institutions. Henry served as Chair of the Centers Board from 1994 to 2005 and as Honorary Chair in recent years, providing leadership, counsel, and guidance to the Center and its professional staff. Together with his brother, Joe, and childhood friend, Fred Lautenberg, Henry Taub was a founder of Automatic Data Procession (ADP) and served as its Chairman from 1949 until 1970. He retired from ADP in the mid-1980s when the company was processing pay checks for one tenth of the US work force. Today, ADP is one of the worlds largest providers of business outsourcing solutions. In the early 1980s, during Henry Taubs tenure as President of the American Jewish Joint Distribution Committee, the idea arose to create an independent, professional, social policy research center that would provide the Israeli government and the general public with cutting-edge policy research on the primary social and economic issues facing the country. Taub recognized the need for such an impartial source of evidence-based research, quickly becoming one of the Centers founding fathers along with a few other JDC leaders. They realized that in order for such a research center to provide balanced, viable, and critical analyses and policy recommendations, it would have to be completely independent of the Israeli government. The Center for Social Policy Studies in Israel, as it was called at the time, was established in 1982 and has grown to become one of Israels premier research institutes. In honor and recognition of Henry Taubs long-standing support, the Center was renamed in 2003 the Taub Center for Social Policy Studies in Israel. Henry Taub was a symbol of the modern JewishAmerican community leader: quiet and unassuming, but with rare foresight and vision that saw far beyond the more common preferences for tactical perspectives and symptomatic solutions. In addition to his decisive role in the creation of the Taub Center, Henry Taubs strategic approach towards creating a better future for Israel was also in evidence during his thirteen years at the helm of the Technions Board of Governors one of the worlds leading universities that has figured prominently in Israels becoming the Start-up Nation. His role as one of Americas foremost philanthropists was cemented in the large number of leadership positions that he undertook in some of the Jewish communitys most important organizations, including the chairmanship of the United Israel Appeal. Along with his wife, he established the Henry and Marilyn Taub Foundation which has provided generous support and resources to many important causes including the Taub Institute for Research on Alzheimers Disease and The Aging Brain at Columbia-Presbyterian Hospital as well as the Taub Urban Research Center at New York University. His philanthropic and public activities extended beyond, though, and he also served as a member of the Board of the Rite-Aid Corporation, Hasbro Inc., Bank Leumi and Trust Company of New York, the Interfaith Hunger Appeal, and the New York Shakespeare Festival. Henry Taub passed away in New Jersey on March 31, 2011 at the age of 83. He is survived by his wife of 53 years, Marilyn, three children, and ten grandchildren. We will miss him greatly. May his memory be a blessing.

Established in 1982 under the leadership and vision of Herbert M. Singer, Henry Taub, and the American Jewish Joint Distribution Committee (JDC), the Center is funded by a permanent endowment created by the Henry and Marilyn Taub Foundation, the Herbert M. and Nell Singer Foundation, Jane and John Colman, the Kolker-Saxon-Hallock Family Foundation, the Milton A. and Roslyn Z. Wolf Family Foundation, and the JDC. 15 Ha'ari St., PO Box 3489, Jerusalem 91034 Tel. 972-2-567-1818 Fax: 972-2-567-1919 Visit us online at www.taubcenter.org.il Email: info@taubcenter.org.il