Treasury: Decade-old Changes Reformed Job Market

More students in college, less government assistance and lower taxes account for stronger workforce, says Finance Ministry.

High-tech workers in Israel.
Tomer Appelbaum

Employment statistics for last year reflect a continuation of a trend involving long-term improvements in the Israeli job picture due to fundamental changes that the government enacted more than 10 years ago, the latest weekly report by the Finance Ministry’s chief economist stated.

As Finance Ministry officials see it, the improved employment situation is the result of two main factors: a growth in the number of Israelis pursuing higher education, particularly at the country’s colleges, as distinct from the larger, longer-established universities; and financial incentives encouraging people to enter the workforce, notably cuts in governmental assistance and lower income tax rates.

In 1999, the rate of workplace participation of those of working age was just 58.9%, while in 2014 it had already jumped to 64.2%, the Finance Ministry chief economist’s office stated. In 1999 the unemployment rate was 10.6%, rising in 2003 to an all-time high of 12%, but dropping last year to a very low 5.9%. The workplace participation rate includes people who are employed or are seeking employment, while the unemployment rate measures only those are seeking work but are unable to find it.

Particularly encouraging in Israel in recent years is that the jobless rates have dropped among potential workers with varying levels of education. In fact, among less educated workers, the rate of unemployment has actually dropped further, and the rate of joblessness among Arab Israelis has dropped more than among Jews, thereby narrowing the disparities in unemployment rates between the two population groups.

On the other hand, disparities regarding the number of Arabs and Jews who are either working or seeking work have not changed. This means that more Arabs who look for work find it, but more Arabs than Jews do not seek to be employed.

There was no major gender gap when it comes to unemployment rates last year among men and women seeking work. The rate among men and women was nearly identical, but women are still less likely to seek employment outside the home.

Israel’s workplace participation rate is relatively good by standards in the developed world. In 2013, the average workplace participation rate among the grouping of developed countries, the Organization for Economic Cooperation and Development, was 60.1%, a year in which it was 63.7% in Israel. Iceland had the highest workplace participation that year with 81%, followed by Sweden at 72%. The bottom two slots were filled by Turkey at 53% and Italy at 52%.