In Israel, Meritocracy Not Only Rules, but Also Pays Well, Study Finds

Those who are at the bottom half of the skills ladder, however, earn less than their counterparts in other OECD countries

File photo: High-tech open Hub in Jerusalem, June 24, 2014.
Noam Feiner

Israel’s most skilled workers earn pay similar to what their peers in other developed countries do, but Israelis with the least skills get paid a lot less than their counterparts overseas, study finds. 

The study, conducted by Gilad Brand of the Taub Center for Social Studies, measured the return that workers earn in the labor market from their job skills as measured by the Program for the International Assessment of Adult Competencies. PIAAC measures abilities of adult workers in mathematics, reading and problem-solving.

The study found that Israel’s lowest skilled workers earned just 50% of what their peers in other countries belonging to the Organization for Economic Cooperation and Development (OECD) earned. At the top of the skills ladder, however, the gap narrowed to just 15%.

The reason, concluded Brand, is that Israel rewards its most skilled workers substantially, mainly because of their heavy representation in the country’s high-tech industry. Other countries don’t reward their most skilled workers nearly as consistently with high salaries.

“Israel is a meritocracy – it’s the rule of the most skilled,” said Brand.

He said he was surprised by the degree to which workplace skills are so generously rewarded in Israel. “Israel’s best workers, who have the highest level of skills, have succeeded in achieving a standard of living close to the best workers in other [OECD] countries,” he said.

However, in contrast to the widespread belief that Israel’s most skilled workers are better than their peers abroad, the PIAAC test shows otherwise: All across the board, from highest to lowest skilled workers, Israelis do no better than match and, in many cases, underperform their OECD counterparts.

However, that underperformance doesn’t always translate into lower pay versus workers in other countries, Brand noted.

At the lower end of the skills ladder, as measured in the PIAAC, Israeli workers have slightly higher levels of education, but their actual workplace skills are very low – only workers in Chile and Turkey are worse.

“The performance of our weakest workers is lower than for the weakest workers overseas, but in Israel the wage gaps are even bigger,” said Brand. For the least skilled, it’s better to be working in a country other than Israel.

“The State of Israel has done well by its most skilled. It’s provided incentives to go into high-tech and changes in the global high-tech industry have rewarded this group financially,” said Brand.

He was referring to the plethora of startup companies in Israel, but also the presence of multinational research and development centers owned and operated by the world’s biggest tech companies.

Last week, a report by GKH Law Offices and the high-tech industry umbrella group Israel Advanced Technology Industries said some 360 R&D centers accounted for 16% of Israel’s total tax revenues, including personal income tax paid by their approximately 62,000 employees.

Brand said the problem facing the Israeli labor market isn’t access to higher education, but the ability of people with college degrees to find well-paid jobs outside of high-tech and medicine.

Thus, for example, the return on education for people in medicine is 57.2% and for those with degrees in the high-tech professions of mathematics, science and computers it’s 44.3%. But for those with degrees in humanities or general studies, the return is 16.7% and those who study social science it’s 26.2%, even when they score high on PIAAC.

“On the bottom half of the skills ladder, the [financial] return for a degree is very low,” said Brand. “The solution is to expand higher education or improve access to it. Anyone who didn’t study math and English well when they were young, will find hard to close the gap later in life – and that fact expresses itself in the labor market. Much of the gap is due to the failure of the educational system.”

Brand’s study found that 95% of Israel’s most skilled workers were non-Haredi Jews, a larger share than their 70% of the population. Israeli Arabs have an especially low return on their education.

“After a big improvement at the start of the 2000s, there remain big gaps that need closing,” Brand said.

Rather than focusing more on the top levels of the labor market, Israel must work on the skills of the lower levels, especially for the Arab minority.

Another study, this one concerning automation in the labor market conducted by Shavit Madhala, found that many workers in Israel whose jobs are at risk from robotics and artificial intelligence aren’t considering retraining because the cost is too high.

Compared to other OECD countries, Israel spends relatively little on worker-retraining programs, leaving workers to cover the costs out of pocket. Overall, 24% of Israeli workers said the cost was the reason they were not participating in retraining, versus 15% for OECD countries overall.

Among the workers at the highest risk of losing their jobs to automation, 38% said the cost was the main factor preventing them from starting retraining.

“The populations that will be the most harmed – employees in the Arab sector, women and employees who live in the south [the Negev] – can’t make use of retraining program because most of them can’t afford to pay for them.”

Like other developed economies, in Israel an estimated 15% of all job categories are likely to disappear in the 10-20 years due to automation.

The categories most vulnerable are construction and manufacturing, transportation services, warehousing, mail delivery and hotel and food service.