Opinion

The Real Israel Isn’t Startup Nation, It’s Poverty Row

Only 8% of our labor force is employed in high-tech, but a fifth of the country lives under the poverty line

Searching for food in a dumpster in Yeruham
\ Eliyahu Hershkovitz

The image of Israel promoted by the Tourism Ministry is a country of young, scantily clad (read: secular) Tel Avivians. The Startup Nation story promoted by the media leaves you with the impression that when they are not strolling the beach, Israelis are all high-tech wunderkinds. For people who follow the news, Israelis are all fanatical settlers living on windswept hilltops.

Those kinds of Israelis certainly exist. But the reality is that only 8% or so of working Israelis are employed in high-tech and that number isn’t growing. While the beaches are filled with people like the ones portrayed in tourism come-ons, the reality is that well over a third of Israelis are religious Jews or Muslims whose women don’t wear bikinis. The settlers account for about 5% of Israel’s population.

The other stark fact about Israel is about how poor many of its people are.

As the government’s National Insurance Institute showed again on Sunday, Israeli poverty rates are high compared to other developed countries – and the years of economic growth have done little to fix the problem.

Among the members of the Organization for Economic Cooperation and Development, Israel runs the highest rate of poverty (17.9% in 2016, the last year for which the organization has comparative figures).

Even Turkey and Mexico, which belong to the OECD even though they aren’t wealthy enough to be considered developed economies, do better than Israel.

It’s even more distressing that a decade of uninterrupted economic growth has left far too many Israelis under the poverty line. Twenty years ago, the poverty rate for individuals was 17.5%; as of last year it was 21.2%, according to the latest NII data.

In the interim, the rate rose to as much as 25% in 2009. But the decline that followed has stalled since 2013 even though more Israelis than ever are in the labor force, unemployment is at historically low levels and consumer prices have been falling.

In short, if after 15 years of nearly uninterrupted economic growth, the best Israel can do is shave less than four percentage points off an embarrassingly high rate of poverty, then it’s obvious we’re doing something wrong.

Call that a carrot

The government’s anti-poverty strategy has been to drive the many Israelis who don’t hold a job into the workforce with a combination of sticks and carrots. The sticks are cutting government allowances and shifting the tax burden in favor of the employed. The carrots have been things like a higher minimum wage and an expansion of the negative income tax program, to help the lowest wage earners.

It’s worked, sort of. More Israelis are in the workforce than two decades ago, but the kind of Israelis who have taken jobs tend to be at the bottom end of the skills and education ladder. They are working, but not making much money at it.

It’s a bit odd that most of the jobs being created in a country that is at the forefront of global technology are actually for things like shop assistant and restaurant waiter.

But when you look at the real Israel – not the one most people think of – it’s not so surprising.

Close to a third of Israel is either Arab or ultra-Orthodox. Both groups have low levels of labor force participation and unusually high rates of poverty – 47.1% for Arab families and 43.1% for Haredi ones. Among all Israeli Jews, the poverty rate for families was just 13.4%.

The campaign to coax them into the labor market was a success because both groups are atypical of impoverished minorities. Both are tradition-bound and family-centered with relatively low rates of the social ills that usually go hand-in-hand with poverty. All it took was to create the incentives for them to go out and get work. Employers were glad to hire good-quality, cheap labor rather than invest in technology to perform low-skill tasks.

Moving backwards

It’s a problematic achievement for a country like Israel that can only hope to keep growing economically and improve its standard of living by generating the kind of high-tech jobs it is no longer creating. In any case, the reserve of labor is rapidly running out , or in the case of the ultra-Orthodox, it's in retreat.

In the ultra-Orthodox world, it is the women who go to work every day, while the ideal is for their husbands is to spend it in religious study.

For a brief time, the government overrode the objections of Haredi leaders and created a package of sticks and carrots to get men into the labor force. That included making higher education more available to them with single-sex classes, cutting allowances for yeshiva students and forcing more of them to serve in the army (which is an important segue into secular society and the job market).

Alas, in the current government, the ultra-Orthodox regained political power and the sticks were broken. Not surprisingly, the labor force participation rate for ultra-Orthodox men has gone into decline.

The onus for reversing this is on Prime Minister Benjamin Netanyahu. His capitulations to the ultra-Orthodox parties sold out the long-term interests of the country in return for a stable government, without any pesky center-left politicians in his cabinet. It’s a deal we’re going to regret if he doesn’t end it after the next election.