Israel's Growth Will Slow Down Unless ultra-Orthodox Start Working, Bank of Israel Warns

Fastest-growing communities, Haredim and Arabs, are least educated and contribute least to GDP.

Economic growth and the rise in the standard of living that it brings is projected to slow in the next 50 years unless rates of higher education increase in certain groups, particularly ultra-Orthodox men, in particular, the Bank of Israel warned on Monday.

The growth in human capital, measured by the average number of years of schooling and its contribution to economic growth, is projected to decline by 2059 the to just 0.1-0.2 percentage points, from 0.4 percentage points in the past decade and 0.7 percentage points between 1974 and 2011, the central bank said.

Each increase of one year in the average number of years of schooling across the population raises income by about 10 percent, the bank said.

But two of the fastest-growing communities in Israel, as a result of their high fertility rates, are the Arab and the ultra-Orthodox communities, both of which also tend to have fewer years of schooling. Haredi men, in particular, tend to shun general, or secular, studies in favor of religious studies, a choice that makes many of them less employable in Israel’s labor market.

Other factors contributing to the decline in Israel’s human capital and cited by the bank are the aging of the general population and the expectation that there will not be another large wave of highly educated immigrants, such as happened in the 1990s when around one million people from the former Soviet Union settled in Israel.

Between 1974 and 2011, per-capita GDP in Israel grew at an average annual rate of 1.8 percent, the bank said, estimating that 0.7 percentage points, or 40 percent overall, of that growth was due to increase in human capital. During that period, the average number of years of schooling among Israelis of working age (25-64) rose from 10.1 to 13.4.

But in the past decade human capital growth contributed just 0.4 percentage points to annual GDP growth.

The combination of these findings with Organization for Economic Cooperation and Development forecasts, the Bank of Israel said, indicates that unless education levels among the ultra-Orthodox approach those of the general population, Israel is expected to fall from 16th to 26th place among OECD member states countries in the average number of years of schooling among the population. “In contrast, the convergence of education among the ultra-Orthodox as outlined in our scenario is expected to keep Israel close to its current position,” the bank said.

The Bank of Israel report painted a more dire picture of Israel’s educational levels and their role in economic growth by adjusting the educational data used by the Central Bureau of Statistics. That government agency counts years spent in yeshiva study the same as years spent in the secular school system. But as the central bank points out, a yeshiva education does not give its graduates the skills needed in a modern labor markets, and it adjusts these numbers accordingly.

If Haredi education does “converge” with that of Israel’s Jewish population as a whole, this would add some NIS 50 billion to national income at the end of 50 years, or NIS 6,300 per person.

The bank urges the government to make higher educational more widely available to all Israelis and to improve high school education in order to increase the number of graduates who are qualified to enroll in higher education.

Dan Keinan