Israeli Women Joining Workforce Faster Than Rest of OECD

Treasury report cites favorable tax regime, changing labor market.

Eliyahu Hershkowitz

Women joined the workforce in Israel faster than those in other developed countries over the last three decades, thanks to changes in the labor market and the tax regime, the treasury said in a report this week.

Among women ages 25-34, 79.7% hold jobs or are actively looking for one, an increase of 24 percentage points from 1985, the treasury said. For the 35-44-year-old age group, the rate was nearly as high at 78.9%, a 21-point rise.

For older women the rates were lower, but the pace of growth was higher. Among those ages 45-55, the labor-force participation rate was 76%, an increase of 29.8 points in 30 years while for those aged 55-64, it was just 60.3%, but still a 35-point increase over 1985, the treasury said.

The rise for the oldest age cohort was partly due to a 2004 decision to raise the minimum retirement age for women to age 62 from 60.

Bringing more people into the labor market has been a key goal of government policy in recent years. Israel’s labor-force participation rate – the percentage of the working age population in a job or looking for one – has been low by developed-country standards, depriving the economy of output and lowering the standard of living.

The labor-force participation rate among women has risen so quickly that Israel has had a higher rate than the average among OECD (Organization for Economic Cooperation and Development) countries since around 2000. For Israeli men, the rate is lower than the OECD average.

The treasury quoted a study by the OECD, the club of the world’s most developed economies, which attributed the rise to changes in the labor market and Israel’s tax system that brought so many women into the labor force.

“The weighting of manufacturing and agriculture in the economy has declined while that of services rose,” the treasury explained. “Services require less physical labor and also more easily allow for part-time work.”

Yet even with more Israeli women working than in the past, only 67% of them were employed full-time in 2013, compared with 87% of men.

But the changing nature of work isn’t unique to Israel. What is special, the treasury said, is the tax system that by international standards is favorable to families with children and two breadwinners, when one is earning an average wage and the other a third of that.

In 2004, such a family with two children would have had an effective income tax rate of 17.7%; 10 years later the effective rate would have been just 11.6%. That is a much steeper drop than for other OECD countries, the treasury said.

Another factor bringing more women into the workforce was higher levels of education. Since 1999, more women have completed between 13 and 15 years of education than have men. Among those with 16 or more years education, the rate among men remains higher, but the gap with women is narrowing, the treasury said.

Daycare was another factor. The OECD found that the more daycare was available, the more likely women would hold jobs.

In Israel in 2008, only 25% of children under age three were in daycare, but the treasury said it believes the percentage has grown as free pre-school education has become available, and more daycare facilities are getting state subsidies.