Israel’s Jobless Rate Below OECD Average, but Real Wages Have Fallen

Real wages rose 0.4% in the OECD on average last year, compared to a 0.2% decline in Israel.

David Bachar

Income inequality in Israeli exceeds the average for members states of the Organization for Economic Cooperation and Development, and salaries in the country have actually declined in real terms since 2000, according to a report issued by the organization on Wednesday.

“Unemployment will remain well above its pre-crisis levels next year in most OECD countries, despite modest declines over the rest of 2014 and in 2015,” Employment Outlook 2014 says, referring to the partial recovery the economies have made since the global financial crisis of 2008. The average jobless rate across the OECD was 7.3% in July, compared to 8.5% in October 2009.

Unemployment is expected to continue to decline over the next 18 months, the report said, from 7.4% in mid-2014 to 7.1% at the end of 2015.

At 6% in the last quarter, Israel’s jobless rate is below the OECD. The report says the rate will remain stable for the rest of the year and decline to 5.7% in 2015.

Real wages rose 0.4% in the OECD on average last year, compared to a 0.2% decline in Israel.

Prof. Avi Ben Bassat, a former Finance Ministry director general, says the report is overly optimistic in regard to Israel. Not only does it not take into account the effects of Operation Protective Edge, but it is more optimistic than the forecast issued by the Bank of Israel before the fighting began in the Gaza Strip, he says. For instance, the OECD forecasts economic growth of 3.2% for the year, while Israel’s central bank said growth will be just 2.9%, or 2.6% excluding the natural-gas sector.

However, the OECD figures on declining real salaries are consistent with Bank of Israel figures, says Ben Bassat, noting that the central bank found that salaries declined 1% in real terms between 2000 and 2013.

“This is a worrying development, since given the productivity figures we’d expect to see an increase in real salaries, particularly when the economy is growing. This means that the pie is being divided in a problematic manner,” he said.

Seeing salaries decline in real terms over 13 years is rare phenomenon, he added.

The good news is that unemployment has declined since 2000, from 8.8% to 6.2%, and workforce participation has increased from 54% to 63% over that period as well, he added.

“That’s a huge jump,” he said, adding that it is also taking people less time to find work on average.

This means that the statistics regarding average salaries now include more people, but the fruits of their labor are also being divided among more people, he noted.

However, the real salary data may be misleading, adds Prof. Omer Moav of the Interdisciplinary Center in Herzliya. “It’s important to remember that the declining average doesn’t mean that workers currently in the workforce are necessarily earning less, but that the decline stems from new people joining the workforce [at lower salaries].” Many of the workforce’s newest members are contract workers, Arab women and ultra-Orthodox Jews, who tend to earn less than average.

Too many workers in OECD nations are being hired on a temporary basis, and this is slowing economic recovery, it adds. Israel is one of three OECD states, together with Canada and the United States, without laws in place giving labor rights to long-term temporary employees.

The OECD recommends increasing regulatory oversight of temporary employment contracts while easing restrictions on dismissing permanent employees.