Israeli Think Tank Warns Low Productivity Endangers Economy

In its State of the Nation report, the Taub Center highlights problems of poverty, inequality and poor educational achievement.

Haredi Jews in Bnei Brak, Israel
Uriel Sinai

Israel’s high-tech sector and top-flight universities have failed to give a strong boost to the country’s labor productivity, impeding efforts to combat poverty through economic growth, the Taub Center said on Wednesday.

In its annual State of the Nation report, the research institute under the direction of Dan Ben-David painted a bleak picture of the factors that contribute to Israel’s economic growth, pointing to poor achievement in education, growing poverty and a distorted tax regime.

Regarding productivity, it found gross domestic product to work hour in Israel amounted to $33.70 an hour in 2012, a little more than half the United States’ rate and just below Portugal’s $34. It ranked 26 among 34 countries belonging to the Organisation for Economic Co-operation and Development, Taub figures showed.

“Israel’s labor productivity is not only very low, it has been falling steadily behind the world’s leading economies, the G7 countries, in relative terms,” the report said.

The report blamed, among other things, falling rates of capital investment and a “heavy” government bureaucracy.

The center also found that poverty rates among Israel’s Arab and Haredi populations have been rising, with more than half of households below the poverty line before taking into account government allowances and other benefits.

Among Haredim, the rate was 70% in 2011, up from 67% 19 years earlier, while among Arab it reached 57%, up 10 percentage points over the same time period.

Meanwhile, income inequality in Israel has been consistently at the top levels of developed countries. However, Israel’s top 1% of income earners receive only about 6.3% of total market income, putting Israel in the middle of OECD countries, according to the report. Just under half of all Israelis paid no income tax in 2011 because of Israel’s unusually progressive income tax regime.

But, Taub noted, that indirect taxes, such as the value-added tax, are high, while state spending on social services and allowances is low.

Educational trends show an even more difficult future. While the report pointed to some improvement among Israeli students in core subjects, Israeli children still score at the “bottom of the developed world,” and the gap between Jews and Arabs is very wide.

Indexing Israel’s average score in the latest PISA exam of math, science and reading at 100, Jewish Israelis had a score of 104.8, while Israeli Arabs had an 83.2. Among 26 countries, Israelis students had the second-worst performance, the report noted.

“The educational achievement of roughly half of Israel’s primary school children are below those of some development-world countries — with a large share of these children not even studying basic subjects,” the report said.