Israel’s Economy Improving for ultra-Orthodox Jews, Arabs, but Not Fast Enough, OECD Says

OECD calls for better education, more economic competition.

Haredi Jews in Bnei Brak, Israel
Uriel Sinai

Average incomes in Israel are increasing, primarily due to an increase in employment rates among ultra-Orthodox Jews and Arab Israelis, a new report from the Organization for Economic Cooperation and Development, the grouping of the world’s developed countries, notes, but the report adds that the average productivity of the average Israeli remains low compared to counterparts in other developed countries and that much remains to be done.

In the report, titled “Going for Growth,” which surveyed economic growth policies in the developed world as a whole, the OECD cautioned that politicians in the developed world have to focus on policies that will ensure strong economic growth together with a fair distribution of income if they want to combat economic inequalities. The report noted widening gaps in the distribution of wealth among Western economies.

Class size in Arab Israeli schools has been reduced in general and physical facilities have improved, the report noted, although it said progress on that score has been slow. A focus on education for Israel’s ultra-Orthodox and Arab populations will improve their situation, in addition to programs that encourage them to enter the workforce rather than relying on government financial support. Ultra-Orthodox men and Arab women have particularly low workplace participation rates. Traditionally most ultra-Orthodox men in the country have shown a preference to engage in religious studies instead of being employed but their numbers in the workplace are growing. [For additional coverage on employment, see below].

When it comes to addressing poverty in Israel, the OECD report said that the most effective step would come with an increase in competition in the retail sector, in education, health and construction. In addition, the OECD gave a nod to Israeli legislation that is designed over time to reduce the concentration of corporate power in the hands of a relatively small number of major conglomerates.

The report made special mention of the need for improvements in the educational system in Israel in light of low performance on the OECD’s standardized testing, known as PISA, particularly among Arab and ultra-Orthodox students. The organization urges continued improvements in the physical facilities of Arab schools until the number of students per class is brought down to the national average. Israel is also urged in the report to devote more public funding to ultra-Orthodox schools, but only on condition that students are required to study core subjects such as math and English, which are given short shrift in many of the institutions.

The OECD also recommended eliminating regulatory obstacles to the licensing of business and eliminating price controls in a variety of sectors, particularly on basic commodities and urged that the electricity market be opened to more competition in the face of the domination of the government-owned Israel Electric Corporation. An independent agency is suggested to increase competition in the water sector and for postal and railway services. For the first time in the report, which is issued annually, the OECD expressed particular concern about the need to inject greater competition into the food sector, where it noted that there are barriers to imports in addition to price controls and what it considered distorting subsidies to agriculture.

Former Likud Knesset member Carmel Shama-Hacohen, now Israel’s ambassador to the OECD, said the report contained good news for Israel in addition to criticism and recommendations. “In the overall picture, the Israeli economy is reducing disparities as measured by [gross national] product compared to the 17 leading countries in the organization, and is presenting an improving labor market in many respects,” he said.

Shama-Hacohen also acknowledged, however, that the report highlighted negative aspects of the Israeli economy, particularly on Arab and ultra-Orthodox education. The OECD, he said, justifiably emphasized cumbersome bureaucracy and regulation that are impeding greater economic efficiency, including an increase in the supply of housing.

“The goal for all of us is to assimilate the critical comments and recommendations as much as the compliments and act as much as possible to turn the [negative] comments into praise in the next report.”