OECD on Israel: Good on Economy, Lags on Social Measures

Living standards well below those of top-ranking OECD countries, poverty the highest in the OECD area and ongoing environmental challenges.

Moti Bassok
Moti Bassok
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Moti Bassok
Moti Bassok

An interim report by the Organization for Economic Cooperation and Development issued Thursday presents a mixed picture of Israel, which it says is strong on economic indicators and weak on social ones.

The OECD, the club of the world’s most advanced economies, said Israel enjoyed rapid economic growth and a low unemployment rate but suffers from a low standard of living and high rates of poverty.

“Israel’s output growth remains relatively strong, unemployment is at historically low levels, its high-tech sector continues to attract international admiration, and new off-shore gas fields have come on stream,” says the executive summary of its 2013 Israel Economic Survey. “However, average living standards remain well below those of top-ranking OECD countries, the rate of relative poverty is the highest in the OECD area and there are ongoing environmental challenges.”

The report, which will be formally presented to the cabinet on Sunday, notes that Israel’s rate of economic growth exceeds the average for the 34 OECD countries, while its unemployment rate is at a historic low.

The OECD expects Israel’s jobless rate, which was 7.1% of the civilian labor force in 2011, to fall to 6.7% this year on average. According to Israel’s Central Bureau of Statistics, unemployment fell to just 5.9% in October, but the OECD said it expected the rate to rise in 2014, to an annual average of 6.9%.

The report also noted the global reputation of Israel’s high-technology sector and the benefits that are gradually accruing to the economy from the start of natural-gas production offshore, in the Tamar field.

Tamar will help gross domestic product expand 3.75% this year and 3.5% in 2014, according to OECD estimates, contributing a full percentage point of growth in 2013 and 0.75 points of the total in 2014.

But for all its achievement, Israel’s per capita GDP – total economic output divided by population – stood at $27,759 in 2012 based on purchasing power parity, a method of removing any distortions created by exchange rates.

That put Israel more than $4,000 below the average for OECD countries. The United States, by comparison, had a per capita GDP of $45,283 last year; Germany’s was $34,909; below Israel, Spain’s per capita GDP was $26,427 and Greece’s $20,904.

High poverty rate

No less than 20% of Israeli households are below the poverty line. Poverty rates for two-income families are relatively low, but unemployment rates for Arabs and for ultra-Orthodox Jews are very high. The two groups account for about half of all Israelis in poverty, the organization said.

To close the gaps between Israel and the world’s most developed economies, wide-ranging reforms in education and social policy are needed, the report asserted.

Israel placed 40th in mathematics, 33rd in reading and 40th in science on the PISA exam, which compares student performance in different countries and the scores of which were issued earlier this week. That was a marked improvement over four years ago, when Israeli students did even worse, coming in at 41st, 36th and 41st place, respectively.

On a more positive note, the OECD noted that Israel had reduced its national debt as a percentage of GDP – a key measure of a government’s and economy’s financial condition – to 68.2% last year from 69.7% in 2011.

While the ratio is likely to rise again this year, to 68.4%, the organization predicted it would begin falling again, to 67.6% in 2014 and 66.4% the year after that, to Israel’s lowest rate in decades. Israel’s goal, following European Union guidelines, is to reduce this figure to 60% by 2020.

The OECD said the target was achievable given Israel’s forecasted rate of economic growth in the coming years.

An impoverished woman searches for vegetables in Jerusalem garbage.Credit: Olivier Fitoussi
GDP per capita in 2012

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