Chinese Imports Will Increase Poverty in Israel

Bringing 20,000 Chinese construction workers to Israel won’t lower housing prices, but Finance Minister Moshe Kahlon isn't interested in the facts.

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Chinese construction workers in Israel.
Chinese construction workers in Israel.Credit: Tomer Appelbaum

With great fanfare, and while enlisting God’s help, Finance Minister Moshe Kahlon last week.promised that he would cool Israel’s overheated housing market – by importing 20,000 Chinese workers for the construction industry. Senior Finance Ministry officials are now in China, preparing to sign an agreement with its government for this very purpose.

“We are taking care of the means of production,” said Kahlon, at a meeting with the Association of Builders and Contractors in Israel. “I hope God will be with us, and that the agreement will be signed on January 5. We’d rather give you workers than foreign construction companies. Up to now, the Chinese didn’t want to sign – but now there could be a change.”

No question it’s a historic moment when the Chinese government is ready to sign an agreement after declining to do so for years.

However, all the hoopla surrounding this moment may well be premature, since the Chinese aren’t the only ones who changed their policy. So did the Israeli government, at Kahlon’s behest, as it began aggressively wooing the Chinese. No matter that this strategyin defiance of all the recommendations of all the relevant government bodies over the past decade.

Kahlon was named finance minister not so long ago largely on the basis of his promise to bring down the cost of housing, but perhaps he didn’t go to the trouble of studying all the accumulated knowledge on the subject before assuming his post.

However, we have been covering the issue of labor migration to Israel for over a decade and, unlike Kahlon, we remember what all the relevant government bodies – the Interior Ministry, the Foreign Ministry, the Economy and Industry Ministry, the Bank of Israel and, of course, the Finance Ministry – have said over the last 12 years. For years, all of them have been issuing a clear statement: We should not allow foreign workers to be imported to Israel, especially not for construction.

Over the years, we’ve quoted extensively from the three major reports prepared by Prof. Zvi Eckstein, former deputy governor of the Bank of Israel, regarding employment policy in Israel.

First is how importing workers exacerbates poverty in Israel. Construction is a major source of employment for unskilled laborers, who have the fewest prospects for well-paid work. In many ways, it’s also the most lucrative field for the unskilled, because construction requires hard physical labor and at least some experience – and so it pays a relatively high wage. The moment the field is opened up to unfair competition from foreign workers – in the past, Palestinians; now, Palestinians and Chinese – it’s the weakest Israeli workers who are hurt the most.

No competition

There’s no way an Israeli worker can compete with the output of a Chinese worker, who is in Israel for a limited time, without family and can work day and night, nonstop. Using Chinese workers comes at the expense of the poorest workers in Israel (to be more precise, at the expense of Israeli Arabs).

Finance Minister Moshe Kahlon, September 2016.Credit: Kobi Kantor

A recent study by Sarit Cohen-Goldner, of Bar-Ilan University, found that each 1% addition of foreign workers in Israel results in a 0.9% reduction in pay for Jewish Israelis who didn’t graduate high school, and a 0.75% decrease in pay for Israeli Arabs who didn’t graduate high school.

This is in addition to other data showing that the employment of foreign workers negatively impacts the employment of high school dropouts.

Kahlon says he wants to fight poverty, but his decision to bring in 20,000 Chinese workers will have the exact opposite effect.

The second problem with Chinese construction workers is that it is akin to human trafficking. Data collected over the years show that foreign workers are forced to pay illegal fees in order to get to Israel and, once here, become slaves in the service of paying off these illegal fees.

An agreement between governments is meant to overcome this problem, but the government in China is not above demanding fees – transparently or otherwise – from the workers who are sent to Israel.

By opening its gates to foreign workers, Israel is turning itself into a superpower of modern slavery, and thereby sinning twice over – first against the Chinese workers who become slaves to their debts, and second against the weak Israeli workers who are forced to compete against them. Even a skilled worker will have trouble competing against a modern slave; an untrained worker doesn’t stand a chance.

Remember that for the past decade at least the government assessment has been that importing foreign workers to Israel, especially Chinese workers, involves at least $500 million of black market money (both Chinese and Israeli). Modern slavery pays, which is one reason why all the professional bodies urged that the sickening trade in human beings – particularly from China – be stopped.

The third reason is that it’s been proven that not only does the employment of foreign workers not advance the building industry and lower housing prices – it actually has the opposite effect.

One of Eckstein’s most interesting analyses dealt with the productivity of Israeli construction workers from 1960-2010. It found that productivity in the building industry came to a screeching halt in 1967 and has remained frozen ever since, even while productivity has risen in many other industries.

This chart is intriguing due to the cutoff point of 1967 – the year when Israel conquered the West Bank and the Israeli construction industry shifted from an industry that favored Jewish labor to one that favored Palestinian workers. The Chinese later came to take the place of the Palestinians, but the result remains the same: The industry is flooded with cheap labor and, as a result, lags in terms of technology.

Quite how appalling it is can be seen in another graph produced by the Bank of Israel: The time it takes to build a home in Israel did not change from 1980 to 2010, despite the tremendous changes in construction technology that occurred during the 30 years. Over the same period, construction time in other countries was drastically reduced.

Static numbers

Thanks to the tireless efforts of the various government agencies, for nearly a decade the number of foreign construction workers in Israel had remained static, in particular the number of Chinese workers. Eckstein says the freeze had a positive influence on the Israeli building industry, which in the past few years has been making a major transition to high-rise construction using industrial technologies. As a result, productivity had at last begun to rise.

The improvement in productivity is easy to see in the significant increase in housing starts and completions: The year 2015 was the first in two decades in which the number of housing starts exceeded 50,000. This figure undermines the building industry’s common refrain that a shortage of workers is chiefly to blame for the housing crisis – since the increase in housing starts occurred during a time when the number of foreign workers in Israel remained static.

Moreover, an analysis published last week by the Bank of Israel examined the causes of rising housing prices in Israel from 2000-2013.

This research – authored by Weitzman Nagar of the Bank of Israel and Doron Sayag of the Central Bureau of Statistics – had two main findings. One was that, lo and behold, there is no connection between housing prices and the cost of their construction: Building input costs barely rose in the past decade, while housing prices soared.

In other words, the builders’ complaint that a lack of hands is the key underlying cause of the rise in housing prices was shown to be wrong. Instead, the study names a different main culprit: soaring land prices. Any connection with Chinese workers is, therefore, purely coincidental.

All the data of the past dozen years are consistent and unequivocal: There is no relation between an absence of Chinese construction workers and the housing crisis. Just the opposite, in fact. Limiting the importation of Chinese workers forced the building industry to become more efficient, and to transition to industrialized construction – which boosted productivity and the scope of activity in the sector.

Importing 20,000 Chinese workers now will not accelerate construction in Israel, or help to bring down housing costs. What it will do is seriously hurt low-income workers who make a living in the building industry, and thus thwart the government’s poverty-reduction policies.

But hey, who cares about the poor when the finance minister can once more bask in glory as the “champion” who is working to solve Israel’s housing crisis.

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