Mission for the Future: Get More Israelis to Work

Israel's leaders bask in our low unemployment rate (6.6% in October ), which reflects a speedy recovery from the world financial crisis still plaguing the United States and Europe. But that statistic obscures serious problems in the labor market here, including a low workforce participation rate for Israeli Arabs (especially women ) and ultra-Orthodox Jews (especially men ).

That has led to a general participation rate of 71% in Israel, five percentage points lower than the average in developed countries, according to the Organization for Economic Cooperation and Development.

But the underrepresentation of Arab women and Haredi men in the workforce accounts for only half the disparity with other OECD countries. The rest of the Israeli population accounts for the other half.

Since the unemployment figures reflect only the number of people looking for a job, they ignore the nearly 900,000 Israelis who aren't seeking employment. In addition to Arabs and Haredim, these also include people with various disabilities, stay-at-home mothers and others. The unemployment rate also obscures the circumstances of hundreds of thousands of people who have minimum-wage jobs and are living below the poverty line.

Frequently, workers are in a sorry state not because they aren't protected by the law but because the laws aren't enforced. There are cultural, social and economic reasons for the low rate of participation in the Israeli workforce, and some of the consequences of that low level could end up destroying the Israeli social fabric, creating pockets of poverty that require government intervention, and bringing into question the strength of the society. But no less important is the sense of uselessness and low personal worth among the unemployed and the poorly paid, which are themselves destructive.

It's in the workplace that differences in education and opportunity translate into economic disparities, and that is also where these gaps can be bridged.

A recent Central Bureau of Statistics survey revealed that the wealthiest 20% of Israelis take in 40.6% of Israel's total net household income, while the bottom 20% get just 6.3% of the total. The results are also reflected in the Gini coefficient, a standard international measure of economic inequality (the lower it is, the more a country's economic distribution is equal ). The OECD average is 0.31, but Israel's is an average of 0.37 over the past decade and has been on the rise, reaching 0.39 in 2009.

A few months ago Industry, Trade and Labor Minister Benjamin Ben-Eliezer received a report from a committee chaired by Zvi Eckstein, the deputy governor of the Bank of Israel, that looked at employment policies in Israel. The committee had the task of making recommendations on expanding the workforce, making it more skilled, and improving opportunities for job seekers to find decent-paying jobs quickly. It may seem like it would be easy to come to a consensus about those goals, but there are always obstacles when it comes to the nitty-gritty.

Studying the report...

The Eckstein committee recommended creating a single, centralized agency to deal with human resources and the labor market. Six months after the report was submitted, it's still being considered.

From time to time, efforts have been made to deal with specific aspects of the labor market, but they are usually the result of pressure or the product of the periodic fires that have to be put out. The kind of broad consensus that could lead to progress is often lacking. A case in point is the effort by Shrage Brosh, who heads the Manufacturers Association of Israel, and Ofer Eini, the chairman of the Histadrut labor federation chairman, to raise the minimum wage by NIS 450 a month, in two increments. That could help resolve the problem of low earners living below the poverty line. But what is it worth without cooperation from the Finance Ministry?

Many people are against raising the minimum wage, arguing that the treasury would be do better to put the money into the improved enforcement of labor laws. (Currently, 45 inspectors work full-time to monitor the labor practices at 450,000 businesses ).

Other suggestions include imposing a negative income tax and maintaining Israel's long-term policy of reducing the number of foreign laborers, a policy that is challenged by the industries dominated by foreign workers, including agriculture, construction and nursing care.

Long-term plans are the only way to resolve the serious problems that beset the labor market. There is, after all, no quick way to train hundreds of thousands of unemployed Israelis at the same time, or expel hundreds of thousands of foreign workers. There are no shortcuts when it comes to addressing the cultural and economic barriers preventing a particular population group from joining the workforce. And there is no immediate way to significantly raise the minimum wage without causing a substantial increase in unemployment.

These kind of steps must be planned and executed in several stages, and provide interim solutions allowing the employers and the workers to adjust to changing market conditions.

The Eckstein committee report is an excellent policy platform for addressing a significant number of these problems, and some experts who did not take part in the committee deliberations have additional suggestions. Only an approach that looks at the long term can help establish a labor policy that will move the Israeli economy forward and move us closer to the workforce participation rate and economic equality of other developed countries.