OECD: Israelis Work More, but Less Productive Than Workers in Other Developed Countries

Israel labor productivity lags behind other OECD countries; in recent years, the number of college-educated adults has also declined.

Hila Weisberg
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Hila Weisberg

The productivity of the average Israeli worker last year was well below the average among developed countries, new OECD figures show. Israel ranked 24th of 34 countries surveyed.

According to the Organization for Economic Cooperation and Development, whose members comprise the countries of the developed world (including Israel), the productivity per hour of the average Israeli worker last year was $34, which is 30% lower than the OECD average of $44.

Among the G7 grouping of the world’s largest developed economies the United States, Japan, Germany, France, Italy, Britain and Canada the average was $53.

One bright spot in the data was that during the 2008-2011 economic crisis, which Israel weathered relatively well, the country began to close the productivity gap with its Western counterparts. However, as the West recovers from the economic crisis, that advantage is expected to dissipate.

Productivity is a function of a workforce’s level of technology, training and education. The higher it is, the greater the value of the output of the average worker. Labor productivity also relates to a country’s per capita gross domestic product. In Israel’s case, despite sophisticated industries such as the hi-tech sector, per capita GDP still lags behind the OECD average.

In 2010, for example, the OECD GDP per capita was about $30,000, while Israel’s was about $26,000.

“Productivity is derived from human and physical infrastructure,” said Prof. Dan Ben-David of Tel Aviv University and the executive director of the Taub Center for Social Policy Research. “We’re seeing that poor countries which work on improving their level of technology and their infrastructure and education, countries that build railroads, highways and industry as is happening in India and China experience a substantial growth in their work productivity.

“Countries that are at the forefront of knowledge need to invent new technology,” Ben-David said. “Israel, for example, increased the pace of its productivity substantially in the 1950s and 1960s. But since the 1970s, it has been dragging its feet.” He cited inadequate highway infrastructure here compared to the OECD average.

“And our schools are turning out more and more children that do not meet Western standards,” he continued. “If it takes one person 10 hours to produce a mattress and another 10 hours to produce a computer, it’s clear that the one who produces the computer will earn more. And it is in the interest of companies to pay him a lot. Otherwise he would take his knowledge and abilities somewhere else,” Ben-David said.

Economics professor Avi Simhon of the Hebrew University of Jerusalem chairs the consulting forum to Finance Minister Yuval Steinitz. He says a country’s labor productivity is first and foremost a function of the level of its citizens’ education.

In Israel in recent years, however, there has actually been a decline in the number of high school graduates earning matriculation certificates and going on to higher education.

According to Education Ministry data released last week, less than half of all 17-year-olds earn a matriculation certificate, which is a slightly lower rate than last year. At the same time, the percentage of adults with a college education is also declining.

Israelis’ educational levels reversed

In most OECD countries, the percentage of college-educated people between the ages of 25 and 34 is about 20% higher than those between 55 and 64. In Israel, the situation is reversed. Among those aged 55 to 64, 45% have a college education, while among those 25 to 34, the figure is about 43%. And more poorly-educated Israelis with fewer skills tend to earn less.

Interestingly, high productivity did not correlate with long work hours in the 2011 OECD data. Instead, the correlation was with efficient production. In the Netherlands last year, for example, the number of hours a year that the average member of the workforce actually worked was the lowest, 1,379, but the productivity per hour was among the highest at $60, compared to $34 in Israel. But Israelis on average actually worked among the most of all the countries ranked, 1,929 hours, although productivity per hour in Israel was relatively low.

Prof. Simhon describes Israel as two countries. “There’s the developed country in which creative people, whose output is great, are capable of competing with other workers in leading [countries] around the world. On the other hand, there is the country of groups that don’t receive an education, and as a result also don’t produce much.”

The top spot in the rankings for productivity per hour went to Norway, at an average of $81.50 per hour. The United States came in fourth, at $60 per hour. Germany was eighth ($55 per hour), while Britain was 16th ($47 an hour). In addition to Norway, the other Scandinavian countries also scored well. Denmark was ranked ninth and Sweden was 11th.

The bottom of the list was filled by Estonia, at $21.10 per hour, Chile ($18.40) and, at the bottom, Mexico ($14).

Israeli workers at a customer-service call center. Credit: Dror Artzi
Worker productivity in OECD countries.
Hours worked in Israel and other OECD countries.