the labor market of israeli arabs (joint work with nitsa kasir , bank of israel) october 31 , ...
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The Labor Market of Israeli Arabs
(joint work with Nitsa Kasir, Bank of Israel)
October 31, 2013Presentation at NYU-TA
Eran YashivChair, Department of Public PolicyAssociate Professor, the Eitan Berglas School of EconomicsDirector of the Center for Regulation Policy
Tel-Aviv University
2Some Background
Macroeconomist, dealing a lot with labor markets At Tel Aviv University since 1992, ; visiting positions at MIT, NYU
and LSE Regular research: models of unemployment, firms and workers
search behavior This talk: following consulting work at the Bank of Israel 2007-2012 Based on a number of papers and a new policy paper (executive
summary distributed), joint with Nitsa Kasir, Head of the Labor and Welfare Section of the BOI Research Division
We have presented to reps from the OECD (2009, 2012) and the IMF (2012)
The new paper is in the process of presentation to President Peres, key ministers, key MKs and high officials (Treasury, Economy, Education) , and to the media
Eran Yashiv, TAU
3Plan of Talk
Macroeconomic backgroundKey data points on the labor market of Israeli
ArabsThe major problems Policy proposalsSimulations: returns on policyChallenges for policy implementation
Eran Yashiv, TAU
4
Some macroeconomic background: the good news
Israel’s current macroeconomic indicators are good For example, in the letter to the Government and
Knesset of Governor Fischer upon publication of the most recent Bank of Israel report (published April 2, 2013) it was noted:
• the unemployment rate remained stable at its lowest level of the past thirty years
• employment and labor force participation rates continued to rise.
• inflation in 2012 was 1.6 percent, below the center of the inflation target range (2%).
Eran Yashiv, TAU
The economic challenges: human infrastructure
But Governor Fischer also noted:
Looking forward, the economy faces a number of structural challenges:
• the government must reduce its high structural deficit • efforts must continue to further integrate Arabs and the ultra-
Orthodox in the labor market.• labor productivity in Israel is low relative to other advanced
economies and increasing it is essential to increasing the long-term rate of growth.
• cost of living should be reduced, an issue that was the focus of the social issues protest.
Eran Yashiv, TAU
5
6The economic challenges: human infrastructure
The situation is actually quite bad The employment rate of some key working age (25-64) groups
is low: 27% for Arab women 46% for Ultra Orthodox men Arab men are concentrated in low-skill, low-wage occupations Ultra-Orthodox women work part-time Arabs and Ultra-Orthodox have high poverty rates (57% below
poverty line, compared to 24% average) High inequality (Gini coefficient of 0.38, similar to U.S., higher
than Europe) Overall low productivity growth; about 60% of the OECD
average growth rate
Eran Yashiv, TAU
7The economic challenges: physical infrastructure
In a March 28, 2012 letter Governor Fischer wrote:
Improved infrastructure, first and foremost in the mass public transport systems, and in public transportation in general, is expected to help increase productivity, and improve the quality of life.
Eran Yashiv, TAU
8The economic challenges: physical infrastructure
Infrastructure investment grew between 1995 and 2010 by about 2% a year on average
It constituted 2% of GDP in 2010 as compared to about 4% in advanced economies
Only in 2011 there was some improvement, with 16.5% growth, reaching 3% of GDP
Roads, public transport, water, electricity in need of big boosts
Eran Yashiv, TAU
Eran Yashiv, TAU
9Demographics
2009 Sep 2013 2019 2029 2049
Total 7,552 8,081 8,848 10,250 13,630
Jews without the Ultra-Orthodox 5,267
(70%)
5,612
(69%)
5,842
(66%)
6,341
(62%)
7,371
(54%)
Ultra-Orthodox Jews 750
(10%)
799
(10%)
1,101
(12%)
1,591
(16%)
3,083
(23%)
Arabs 1,536
(20%)
1,670
(21%)
1,904
(22%)
2,318
(23%)
3,177
(23%)
Note: percentage of total in parentheses.Source: Paltiel, Ari, 2012. Long-Range Population Projections for Israel: 2009-2059., October 21, Central Bureau of Statistics, Jerusalem, Israel.
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10
Poverty
rates 2010/11
Male employment rates
2011
Female employment rates
2011
Total 24.3 77.7 66.3
Non Orthodox Jews 10.6 81.4 75.4
Ultra-Orthodox Jews 55.4 45.1 61.0
Arabs 56.6 72.2 26.8
Notes:1. In percentages2. The poverty rate is the percentage of people below the official poverty line, which is half the median income of a standardized household.3. The employment rate is the number of the employed divided by the working age population.Source: Chapter 8 of the Bank of Israel Annual Report, 2011,drawing upon Central Bureau of Statistics data.
Participation Rate over Time, Men, 1970–2011
Source: calculations based on CBS Labor Force Surveys.
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
50
55
60
65
70
75
80
Jewish MenArab Men
Year
Pct.
Participation Rate over Time, Women, 1970–2011
Source: calculations based on CBS Labor Force Surveys.
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
0
10
20
30
40
50
60
70Jewish WomenArab Women
Year
Pct.
Arab Men, Life Cycle Participation Rates, 2011
Source: calculations based on CBS Labor Force Surveys.
20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 65-69 70+0
10
20
30
40
50
60
70
80
90
Age
Pct.
Men, Life Cycle Participation Rate, Selected Countries, 2010
15-19 20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 65+0
102030405060708090
100
U.S.ItalyFranceGermanyIsraeli Arabs
Age
Pct.
Source: calculations based on CBS Labor Force Surveys.
Men, Life Cycle Participation Rate, Comparison with Moslem Countries, 2010
15-19 20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 65+0
102030405060708090
100
IranJordanPal. AuthoritySyriaTurkeyIsraeli Arabs
Age
Pct.
Source: calculations based on CBS Labor Force Surveys.
Arab Women, Life Cycle Participation Rates, 20112011
20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 65-69 70+0
5
10
15
20
25
30
35
40
45
Age
Pct.
Source: calculations based on CBS Labor Force Surveys.
Women, Life Cycle Participation Rates, Selected Countries, 2010
0
15-19 20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 65+0
102030405060708090
100U.S.ItalyFranceGermanyIsraeli Arabs
Age
Pct.
Source: calculations based on CBS Labor Force Surveys.
15-19 20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 65+0
5
10
15
20
25
30
35
40
45
50IranJordanPal. AuthoritySyriaTurkeyIsraeli Arabs
Age
Pct.
Source: calculations based on CBS Labor Force Surveys.
Women, Life Cycle Participation Rate, Comparison with Moslem Countries, 2010
Academic professionals; 8% Associate profes-sionals and techni-
cians; 5%Managers; 2%
Clerical workers; 4%
Agents, sales workers and service workers;
15%
Skilled agricoltural workers; 2%
Manufacturing, con-struction and other
skilled workers; 50%
Unskilled workers; 13%
Source: calculations based on CBS Labor Force Surveys.
Arab Men, Employment by Occupation, 2011
Arab Men, Employment by Industry, 2011
Agriculture; 3%
Manufacturing; 16%
Construction; 26%
Wholesale and retail trade, and repairs; 18%
Accommodation ser-vices and restaurants;
6%
Transport, storage and communications; 8%
Banking, insurance and other financial institu-
tions ; 1%
Business activities; 6%
Public administration; 3%
Education; 5%
Health, welfare and social work services; 4% Community, social and personal
and other services; 3%
Source: calculations based on CBS Labor Force Surveys.
Academic profes-sionals; 15%
Associate professionals and technicians; 28%
Managers; 1%Clerical workers; 19%
Agents, sales workers and service workers;
22%
skilled agricultural workers, 2%
Manufacturing, construction and
other skilled work-ers; 1%
Unskilled workers; 10%
Source: calculations based on CBS Labor Force Surveys.
Arab Women, Employment by Occupation, 2011
Source: calculations based on CBS Labor Force Surveys.
Arab Women Employment By Industry, 2011
Manufacturing; 8%
Construction; 1%Wholesale and retail
trade, and repairs; 12%
Accommodation services and restaurants; 4%
Transport, storage and communications; 4%
Banking, insurance and other financial institu-
tions ; 5%Business activities; 13%
Public administration; 5%
Education; 20%
Health, welfare and social work services; 16%
Community, social and personal and other services; 6%
1. The definition of a “modern” female here is a female with 13 + years of education, personal status: separated or divorced or single or married (or widowed) with no more than 2 children, uses a computer and has a driving license. 2. The definition of a “traditional” female here is a female with 10 or less years of education, personal status: married or widowed with 3 children or more, doesn’t use a computer and doesn’t have a driving license.Source: Based on Central Bureau of Statistics, Social Survey, 2005.
Participation RateProportion in population
Modern vs Traditional Women LFP
Modern females
Traditional females
6.8%
10.7%
An Arbitrary Exercise
1. The definition of a “modern” female here is a female with 13 + years of education, personal status: separated or divorced or single or married (or widowed) with no more than 2 children, uses a computer and has a driving license. 2. The definition of a “traditional” female here is a female with 10 or less years of education, personal status: married or widowed with 3 children or more, doesn’t use a computer and doesn’t have a driving license.Source: Based on Central Bureau of Statistics, Social Survey, 2005.
Participation RateProportion in population
Modern vs Traditional Women LFP
Modern females
Traditional females
6.8% 75.4%
10.7% 1.1%
Wages and Hours by Gender and Sector, 2010
Men Women Men Women
Gross average wage per month (NIS) 10,421.0 6,416.0 5,784.0 4,383.0
Average number of hours per week (NIS) 45.0 36.0 44.0 32.0
Gross average wage per hour (NIS) 53.0 41.0 31.0 33.0
Jews Arabs
Source: Central Bureau of Statistics, Income Survey, 2010.
Summary of Labor Market Problems
• For men – a high degree of concentration in industries and occupations located at the bottom of the skill distribution.
• Consequences and implications: 1. early retirement due to the physical nature of work2. retirement that is premature even compared with Palestinian men and
with men in Muslim and Arab countries3. below-average productivity and wages 4. underemployment in more highly-skilled occupations, even among
those with appropriate skills5. disincentives to study and acquire skills for the younger generation6. Israeli Arabs rank among the country’s poorest population sectors7. entrapment in a “poverty cycle.”
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26
Summary of Labor Market Problems
• For women – the headline issue is that of low rates of labor force participation.
• Implications: 1. women do not yet play a meaningful role in the
economy's productive side2. women do not (to a significant degree) help their
families escape the poverty cycle3. there is insufficient incentive for young women to
pursue education and acquire skills – including social skills – necessary for labor market participation.
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27
Summary of Labor Market Problems
• The problems are exacerbated by two phenomena:1. Employment and wage discrimination2. High costs of getting to work• Vicious cycle: • When the population is poor and its labor market
participation is only partial (women) and subject to barriers (men), it is difficult to invest in basic and higher education and to develop jobs
• This in turn leads to continued poor performance in the labor market.
• The physical and cultural distance from Jewish employment and residential hubs intensifies feelings of alienation and poses an obstacle to efforts that might reduce discrimination.
• When these problems compound each other over the course of time, the incentive and willingness to change the situation are negatively affected
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28
29Policy Proposals
As the problems are multi-faceted, a comprehensive plan is needed
Moreover, the relevant population in question is large, so policy needs to be at the appropriate scale
The market on its own will not rectify most of the problems, an issue for the provision of public goods
Detailed plans for employment, education, infrastructure, taxation and legislation are outlined and budget requirements assigned
Eran Yashiv, TAU
30Policy Proposals
Setting up industrial zones Credit for business creation Guidance on entrepreneurship and business initiatives Geographical diversification and expansion Development of towns and villages (especially Bedouin) Welfare to Work EITC Centers for search and for matching Job training Foreign/guest workers issues Anti-discrimination legislation and enforcement Promotion of highly educated workers, the Intel example Employment in the public sector
Eran Yashiv, TAU
31Policy Proposals
Education, biggest issue From kindergarten to universities Short, medium and long term policy plans Physical infrastructure Teacher training IT infrastructure Contents Parents involvement Relation to labor market Budgets
Eran Yashiv, TAU
32Policy Proposals
Govt. budget proposal, annual (flow) additions (cumulative):
Short term: between 1 and 1.4 billion NIS (0.1% to 0.2% of GDP) Medium term: between 2.6 and 3.3 billion NIS (0.3% to 0.4% of GDP) Long term: between 4.9 and 6 billion NIS (0.6% to 0.7% of GDP)
These sums are about 6 to 8 times bigger than latest budgeting and are permanent rather than temporary
One-off: between 3 and 4 billion NIS (04% to 0.5% of GDP) Roughly half allocated to education
Important: this is not “throwing money at the problem”
We simulate the effects of investing in Arab women: Female labor force participation rises, without and with policy Output per each worker (labor productivity) rises (capital, technology) Total output of Arab women rises; compare with and without policy
Eran Yashiv, TAU
33Simulated Returns
Eran Yashiv, TAU
020406080
100120140160180200
baseline
with policy
billions NIS GDP Simulations
34Simulated Returns
Compare outlays (50% of afore-cited budget plan) and revenues in the form of additional output
The IRR, the return on the government investment is
Eran Yashiv, TAU
LF forecasts 5% LFPR effect
6% LFPR effect
Scenario 1 5.7% 9.6%Scenario 2 6.7% 10.8%
35Policy implementation challenges
Political willFiscal prioritiesThe “standard” difficulties in the fiscal
processImplementation of large policy plansPartnership with private sectorTracking and evaluation
Eran Yashiv, TAU
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