Israel's economy

OECD Observer

More active education and employment policies, particularly targeted at minority groups, are needed to bolster its economic performance and bridge deep divisions within its society.

These are key conclusions of an OECD Review of Israel’s Labour Market and Social Policies and an OECD Economic Survey of Israel, which were issued in the context of negotiations for Israel to become a member of the OECD. Israel’s economy has weathered the crisis, with GDP growth in 2009 of around 0.5%, above earlier projections.

But there are weaknesses to address, particularly on the social welfare side. One in five Israelis lives in poverty, a higher ratio than in any OECD country, according to the OECD Review of Israel’s Labour Market and Social Policies. Poverty is highest among the youngest and fastest growing population groups: just over half of Arab Israelis and 60% of Haredim, or ultra-Orthodox Jews, have disposable income that is less than half the national median, compared with just over 10% of the rest of the population. This reflects low employment levels, particularly among Arab women and Haredi men, and low basic support for pensioners. Most low-paid jobs with little security are filled by Arabs, Haredim and foreign workers.

At the equivalent of 16% of gross domestic product, public spending on social policies in Israel is low in comparison with the average for OECD countries of 21%, and getting more people from under-represented groups into employment will require increased public spending.

To achieve these objectives, the OECD recommends investing more in active labour market policies and in making it worthwhile for low-skilled workers to take jobs. It calls for action to promote fair employment opportunities for minorities in both the public and private sectors and to enforce labour laws and minimum employment conditions more effectively.

On the education front, the OECD urges action to reduce the inequalities faced by Arab Israelis and calls for efforts to encourage the Haredim to strengthen their vocational skills.

The OECD’s economic survey is also critical of the Bank of Israel’s intervention in foreign-currency markets and the finance ministry’s direct supervision of some financial markets. The survey emphasises that while there are legitimate calls for increased spending, such as in social policy, the Israeli authorities should nevertheless reduce the burden of public debt, and it stresses the need to cut back on areas of public spending that are the least effective.

The report also makes several recommendations on taxation, urging caution in pursuing further corporate and personal income tax cuts and advises the elimination of low-priority tax expenditures.


©OECD Observer N° 276-277 December 2009-January 2010

Economic data

GDP growth: -9.8% Q2/Q1 2020 2020
Consumer price inflation: 1.3% Sep 2020 annual
Trade (G20): -17.7% exp, -16.7% imp, Q2/Q1 2020
Unemployment: 7.3% Sep 2020
Last update: 10 Nov 2020

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