Immigration and employment: A complex challenge

©Ronen Engel/Israel Sun

Israel’s labour market is a reflection of the country’s complicated demographic patchwork. This brings strengths and weaknesses.

If you are examining the Israel labour market for the first time, probably one of the first features you will notice is how international it is, given its relatively small size. The country, which has a population of just 7.5 million, has managed to integrate massive influxes of immigrants from the worldwide Jewish diaspora into its workforce. In the 1990s no less than a million immigrants from the former Soviet Union alone were absorbed, mostly to the benefit of both newcomers and locals.

But Israel is a divided society. It has the highest poverty rates in the OECD, attributable in part to low labour force participation among certain groups of the population. And while some other Jewish immigrant groups remain excluded, Israel’s non-Jewish temporary and foreign labour migration system is in need of major reform. These messages were made clear in the OECD’s 2010 Review of Israel’s Labour Market and Social Policy, which provides some sharp insights into this complex labour market. The report found considerable challenges ahead for policymakers–tackling poverty and inequality while increasing labour force participation under fair employment conditions. Israel can learn from OECD experience in this respect. Yet, as a country founded on immigration, Israel can also offer some compelling lessons in labour market integration.

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Israel’s labour market is deeply segmented. Alongside Israel’s highly-skilled, hightech labour force is another far-removed demographic group, marked by high non-employment rates. Labour force participation in Israel is 64% among the working-age population–considerably lower than the OECD average of 71%. This reflects gaps in workforce participation for the two main disadvantaged groups in Israel, Arabs and Ultra-Orthodox Jews, or Haredim. Only 20% of Israeli Arab women work while three out of four male Haredim forgo paid employment for lifetime religious study. Those that do work from both groups are likely to have lowpaid employment. For these two groups, poverty and labour force participation are inexorably linked.

According to Bank of Israel statistics, just over half of the Arab population and 60% of the Haredim live in poverty. Meanwhile, poverty rates for the rest of the population are at 12%. These significant gaps result in a Gini coefficient (whereby the higher the number, the wider the income inequality) of 0.38, higher than the OECD average of 0.31. And such striking inequality exists in spite of Israel’s strong economic growth over the last 20 years: except for slumps in 2000 and the current downturn, GDP has grown by at least 4% per year in real terms since the early 1990s. But too many Israelis have been left behind, and the high rate of non-employment is a large factor.

According to OECD experts, good government policy must play a role in bringing people out of poverty and reducing inequality. At 0.4% of GDP in 2007, Israel’s public spending on labour market policies is low compared with OECD countries. Nevertheless, one programme has seen some successes. The Wisconsin Programme–modelled after its namesake state’s “workfare” initiative–was part of the government’s strategy to increase labour market participation among Arab and Haredi groups. In a few pilot regions, working-age individuals who received income support spent 20 to 40 hours a week working. The programme came to an end in 2010. Israel has also used an earned income tax credit to target low-income workers. However, the amounts are small and take-up is low, according to the OECD.

When Israel joined the OECD in September 2010 it seemed that the country had turned the page on immigration. Current rates were well below most OECD countries and since 2002, net immigration has represented only 12% of population growth, compared with the OECD average of 50%. Yet almost 40% of workers in Israel are born abroad–one of the highest ratios in the OECD.

Behind this figure are two separate stories of immigration and labour market integration. The first story–Jewish immigration–has largely been a success, with 60 years of government integration policy. The other face of immigration is that of non-Jewish foreign workers, almost 9% of the workforce, whose employment conditions are poor, with low pay, unpaid overtime, no training and limited job security.

“Israel provides an example of what can be achieved when there is a strong institutional commitment to supporting the integration of newcomers, and also what some of the limits are,” said OECD migration specialist Jonathan Chaloff.

On the eve of statehood in 1948, almost 65% of Israel’s Jewish population consisted of immigrants who had fled persecution and genocide in Europe, according to Israeli government statistics. Initial inflows were enormous relative to the population: 26.2% in 1949, 14.5% in 1950 and 12.8% in 1951. The Law of Return in 1950 stipulated that any Jew is entitled to immigrate to Israel and obtain full citizenship, known in Hebrew as aliyah, or “ascent.”

While most Jewish immigrants then were Ashkenazi from Central and Eastern Europe, the 1950s saw the arrival of entire Sephardic Jewish communities from North Africa and Mizrahi Jews from the Middle East. By the end of the decade, a majority of the ancient Jewish communities in the Arab world had resettled in Israel. An array of institutions helped integrate these immigrants, often destitute and low-educated. The Jewish Agency, a governmental body formed in 1929 to “resettle the Jewish people in its homeland,” helped organise airlifts and evacuations from around the world. Numerous “development towns” were created in the country’s peripheries to house Sephardic and Mizrahi Jews. Meanwhile, the ulpan Hebrew language teaching system gave Israelis a common language bond. In 1968 the Ministry of Immigrant Absorption was created to share the work with the Jewish Agency.

According to the OECD, central planning objectives dictated how newcomers were dispersed from transit centres to development towns through the country. Unskilled immigrants were employed through make-work programmes and public employment. Development towns fared rather poorly, contributing to some of the inequalities still existent today between Sephardic and Ashkenazi Jews.

The situation changed in the 1980s, as migration flows into Israel slowed to a trickle. By the late 1980s, the Ministry of Immigrant Absorption had shifted to a market-based approach, consisting of a “basket” of benefits for immigrants. This new system was put to the test in the 1990s. When the Soviet Union crumbled in 1990-91, Israel’s population exploded by almost 20% as Soviet Jews poured into Israel under the Law of Return. Almost 333,000 arrived in the first few years, putting an immediate strain on Israel’s teetering finances. But a number of circumstances allowed for a remarkably smooth integration.

Immediate citizenship allowed Soviet immigrants unrestricted access to the labour market. Their “basket” of benefits on housing, education and consumption provided for seven months of cash grants above the minimum wage and became the de facto policy for Russian immigrants in the 1990s. Most Soviet Jews chose this “direct absorption” over state-run reception centres.

The 1990s also saw the emergence of a dynamic high-tech industry, and many experts now view the arrival of 82,000 Soviet-trained engineers as a catalyst. In the 1980s, Israel only had some 30,000 engineers, but immigrants soon filled the ranks as engineers, scientists and IT specialists. However, these newcomers didn’t just join the high-tech boom upon arrival–they first started in low-skill jobs and slowly transitioned to white-collar jobs closer to their educational level.

For employers, Israel’s policy of Jewish immigration had also worked as a labour migration channel, allowing recruitment from a pool of educated and skilled workers. The OECD review found mainly positive outcomes for natives, including increased consumption, little competition with immigrants and most importantly, a general rise in overall incomes in the 1990s.

The other major recent wave of Jewish immigration, the 14,000 Ethiopian Jews who were airlifted during “Operation Solomon” in 1991, has fared significantly worse. With a poverty rate of 51.4%, Ethiopian immigrants are segregated from the rest of society. Almost 25% of these immigrants live in just 15 neighbourhoods, according to the OECD report. Harking back to earlier days, a centralised absorption programme and publicly-run reception centres remain in place and the state spends three times as much per capita on absorbing Ethiopians. Although employment rates are increasing for Israeliborn Ethiopians, much work remains to be done.

According to the OECD, there is also considerable room for improvement on another avenue of immigration to Israel, that of temporary labour migration. Current Bank of Israel estimates show that 8.7% of the workforce consists of noncitizens. Historically, Palestinian crossborder workers have made up an important part of the temporary labour force, but since the early 1990s, a temporary labour migration policy has brought in non-Jewish migrant workers from Southeast Asia, China, Nepal, India and the Balkans to fill low-skill jobs. In 2008 there were about 200,000 such workers, mostly in domestic services, agriculture and construction. Almost half were irregular.

This system is in need of major reform, argues the OECD. Contrary to Israel’s experience of workforce integration for Jewish immigrants, the OECD found that the large-scale admission of foreign workers has not brought a positive contribution to growth. The recruitment system is plagued with illegal feetaking and other unlawful practices that benefit employers. There is also a lack of enforcement of existing legislation on the hiring of foreign workers, domestic labour law and working conditions.

“Israel’s experience in the 1990s was a laboratory for studying the impact of large-scale migration on the labour force, and the long-term results have been positive overall,” said Mr Chaloff. “Today’s question is how best to manage low-skilled migration to benefit not just employers but the country in general. Israel is still searching for the right answer.” 

Ilan Moss


OECD (2010), OECD Reviews of Labour Market and Social Policies: Israel

OECD (2010), OECD Employment Outlook

©OECD Observer No 285, Q2 2011

Economic data

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