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Reducing the Gaps in Society:Reducing the Gaps in Society:Policy Challenges in the Era of Policy Challenges in the Era of
GlobalizationGlobalization
Dr. Karnit FlugDr. Karnit FlugJune 2007June 2007
Taub Center Conference
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23.4%
16.1%
14.2%
12.7%
15.6%
16.6% 16.9%
23.8%24.4%
24.8%
23.2%
20.9%
24.5%
26.3%26.7%
23.7%
21.6%
17.5%
17.7%
20.0%
19.6%
18.8%18.8%
23.2%
13.0%
17.5% 17.4%
23.4%
10.0%
12.0%
14.0%
16.0%
18.0%
20.0%
22.0%
24.0%
26.0%
28.0%
1997 1998 1999 2000 2001 2002 2003 2004 2005 2005/06*
By relative poverty By absolute poverty (1997) By mixed Market Basket Method (MBM)
Incidence of Poverty among Individuals – Various Measures
(1997-2005 )
*Excluding Arabs of East Jerusalem.
* The 2005/06 data are according to the decline in relative poverty including among Arabs of East Jerusalem.
SOURCE: Central Bureau of Statistics Income and Expenditure Surveys.
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Incidence of Relative Poverty among Individuals, 1997 and 2005a
38.5
22.5
13.710.2 10.9
51.5
33.9
24.2
18.7
11.7
0
10
20
30
40
50
60
0-8 9-10 11-12 13-15 16+
1997 2005
26.1
11.917.5
30.935.6
23.0
14.8
24.9
51.1
65.3
0
10
20
30
40
50
60
70
1 2-4 5-6 7-8 9+
1997 2005
12.3
39.335.9
13.9
64.1
54.2
0
10
20
30
40
50
60
70
Others Ultra-orthodox Arabs
1997 2005
a Excluding Arabs of East Jerusalem.
SOURCE: Central Bureau of Statistics Income and Expenditure Surveys.
By family sizeBy education of head of household
By number of wage earnersBy population group
60.1
20.4
2.1
77.2
33.2
3.9
0
10
20
30
40
50
60
70
80
90
0 1 2+
1997 2005
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Employment Rate and Average Wage per Employee Post by Population Group,a 2005
Men Women Men Women
Total 60.9 52.2 8,565 5,417Arabs 55.6 15.9 5,347 4,101
Ultre-orthodox2 23.4 44.2 5,476 3,791Others 65.8 60.9 9,228 5,494
Employment rate Average wage
(percents) (₪)
a Aged 65 or less.b There is a problem in identifying the ultra-orthodox in the Manpower and Incomes Surveys. They are identified here as families where the last educational establishment for at least one household member was a post-secondary school Talmudic college.SOURCE: Based on data from the Central Bureau of Statistics, Incomes and Manpower Surveys 2005.
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Long-term processes in the labor market
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Background to long-term trends in the labor marketThe integration of the Israeli economy into the global
economy, in the labor and goods markets:
• Higher employment of foreign workers;• Growth in high-tech and knowledge intensive industries,
exploiting Israel’s comparative advantage in these fields;• Increase in demand for education in all industries;• Exposure to competition in international trade which
drove down prices of labor intensive goods for the general consumer at the cost of harming employment in labor intensive industries.
Result:Continuing fall in relative demand for unskilled
workers
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Changes in the real wageChanges in the real wage1 by years of schoolingby years of schooling
(annual data, 1988-2005)(annual data, 1988-2005)
3800
4800
5800
6800
7800
8800
9800
10800
11800
12800
0-10 11--12 13-15 16+
years of schooling
1 (Based on 2000 prices.
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Rate of Unemployment by Education Level(annual data, 1995-2006)
%
2
4
6
8
10
12
14
16
18
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
0-10 11-12 13-15 16+ TotalNumber of years of education
SOURCE: Based on Central Bureau of Statistics Labor Force Survey.
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Rate of Employment by Educational Level (annual data, 1995-2006)
20
30
40
50
60
70
80
25
26
27
28
29
30
31
32
33
3411-12 13-15 16+ Total 0-10 Number of years of
education
73.1
61.4
26.0
48.5
50.9
%
SOURCE: Based on Central Bureau of Statistics Labor Force Survey.
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Developments in Welfare Policy(from mid-1980s to 2001/2)
• Easing criteria for working age population to receive transfer payments
• Rapid growth in transfer payments that replace income from labor, particularly in
those linked to average wage (alongside reduction in subsidizing staples, and at
expense of capital)
Result for population on support:
• Rapid growth in NII benefit recipients, particularly those receiving unemployment
pay and income support
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The Increase in the Number of Benefit Recipients relative to the Increase of Population and the
Unemployed (100=1985)
100
200
300
400
500
600
700
1985 1990 1995 1997 1998 1999 2000 2001 2002 2003 2004 2005
Population Unemployed Number of Benefit Recipients
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Result of integrating labor market and welfare policy
• Significant drop in participation rate in labor force among men with low levels of education to the lowest levels in Western economies
• Continual increase in budget burden of transfer payments that replace income from labor
• Rise in inequality in economic income, and rise in poverty rate. Transfer payments reduced the rise but did not stop it
• Drop in proportion of income from labor among poor, from 35% to 28%, and rise in proportion of allowance income from 37% to 51%, between 1988 and 2001.
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Employment Rate among Men of Working Age* in Israel and OECD Countries
91.9
83.2
75
80
85
90
95
100
Isra
elHung
ary
Poland
Turk
eyAust
ralia
Norway
Finl
and
Swed
enAust
ria**
Belgi
umUSAIre
land
EU (O
ECD)
New Z
eala
nd UKIta
lyCan
ada
Korea
OECD EU
Denm
ark
G7
Spain
Portuga
lG
erm
any
Nethe
rland
s**
Fran
ce**
Gre
ece
Slova
k Rep
ublic
Czech
Rep
ublic
Luxe
mbou
rg**
Switz
erla
ndM
exic
oJa
pan
Icel
and*
*
Employment rate 2003 Employment rate 1990
* 25-54 **2002Israel 1990 data refer to 1989.Source: For Israel – Central Bureau of Statistics Labor Force Survey; for OECD - OECD, Labor Force Survey 2003
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Gini Index of Inequality in Income DistributionGini Index of Inequality in Income Distribution (1979-2005)
0.300
0.350
0.400
0.450
0.500
0.550
ʭʩɦʩʮʥʤy ʡʲ ʤʩʮʥʬʹ ʺ ʩhɹ ʬʩhʩ ʢʣʣʮ
ʭʩɦʩʮʥʤy ʡʲ ʤʩʮʥʬʹ ʺ ʩyʧ ʠʩhʩ ʢʣʣʮ
Before transfer payments and direct taxes
After transfer payments and direct taxes
Source: National Insurance Institute
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What’s changed (since 2002)?
• Sharp cut in income support, child allowances and others
• Reduced associated benefits for income support
recipients
• Considerable tightening of conditions of eligibility for
unemployment benefit
• Reduction in number of foreign workers and some raise in
cost of their employment (the reduction was recently
halted)
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The Increase in the Number of Benefit Recipients relative to the Increase of Population and the
Unemployed (100=1985)
100
200
300
400
500
600
700
1985 1990 1995 1997 1998 1999 2000 2001 2002 2003 2004 2005
Population Unemployed Number of Benefit Recipients
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Rate of Employment by Educational Level (annual data, 1995-2006)
20
30
40
50
60
70
80
25
26
27
28
29
30
31
32
33
3411-12 13-15 16+ Total 0-10 Number of years of
education
73.1
61.4
26.0
48.5
50.9
%
SOURCE: Based on Central Bureau of Statistics Labor Force Survey.
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Where should policy go now?
Reducing poverty in a competitive world requires:
• Incentives for labor for those capable of working
• Improved differentiation between those capable of work and those not
• Individual treatment tailored to those with limited involvement in labor market
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• In the long term: The key to improving labor market capabilities lies in raising education levels, concentrating on the weaker sectors of the population
• In the short term: Treating poverty needs to include the ability to
differentiate between those capable of joining the labor force and those who
aren’t, by improving employment tests and labor training
• Improvement in income tests used to base eligibility for income support by
including income in kind, and accounting for home ownership
• Treatment through allowances and services in kind for those not capable of
joining the labor market (supplementing old age allowances was corrected
in 2005)
Policy directions:
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Making the labor market more attractive to those with low levels of education can be
achieved by the following:• Negative income tax for those earning low wages• Subsidizing services that support labor (e.g. child care, transport to
work)• Continued reduction in number of foreign workers and raising the
cost of their employment • Improving supplementary education and training courses bringing in
employers to decide on training content• Improving tests and placement processes, included the Wisconsin
Plan, extending it to other sectors of the population, while reaching conclusions on its required adjustments (particularly linking company incentives to success in quality job placements)
• Level of Israel’s spending on active policy in the labor market is one third the norm in Western countries (0.25% of GDP compared to 0.75%)
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Thank you