2018 OECD Economic Surveys: Israel 2018

image of OECD Economic Surveys: Israel 2018

Israel’s economy continues to register remarkable macroeconomic and fiscal performance. Growth is strong and unemployment is low.  The external surplus is comfortable, and the public debt-to-GDP ratio, already well below the OECD average, is still falling. However, Israeli society remains marked by weak social cohesion and significant disparities, which penalise parts of the population and threaten the longer-term sustainability of these good results. Despite better employment outcomes among Israeli-Arabs and the Haredim, workers from these communities are often trapped in low-paid jobs due to their weak skill sets, implying persistent poverty and weak aggregate productivity. Moreover, low social transfers imply that the often large families in these communities face deprivation that contributes to child poverty. High cost of living and house prices also weigh on the social situation and well-being, and public transport deficiencies are detrimental to work-life balance and cause urban congestion and poor air quality. The authorities have continued their reform process over the last few years to address these issues. Making growth stronger, more inclusive and more sustainable will require further action and more public investment in education to improve the skills of Israeli-Arabs and Haredim together with additional product market reforms and better transport infrastructure.  


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Improving the education system to enhance equity

Israel suffers from substantial income inequality and a high poverty rate. The labour market is characterised by severe polarisation. At one end are the high-tech industries with high-quality jobs and on the other end are low productivity jobs with low wages. This reflects substantial dispersion in skills, which is the highest among all OECD countries. Israel has adults with outstanding skills and at the same time a large share of low-skilled adults. Education should play a major role in reducing these differences, but students’ outcomes are dispersed and weak for disadvantaged groups, and their share in the total population is expected to increase. Changes in the education system require a reduction in the significant differences between individual educational streams. This is challenging due to existing cultural barriers. Another major challenge is to improve the achievement of disadvantaged children. The educational system should also be more linked to the labour market in order to increase wages and job satisfaction for all graduates. There is scope to use skills at work more effectively by introducing training programmes for adults who have already left initial education without proper skills.



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