OECD Reviews of Labour Market and Social Policies: Israel

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This 2009 review of Israeli labour market and social policy finds that Israel has enjoyed strong economic growth over the last decade, but the benefits of this are being distributed unevenly. Poverty rates are higher than in any OECD country, which reflects the deep social and economic divides in Israeli society. On one side, there is the general Jewish population with poverty and employment rates similar to those of OECD countries. On the other, there are Arabs and ultra-Orthodox Jews, or Haredim, who have large families, poor educational outcomes and low employment rates. As a result, just over half of Arab and Haredi families live in poverty. Almost half of all children entering primary school in Israel come from one of these two groups, so profound policy changes are needed to prevent future generations of Arabs and Haredim from being scarred by the disadvantages these population groups face today. 

Tackling the root causes of such deep inequality would greatly enhance the dynamism of the Israeli economy. Greater investment to help workers improve their skills is urgently needed. Welfare-to-work programmes need to be restructured and extended, including by reducing child benefits paid to families who are able to work but do not and by sharply increasing the Earned Income Tax Credit to tackle in-work poverty more effectively. And access to means-tested income supports for the neediest should be improved. Israel has failed to enforce many aspects of its labour legislation, contributing to poor employment conditions for many resident, cross-border and foreign low-income workers. Rules to overcome discrimination against all workers need to be enforced, and the illegal hiring and employment of temporary foreign workers need to be stamped out.  

Progress has been made in many of these areas. New legislation and initiatives have been introduced. The challenge is how to make reform work in practice. The consequences of not doing so would be devastating.


Increasing Employment among Low-qualified Workers

Increasing employment among low-skilled individuals has been a major policy objective in Israel for some years. Sizeable cutbacks in welfare benefits in the early 2000s, while motivated by public finance concerns, were also seen as a way to reduce dependency on welfare among the low-skilled groups. Overall, the financial incentives to work provided by the tax and transfer system are strong. This is because of low taxation, relatively low benefits for those out of work, and the availability of income support for those in work. In practice, however, access to benefits is limited, due to very strict eligibility conditions for both unemployment benefits and income support. Since 2005, a pilot welfare-to-work programme has been running in four regions with large minority populations, which was initially tilted towards getting participants off the welfare rolls rather than into sustainable jobs. Reforms implemented in 2007 have improved the incentive structure for private operators, but problems remain. For example, competition among the operators is limited and the payment structure varies little with the characteristics of clients. A pilot earned income tax credit has also been in place since 2008 in the same regions, but the amounts are currently too small for it to ensure a decent standard of living and reduce in-work poverty.


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