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The Government and Inequality: The State Fails to Redress the Imbalance Resulting from Uneven Economic Growth.

Ever since adoption of the Economic Emergency Stabilization Plan of 1985, the social and economic policies of Israeli governments have rested on the principles of downsizing the role of government and bolstering the role of the business sector.

Until this change, over the course of the post-1948 decades, the state was the primary social and economic actor - fostering economic development, striving for full employment, integrating immigrants, building housing, and providing education and health services. Since 1985, however, the state has narrowed its involvement, privatized many of its services, slashed its budgets, and sought to empower the business sector by reducing taxes, weakening regulation, lowering interest rates, and reducing the cost of labor.

The result has been to shrink and diminish the social services that the state provides - schools, higher education, health, welfare, and social security. In addition, government investment in fixed assets - part of the national effort required for economic development - is among the lowest of OECD countries. (56)

In 2015, civilian expenditure (which excludes defense) by the Israeli government was 30% of GDP. Although Israel spends heavily on defense compared to most western countries, the low civilian spending stems from belt-tightening policies rather than heavy defense spending, which actually declined relative to GDP. According to the Bank of Israel, civilian expenditure excluding interest payments in Israel "is almost the lowest in the OECD, and makes it difficult for the government to allocate resources for policy measures that will entrench long?term economic growth." (57)

Civilian expenditure includes the social spending of the government - budget monies intended to help households and individuals in times of need, such as welfare allowances, services for infants, the elderly, and the disabled, and tax benefits. In 2016, Israeli government spending on these was 16.1% of GDP, compared with an average 21.0% in OECD countries. (58)

Here are a few comparative figures published by the OECD: (59)

* In social spending, Israel ranks second from the bottom of twenty OECD countries;

* In spending on education, Israel ranks third from the bottom among eighteen OECD countries;

* In public investment in the economy, Israel ranks the very lowest of twenty OECD countries.

The economic miracle touted by the government largely benefits a small number of Israelis, whose wealth raises the general average. A real miracle will take place if and when the state abandons its policies of fscal austerity and reduced involvement, and works to achieve balanced growth that advances the entire population.
Civilian Expenditures (Excluding Interest Payments) in Israel and OECD
Countries, 2015
In percentage of GDP

Finland         56.1
France          53.4
Denmark         52.9
Belgium         50.3
Norway          50.1
Greece          49.3
Austria         49.2
Sweden          49.1
Hungary         46.1
Italy           45.2
Slovenia        44.4
Slovakia        43.2
Portugal        43.2
Netherlands     43.1
OECD average    42.4
Luxembourg      42.0
Germany         41.8
Japan           40.5
Czech Republic  40.4
Spain           40.2
Iceland         39.1
Estonia         38.7
Britain         38.7
Poland          38.5
New Zealand     38.0
Australia       34.3
Switzerland     32.7
United States   31.6
Korea           30.1
Israel in 2015  30.0
Israel in 2016  29.9
Ireland         26.8

Note: We have no precise data for Turkey or Chile, but the figures
available place them lower than Israel. The data for Ireland reflect a
change in the calculation of GDP.
Source: Bank of Israel. 22 March 2017. "An analysis of the fscal
developments in 2016, a fscal point of view for 2017, and expected
developments over the remainder of the decade." Press Release.

Note: Table made from bar graph.


(1.) "Prime Minister Netanyahu returns to The Economist cover," The Marker, 23 November 2017 [Hebrew].

(2.) Arlosoroff, Meirav. "Netanyahu's economic advisor: The situation is good and it's time to get used to it." The Marker, 14 November 2017 [Hebrew].

(3.) "Prime Minister Netanyahu returns to The Economist cover," op. cit.

(4.) Ministry of Economy and Industry, Innovation Authority. Innovation in Israel 2017: A Status Report: 18

(5.) Council for Higher Education. 15 October 2015. Facts and Figures upon Commencement of the Academic School Year 2015/2016 [Hebrew].

(6.) Wages increased primarily in branches such as commerce, professional services, construction, and transportation. Bank of Israel. Annual Report 2016: 138.

(7.) Ibid.

(8.) The Stock Market in 2016, website of the Israel Securities Authority.

(9.) At current prices. See Swirski, Shlomo and Yaron Hoffmann-Dishon. 2017. Public Housing Option: Adva Center's Response to the Housing Crisis in Israel. Tel Aviv: Adva Center.

(10.) Swirski, Shlomo and Yaron Hoffmann-Dishon. 2015. From Housing to Real Estate: How the Accumulation of Wealth by a Few Affects Israel's Housing Market. Tel Aviv: Adva Center.

(11.) Adva Center analysis of data from CBS, Household Expenditures Survey 2000; figures from 2016 courtesy of the Consumption Department of CBS, November 2017.

(12.) Ibid.

(13.) Adva Center analysis of databases from CBS, Expenditures Survey 2000 and Income and Expenditures Survey 2015. Household income and expenditures cannot be compared for 2016 because of changes in the age groupings.

(14.) In 2014. See Report of the Committee for Examining Women's Pension Age, September 2016; Bank of Israel, Research Department, Fiscal Survey and Selected Research Analyses, March 2017 [Hebrew].

(15.) Bank of Israel, Annual Report 2014: 210; Bank of Israel, Annual Report 2015: 177. The negative income tax was first instituted in Israel in 2008 for the 2007 tax year.

(16.) CBS, Job Vacancy Survey, November 2013 and November 2017.

(17.) Between 1999 and 2015. See Endeweld, Miri, Leah Achdut, and Michel Strawczynski. 2017. The Working Poor in Israel. Jerusalem: Van Leer Jerusalem Institute [Hebrew].

(18.) See the section on poverty among those with higher education below.

(19.) Rabbis for Human Rights and the Adva Center. 22 January 2014. "Comments about the Negative Income Tax." Paper presented to the Alaluf Committee to Combat Poverty.

(20.) Adva Center analysis of CBS, Labor Force Surveys, various years.

(21.) Disagreement with this has grown in recent years in light of the data showing that growth alone does not ensure higher wages for all.

(22.) Endeweld, Miri and Oren Heller, Wages, the Minimum Wage, and their Contribution to Reducing Poverty: Israel in an International Comparison, National Insurance Institute, December 2014 [Hebrew]. Figures updated to 2014-2016 were provided courtesy of the authors, November 2017.

(23.) See Adva Center, Workers, Employers, and the National Income Pie, various years.

(24.) Ministry of Finance, Weekly Economic Review, 4 September 2016: 9, 1 [Hebrew].

(25.) Adva Center analysis of CBS, Household Income and Expenditures Survey, for the years 2012-2016.

(26.) CBS, Household Income and Expenditures, 2015: Table 14.

(27.) These figures do not include regional councils or unrecognized villages.

(28.) Localities in clusters 8-10 according to the socioeconomic clusters of CBS.

(29.) National Insurance Institute; Mark Rosenberg. August 2017. Wages and Income from Work by Locality and by Various Economic Variables, 2015. Jerusalem: National Insurance Institute.

(30.) The gender wage gap is defined by the OECD as the difference between median earnings of women and men relative to median earnings of men. Data refer to full-time employees and the self-employed.

(31.) The salaries of the group born in Israel are relatively low because they are young: Their median age in 2016 was 29, compared to 45 and 42 in the groups of second-generation Mizrahim and Ashkenazim, respectively.

(32.) See the new book by Amia Lieblich, 2017. Kolot: ‘Oni Hadash BeYisrael [Voices: New Poverty in Israel]. Haifa University: Pardes [Hebrew].

(33.) National Insurance Institute. December 2017. Poverty and Social Gaps, Annual Report, 2016 [Hebrew].

(34.) In addition, an annual report is published by Latet ["to give"], an NGO that documents the incidence of poverty and food insecurity, based on interviews with 756 (in 2017) of the recipients of food assistance from its partner organizations. Poverty and food insecurity rates reported by Latet are higher than those reported by the CBS or National Insurance Institute.

(35.) The Social Survey gathers information from some 7,500 Israelis aged 20 or more.

(36.) National Insurance Institute. 2014. Food Security Survey 2012: Main Socioeconomic Findings.

(37.) This Gini coefficient reflects inequality in the disposable income of individuals. National Insurance Institute, Research and Planning Administration. December 2016. Poverty and Social Gaps 2016, Annual Report [Hebrew].

(38.) National Insurance Institute, Research and Planning Administration. December 2016. Poverty and Social Gaps 2016, Annual Report [Hebrew].

(39.) Higher education: universities (not including the Open University), academic colleges (state supported and not), and teachers' seminaries that award an academic degree.

(40.) Note that the pyramid represents those who matriculated in an Israeli high school and continued their studies in an Israeli academic institution recognized by the Council for Higher Education. It does not include Israelis who continued their academic studies outside Israel, such as Arab citizens of Israel who are enrolled in academic institutions in the Palestinian Authority, Jordan, or other countries. It also does not include those who finished high school in 2008, but took their matriculation exam after graduating high school.

(41.) As noted, many Arab young people go abroad for higher education--to the Palestinian Authority or Jordan, where several thousand Israelis are studying. It is unknown how many of these meet the admission requirements of Israeli institutions of higher learning. See Khalid Arar and Kussai Haj-Yehia. 2010. "Emigration for higher education: The case of Palestinians living in Israel studying in Jordan." Journal of Higher Education Policy, 23, 358-380.

(42.) Council for Higher Education. 15 October 2015. Facts and Figures upon Commencement of the Academic School Year 2015/2016 [Hebrew].

(43.) CBS, Statistical Abstract of Israel 2017, Table 8.54.

(44.) Council for Higher Education, op. cit.

(45.) Achdut, Leah, Noam Zussman, and Inbal Ma'ayan. "Return on Schooling at Universities Compared with Colleges in Terms of Wages and Skills in the Labor Market," PowerPoint presentation [Hebrew].

(46.) Zussman, Noam, Dimitri Romanov, Orli Forman, and Tom Kaplan. 2009. "Testing for Differences in the Quality of Education between Universities and Colleges Using Return in the Labor Market." Jerusalem: Central Bureau of Statistics: 29 [Hebrew].

(47.) Maagan, David. 2017. "Predicting Future Achievements of Students in Israel Using the GEMS Tests." CBS: Working Paper 103. [Barbara, he uses GEMS rather than EGMS, which Adva has used in the past.]

(48.) This page and the next are based on Swirski, Shlomo and Yaron Hoffmann-Dishon. November 2017. Public Housing Option: Adva Center's Response to the Housing Crisis in Israel, Adva Center.

(49.) State Comptroller, February 2015. Audit of the Housing Crisis, p. 3 [Hebrew].

(50.) This calculation of total household expenditures includes rent and mortgage payments as well as ancillary expenses such as water, electricity, gas, municipal taxes (including property taxes), maintenance and renovation expenditures, as well as home insurance and fees for a realtor, assessor, and lawyer. The calculation differs somewhat from the CBS calculation for 2014, which appears in its publication, Well-being, Sustainability, and National Resilience Indicators in 2016. Adva's calculation excludes amounts paid for government taxes (purchase or improvement tax), "domestic help" (home childcare, cleaning, or cooking), and "various household needs" (commodities such as cleaning materials, pesticides, etc.).

(51.) Based on the net income decile per standard person, a calculation was made of the maximum mortgage repayment that can be made without exceeding the 30% ceiling. The estimate assumes that the mortgage will finance 75% of the price of a home based on the Bank of Israel limits for first-time buyers, and that it is granted as a 25-year, fixed rate, non-linked loan. These assumptions allow us to estimate the mortgages that households can afford without exceeding the 30% limit. In reality, mortgages are composed of several different types of loans, including some with variable interest rates and linkages. We also posited 3.77% annual interest rate, which was the annual average interest for unlinked, 20-25-year mortgages issued by Israeli banks in 2015.

(52.) CBS, Statistical Abstract of Israel 2017, chapter 3.

(53.) OECD, Health at a Glance, 2017.

(54.) "Healthy life years and life expectancy at birth, by sex," Eurostat 2015; CBS, "Life expectancy in Israel 2016," Media Release, December 2017 [Hebrew].

(55.) National Insurance Institute, Yarhon Statisti [Statistical Monthly], November 2017, Table 1.4.2 [Hebrew].

(56.) OECD, Government at a Glance, 2017, table 2.48.

(57.) Bank of Israel. 22 March 2017. "An analysis of the fscal developments in 2016, a fscal point of view for 2017, and expected developments over the remainder of the decade." Press Release.

(58.) OECD database.

(59.) OECD Economic Surveys. Israel. January 2016.
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Title Annotation:WAGES
Publication:Israel: A Social Report
Date:Jan 1, 2018
Previous Article:Inequality in Health Insurance.

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