EVENT TRANSCRIPT: Key Trends and Developments in Israeli Society and Economy
DATE: 1:00 pm -2:00 pm, 24th September 2019
VENUE: Henry Jackson Society, Millbank Tower, 21-24 Millbank, London, SW1P 4QP
SPEAKER: Professor Avi Weiss
EVENT CHAIR: Emma Fox
Welcome everyone, thank you so much for coming, particularly as this is an exciting if not critical time for Israel at the moment – of course on the international stage but particularly on the domestic front – we’re just finding out how the results of the recent election will play out in the Knesset. So, it’s a particularly pertinent time for us to have this discussion on economic and social landscape of Israel. We are delighted to have with us Professor Avi Weiss, an expert on the Israeli economy and an array of social issues facing Israeli society. He received his PHD from the University of Chicago, he is a Professor of Economics at Bar Ilan University, and is the President of the Taub Center of Social Policy Studies in Israel. Professor Weiss’ research interests include applied micro-economics, and behavioural and experimental economics. He served as chair of the economics department at Bar Ilan and is the editor of the Economic Quarterly – the journal of the Israel Economic Association. He also served as chief economist and Deputy Director of the Israel Anti-Trust Authority and other public committees such as the [inaudible] Committee on Social Economic Change. He’s also a member of a committee charged with determining how to increase worker productivity in trade and services industries. The Taub Center for Social Policy Studies is an independent, non-partisan socio-economic research institute based in Jerusalem. The Center provides research on various domestic issues facing Israeli society such as education, health, welfare. Labour markets and economics in order to inform policy and advance the wellbeing of Israeli citizens. We are delighted to have you with us today Professor Weiss, and with that, over to you to talk more about your centre’s research.
Prof. Avi Weiss:
Well thank you Emma. Because the microphone I guess is down I will speak sitting. Usually I do this standing but I want you to be able to hear – perhaps I’ll stand anyway you’ll see if you hear me and we’ll see how that works. I want to thank also Alan (who’s not here), I want to thank Victoria and thank Jamila for the invitation, and thank each and every one of you for coming. So, the Center’s been around for 37 years – we started in 1982 and we’re a socio-economic think tank; to put it in the words of President Rivlin, ‘We basically cover everything that is important to Israeli citizens except for military security issues’. But aside from that we do research with respect to health, education, welfare, macro-economic policy, labour markets, basically all things that affect inside of Israel. We are very politically neutral, we are known as being honest brokers, we do not take any kind of political side, right or left, everybody who comes to work at the Center knows that when they come in, they leave their politics at the door because I tell them that. The result is that pretty much all parties and a very large percentage of Knesset members come to visit with us, to hear what our latest research is and invite us into their different committees to present our results, take them to heart. We affect legislation, we affect decision making within the different ministries and, as I say, we’ve been around for a long time doing this. The person whose goal this was whose vision this was to begin with was then-Prime Minister Menachem Begin and the model he had in mind was Brookings in Washington – that was the basic model that he had in mind. But with no further ado I think I’ll just – what I’ve done is I’ve picked, you know, a number of different things from a bunch of different fields of what we do and I can expand on anything you want so, I really do like an interactive discussion, rather than just having it as a lecture, so feel free to ask questions when you have them. I will answer your questions, if I don’t have the answer I will just make something up but I do it in a way that is convincing and you’ll never know.
So let’s just get started – the other one thing I should mention, which is actually very important because – I don’t know if any of you know this – but Israelis sometimes can be cynical, I don’t know if you’re aware of that, and one of the things we do in order to maintain our independence in the eyes of everybody is we do not take any kind of government funding. When Menachem Begin sought to start this he said, ‘we want a place that will not take any kind of direction from government, it wouldn’t take any government funding, nor direction with respect to what to research’. He turned actually at the time to the American-Jewish Joint Distribution Committee and he asked them to start up this Center, which they did and today we are independent of them but that’s what are roots are from. But one of the first things you are going to hear in many places is, ‘who funded that research?’, and the answer is always ‘nobody’. I other words, we will not take directive research from outside, we will not take commission research, we will not take any kind of government assistance, any government.
So, let’s get started and if you have any questions you should really ask. I’m going to give you a little bit of background, I’m sure you all know a lot about Israel but I’ll give you a little background from our perspective. So, Israel is what we call a ‘small island economy’ – if any of you have heard, if you know Israel well then you’ve probably heard that Israel is expensive relative to a lot of other countries and this is a lot of the explanation of why Israel is expensive. So, an island economy – think about Australia which is surrounded by water versus, let’s say, even England but versus let’s say a country in the middle of Europe or a state in the middle of the United States that is surrounded by other countries or other states in which case when – let’s say there’s disruption to the supply of a certain good inside the country, well there’s a disruption so if you’re in the middle of Europe firms from other countries can truck over or send over by rail, send over goods and basically be able to almost immediately solve the problems of any shortages that may occur, or consumers can cross the border and perhaps get what they need elsewhere. However, in a place like Australia the logistics are more complicated, its less immediate. The level of competition you’re going to get from outside the country will not be as immediate as you would get if you were in a continuous space. So, Israel is an island country not in that its surrounded by water, but its surrounded by countries with which it does not trade or with which its trade is very very limited and as a result the trade has to come from further afield. It has to come from Europe or it has to come from the United States or from the Far East but it’s not coming from the countries directly around it. Put that together with the fact that Israel tends to protect its own product, its own producers, that just makes the problem even more serious. Now it’s a small country, we currently just celebrated reaching 9 million citizens inside of Israel, but 9 million citizens still isn’t enough to have a large number of producers in pretty much any field. You’re going to have a relatively small number of producers of, you know, cottage cheese, or whatever it is you want to think about with respect to goods. So you have a situation where the amount of competition you’re getting within the country is limited and the level of competition you’re getting from outside the country is also limited which is going to lead you to a situation where prices are going to tend to be high. So when we talk about prices in Israel as being high, that’s a lot of what’s driving it. To overcome that, you would have to open the market up more to international trade because you’re not going to get it from inside, you have to get more from outside.
Israel is very much a dual-sector economy. Now you’ve all heard about the start-up nation, we all know about Israel’s incredible high-tech, and it is incredible, they really do wonderful wonderful things. It’s 8% of the workforce, now that’s more than any other country but its 8% of the workforce and 92% of the workforce are not there. Now, in general what happens in most countries is that the success in that industry will pull up the entire economy and it’ll do it through worker mobility because what will happen is, you’re creating all these new technologies, these technologies are being used throughout the economy and when technologies are used they create all kinds of jobs that can be middle-level jobs – not talking about the people who are getting you know a 4-year computing degree at [inaudible] – but you’re talking about somebody who can go and get a one month or a three month course, be able to move up and be able to operate the machinery, be able to troubleshoot it, be able to work together alongside it and in Israel that middle level almost doesn’t exist. In other words, what’s happened is that you have the high-tech doing incredibly well and the rest of the economy not really getting a whole lot of direct benefit from it. The production is not being done inside of Israel, the use of the technology is going outside of Israel more than its staying inside Israel. Now this is happening for a number of reasons. One reason this is happening is Israel has really concentrated on the super high. It’s concentrated there because of where it came from, we all know that necessity is the mother of invention, we all know about the intelligence units inside of Israel having sparked a lot of new products, a lot of high-tech products – things like firewalls came out of the Israeli military – that it really requires you to be a really high level computer programmer, it’s not going to be for the middle level guy. Now, you have all these young people coming out of the A200 unit – for those of you who not what it is – and they will come out and they will start a new business [inaudible], and it will be successful and there will be, you know, millions and hundreds of millions of dollars suddenly being offered to them for this early-stage product, and it’s really hard to say no to that and a lot of these high-tech companies are selling off in early stages, they are not bringing it to fruition, they are not bringing it to the point where they’re creating the product itself and using the product inside the country. They’re selling off the company and then they’re going and starting another company, doing the same thing but it never gets that use of the high-tech inside of Israel to be really very very large.
The other thing [inaudible] is the Shekel today is one of the strongest currencies in the world. Now, the reason why the Shekel is as strong as it is – I don’t know how many of you follow it – but the Shekel today is really super strong, it went from – if you do compared to the dollar – its three and a half Shekels per dollar, it was four and a half it was 4.2, it was even all the way up to 4.97 a long time ago. But today’s three and a half Shekel per dollar, that’s really really low. The reason why the Shekel has become so strong; two reasons. One is that those high-tech companies had brought a lot of foreign currency into Israel, a large increase in the supply of foreign currency. The discovery of natural gas in Israel meant that you didn’t have to purchase gas, or as much gas from outside the country and that worked in the opposite direction and decreased the demand for foreign currency. So the increase in supply and the decrease in demand together made the Shekel really really strong. Now the effect of that is – think of yourself as a producer of a good in Israel and you want to export your goods. Now when you export your goods you’re going to have to compete internationally with companies that are using modern technology, so if you want to be able to compete successfully you’re going to have to also invest in modern technology. But now the Shekel gets strong and now you’re paying your salaries in Shekels but you’re getting your income in dollars or in euro and you can’t really compete, you can’t really survive that way because it just can’t be profitable. So, those companies end up turning inwardly inside Israel, and when they turn inside Israel well they no longer have to compete with those companies internationally, they no longer have the incentive to invest in modern technology. So, they can keep producing the way they used to produce and they can keep making money that way inside the country only, since they’re not turning outwardly anymore. So, those middle level jobs that have the potential to pull those workers up, to allow for upward mobility, barely exist inside of Israel. So when I say it’s a two-sector model, there’s really a huge huge gap between them. Now just to show you what this looks like, this is something called productivity. Productivity means the value of an hour’s work, or the value of a workers’ work, or a day of work. You basically take everything that you have produced and you divide – the value of everything you have produced – divide by the number of hours worked you get a value per hour. Now the manufacturing up there, that’s the high-tech goods and the other one, the trade and services down below. So you see actually over here [inaudible] that until about the mid-2000s they were moving together. In the mid-200s suddenly you had them moving apart very heavily and – I’ll discuss that drop in a few second, what that drop was in the mid-1990s in trade and services – but the increase in manufacturing was heavy investment in high-tech inside of Israel. There started to be a significant amount of investment and I’ll tell you what helped that along. So what helped that along, I’ll show you in the next slide [inaudible] so just to show you, take an average wage in the high-tech in Israel, or anywhere, versus an average wage in the rest of the business sector; its two and a half times as much. That two and a half times as much should be pulling up like crazy to go find jobs in that sector. It should be causing a lot of upward mobility and that’s not happening, and that gap is remaining because those workers are not moving up. The reason that gap doesn’t exist in those other countries – there’s a much smaller gap, there’s a gap but a much smaller gap – is because the upward mobility of labour allows that gap to be closed. So it really is a two-sector economy inside of Israel, so when you hear that there’s a lot of income inequality in Israel, that’s a lot of the source of it. That you have those that really are doing fantastically well and those who are very very far from it.
That fall we saw in 1993, that actually has to do with aliyah immigration. So, the Iron Gate lifted beginning of the 1990s and when the Iron Gate lifted we know that one million, or approximately one million, new immigrants came to Israel into a country of four and a half million people, that’s an increase of 20% in your population, in like zero time and that’s really hard for any country to be able to absorb. Now not only was this a large immigration, it was a very unusual immigration. So we know that immigration when we think about, you know, Syrian refugees coming throughout Europe, or Mexicans coming into the United States, they tend to be low-level workers, people with low levels of human capital, moving in to look for a better situation for themselves, and that’s great and it can add to an economy but that wasn’t the case here. This was a case of really highly highly educated people coming from the former Soviet Union into Israel and an incredible number of doctors and lawyers – not lawyers [inaudible] some – but a lot of engineers and physicists and chemists, you know, musicians – I don’t know if you know the story of the musicians in Israel. If you looked at the Philharmonic in Israel at the beginning of the 1990s it was all Israelis, you looked at the end of the 1990s it was all people from the former Soviet Union; complete turnover of the members of the Philharmonic. In fact, they said at the time ‘what do you call a Russian [inaudible], an immigrant, who steps off the plane without a musical instrument in his hand?’. The answer was ‘a pianist’. [Laughter]. It was a joke but it was really really true, it was incredible what was going on. So what happened was that those workers wanted to get into the labour force and they immediately entered the labour force, but there’s only so many doctors and so many physicists and so many chemists that you can all of a sudden absorb – I mean suddenly absorb – into an economy that’s just not prepared for it. So, they would go and they would end up lowering the level of jobs they got well below their skill level. And if you were a chemist, if you were lucky you would get a job as an assistant inside of a lab. If you were not lucky you would be cleaning somebody’s house because that’s what you were able to get. But, suddenly you had this huge potential of human capital sitting around, not being utilised and when the high tech did start developing inside of Israel in the mid-1990s it gave you from where to pull. So some of those workers ended up bettering their situation very very greatly because they were able to move into things that were more commensurate with their skill set, but some were not, of course. But that allowed that big growth, so that big drop you saw in the trade and services, that was all these Russian, former Soviet Union olim moving into all kinds of trades and services and doing whatever they could find to do. So that caused lot of that drop, you just had a huge influx of people into that area, with time a lot of them moved out.
Security issues, we don’t touch security, but there’s one thing that does need to be understood about Israel in order to, and I’m sure you all understand it, but, in order to appreciate what happens from a socio-economic perspective [inaudible] in Israel. Taxes in Israel – high or low, what do you think? (audience members say both low and high) Well, it’s always good to get two sets of opinions, so I’m going to just give you the real answer; they’re low. And they’re low relative to other OECD members. OECD organisation of economic cooperation and development, that’s all to do with industrialised countries, you’ll see a list of them coming up pretty soon. So If you take a look at tax policies, you have extremes. The extreme on one hand would be Denmark. Denmark is taking 52% average tax, in other words, of everything that you earn, 52% is going to the government. Denmark, in turn, gives full social services; it’s a true welfare state, and that’s what it does, it collects a lot of taxes and it gives a lot of services. The other extreme in the OECD countries, the developed countries, would be Mexico. Mexico takes only about 20% tax, but they give very little in terms of social services. The OECD on average is about 36-37%. Israel is collecting 31% on average. Until 2008 was collecting the same as the OECD, then they lowered tax-rates. Today it’s around 31% on average, and the security issue is, 6% out of the GDP is going to defence. That way outstrips any other country. You’re left basically with 25%. Now compare that 25% to Denmark’s 52%, or any other welfare-type country, and Israelis very very much like comparing what’s happening in Israel versus what’s happening in Denmark, in places like that, in Sweden, in places like that, but they don’t realise they’re paying half the taxes, and when you do that, when you’re spending that much, when you’re taking less taxes and you’re spending more on military, then you’re going to have less to spend on roads, and on education, and on health, and on welfare, there just isn’t going to be as much to spread around because you’re not taking as much. So that’s something that needs to be remembered, when you think about, you know, we want to do more plans, where is that money coming from, it’s something you have to think about. I think I’m going to get there, so let’s talk about that.
So, let’s talk a little bit about demography in Israel. I don’t know if you know, I’m pretty sure you know there are four separate education systems in Israel, since we’ll be talking about education a little bit. Four separate education systems, all under the Ministry of education. One is for the Arab-Israeli society, one is ultra-Orthodox, one is for the moderate Orthodox, and one is the state schools, which is basically everything else, and they sometimes have very different curricula, which, of course, affects a lot of things inside of Israel. This is what Israel looks like. Now, in each of those boxes you’re going to see two numbers, except for the top [inaudible]. The top number, the one in that parenthesis, is the percentage out of Israeli society, the entire population of Israel, the number in the bottom, in parenthesis, is out of that category. So, Ultra-Orthodox are 12% of the population, which is 16% of the Jewish population, so that’s how those numbers should be interpreted, but this is basically what Israel looks like. You can see that the Arab-Israeli population is about 21%, the Haredi and ultra-Orthodox are the same thing, I’ll use them interchangeably, is about 12%, and those other categories inside the Jewish population is something that is done by the Central Bureau of Statistics, that they changed a number of years ago. They changed the way they try to categorise. They used to do it by things like trying to identify what school you studied in, and etc., but now they [inaudible] people can change, and i may study in one type of school, and then become something else. Today they do it by self-identification. And they created these five categories; you can self-identify as being secular, as being traditional, and within traditional there are two different levels of how this doesn’t correspond to conservative and reform and etc., it doesn’t correspond to that. It corresponds to just how you view yourself. Do you view yourself as attached, do you not view yourself as attached, if you are, do you think you’re Haredi? And if you think you’re Haredi, and somebody else doesn’t, it doesn’t matter what the other person thinks; question of how you put yourself down. The result of doing this, this new categorisation, is that the numbers we see coming out of the Central Bureau of Statistics seem a lot more realistic than they were in the past. In the past they under-identified ultra-Orthodox very significantly. So, this new classification was trying to correct that. Now, let’s little bit about those populations. So, they’re very very different from each other, with respect to demographics. So, take a look at the median age; the median age in the Jewish population that is not ultra-Orthodox is 34, among ultra-Orthodox it’s 16. 56% of people in the Haredi community are under the age of 18. SO, that’s a very very young population, they have a lot of children, and take a look at fertility rates. 6.9 children per Jewish woman, it’s 3.1 for the Arab women; on average the Muslim are about 3.2, and it’s 2.7 for the rest of the population. Now, just to tell you what those numbers mean, how unusual that is, so just to do an international comparison. So, there are all those OECD countries, and just take a look at fertility, number of children per woman, in all the different countries. For a country to remain the same size, aside from immigration, you need 2.1 children per woman. 2.1 and not 2, because unfortunately some children don’t make it to adulthood, therefore that takes that into account. The only countries above 2.1 – Mexico and Turkey are a drop above 2.1, they’re between 2.1 and 2.2, and Israel is in a different stratosphere. They’re all the way up in the 3.1. That’s a crazy, crazy high number, the 3.1, unlike any other developed country. The only types of countries who have fertility rates those high tend to be very very very poor countries, not countries that have as high an income as Israel has, not developed countries, certainly. If you take a look at what’s happened over time to fertility rates for the different groups inside of Israel, you go from a situation (I’m going to go all the way back to 1960 here), and the average Muslim woman, the AVERAGE Muslim woman, not the outliers, was having 9.2 children per woman, and today it’s at about 3.2. That’s a pretty extreme drop. By the way, the drop that happened here was not specific to Israel, this happened throughout a lot of countries where they started developing, and they started getting a better education, they started getting a better income level; that basically led to lower fertility, which is what it does worldwide, except for the Jewish population inside of Israel. They behave very very strangely relative to anywhere else in the world.
Take a look at that dark blue line, no the Jewish is the turquoise line; at the bottom you see that there’s actually been an upturn in the number of children. It was above three, it went down a little below three. Since about 1990 it’s been going up. So, you might say, well, it’s been going up because of all the ultra-Orthodox, but that’s not actually the reason. If you take a look at what’s happened according to the level of religiosity, those five categories that you saw before, first of all you see that the number of children you have is directly related to the level of religiosity. There is a clear 1:1 correspondence between it. But if you take a look at among which populations it’s been growing, its actually been growing among the secular, and it’s been growing among the traditional. They’re the ones who are having more children, who have that up-rise, they’re the ones who are having more children than they were in the past. The Haredi aren’t having more children than they were in the past, they have a drop in 2003. What happened in 2003 was that the government of Israel decided to cut child allowances drastically. For those of you who don’t know, until that point, or for a while until that point, a large enough family could support itself just by getting child allowances, if you had enough children, you didn’t have to go out to work in order to support your family because the child allowances were not just generous, they also had a step-up from the 4th child and on. So you would actually get increases the amount you got per child. If you had 10 children, you could finance your family, you weren’t going to be rich, but you could get by and you could be somewhat comfortable, and given that the Haredi population views the ideal in the world as the man should sit and learn, and study Talmud, it’s what he should do, he should study religious studies, that’s his goal in life, that’s what he could take with him to the next world, and the woman should be raising the family. So that was what most Haredi, or many Haredi families did. The men would not go out to the workforce, and the women would not go to the workforce, and they would have large families, and basically finance themselves through government support. In 2003, end of 2002-beginning of 2003, the Finance Minister then, I’m not sure if anyone here remembers who he was, anybody remember who he was? It was BB something, I’m not sure. You’ve heard of him. Anyway, so what has he done lately, no, but he decided to cut that, and cut it drastically, and he cut it. His goal was to get the Haredi population into the workforce. And worked to a very large extent. It was first women who started going out to the workforce, and then the men who went out to the workforce. The women today in the Haredi population work almost at the same rate as women in the other parts of the population, the rest of the Jewish population. The men are lagging well behind, but we’ll look at those in a little while.
Let’s talk a little bit of the overview of the macro-situation inside of Israel, also mention with respect to the elections. This is what’s been happening lately – Israel in this decade, since about 2013 or so, has been doing very very well. Income has been growing, the participation in the labour market has been growing, prices have been falling, actually, certainly relative to other countries prices have been going down, after the social protests in 2011, and all the changes that were made thereafter, prices stopped going up and started going down. This year there’s been a slight up-turn in some things, but if you take a look, the interesting thing here is that the populations who have benefited the most were the weaker populations. they’re the ones who grew most significantly, partially because they’re the ones who also got into the labour force more, so the increased participation since that period, since about 2013 or so, has been from the weaker populations. It’s bad, you want the stronger populations to do well, while you want those weaker populations to be strong, you want them to have a better education, but that’s what’s been happening socially. If you take a look at where we are, Israel, relative to the other countries you want to compare yourself to, then Israel is still lagging behind, GDP is growing in all those countries, GDP per capita. GDP in Israel [inaudible] has not been growing faster than it has in other countries. Now, you would think that with that really strong, high tech you would be growing faster; well the thing is that that high tech has been off-set by the rest of the economy. The services and trade, which has not been doing so well, have basically off-set the large increase that you’ve had from the high tech. Therefore, Israel has been growing, not been growing faster, not been catching up to these other countries that it lags behind.
If you take a look at this is here because of the elections; I don’t know if you knew there were elections recently, there might be again in January. No, I don’t know. [Laughter] But the elections that you see here, sorry, the graphs that you see here is showing what the Israeli government did over a long period, over a 20-year period, even more, the government was very very fiscally frugal. It was lowering its expenditures and decreasing its deficits; something that helped the Israeli economy tremendously because one of the effects of that is that your credit rating went way up, today Israel is rated at a double-A, and when that’s the case, you can borrow for really good interest rates, and you can service your debt to other countries for really really low interest rates. That’s very very important if you want to be able to have enough funds to do the other things that you want to do inside of the economy. Something that happened, I don’t know if you paid attention, how much you were paying attention to the discussions, to the rhetoric during the election period, but pretty much nobody talked about economics. Almost not at all, if you would hear anything about economics it’d be very very general statements like “We’re going to lower prices” or ” We are going to get productivity up”. Nothing, no specifics. The reason there were no specifics discussed during the election was that the last year saw a major change in Israeli expenditure. Over the last year, two sets of agreements were signed by the Finance Minister. One with [inaudible], the other one with the police force. Both of which are going to cost the country a lot of money over a very long period. And the estimation is that the deficit this year, instead of being about 2.9% which was what was expected, ’cause they did expect some increase, it was going to be at 4.5%. Now, Israel has already been sort of warned by the credit companies, that this is going to harm Israel’s credit standing, and if that happens, it’s no longer going to be so cheap to borrow money. All the parties understand this, and they all understand that something’s going to have to be done to bring that deficit back down, but how do you bring the deficit down? You have got to do one of two things: either you have to increase income, which means increased taxes, or you have to decrease your services that you’re giving, decrease expenditures. One of those is necessary in order to bring that deficit down. Now, neither one of those are really popular. No party wants to go up and say: “Yes, we’re going to increase taxes!” It’s not something you want to get up and say. So, nobody talked about it. They stayed away, they shied away from the economic issue pretty much completely.
A little bit about social welfare. We’re going to talk about poverty. Poverty in Israel is high, that’s the reason I’m going to mention it, I’m going to show you those numbers in a minute, but let’s discuss what poverty is, okay? Poverty can be measured in a number of ways; the World Bank is looking at different countries; The World Bank in 1991 defined poverty as anybody earning less than $1 a day. But $1 a day is not relevant for developed countries. They were looking at 3rd World countries, that was their goal, and the percentage below the poverty line worldwide has gone down incredibly over time, over relatively short periods. But the way it’s done for the developed world is one of two systems; there’s the system that is done by one single country in the world which is the United States of America, which basically uses what we would call an absolute poverty level, which is as follows: let’s build up a basket, ask what type of basket of goods does a person need in order to be order to lead a reasonable life, what’s the minimum that you need in order to be able to live reasonably? Anybody who earns less than that is below the poverty line, anybody who earns more than that is above the poverty line. What’s the difficulty? The difficulty is defining the basket. Because that basket is something that is dynamic, it changes over time very significantly; today that basket includes a cell-phone. It didn’t include a cell-phone 10 years ago. Certainly didn’t include one when they started in 1961 when nobody knew what a cell-phone was, it didn’t exist, obviously. But the rest of the world does not use that. Both because it’s impractical – in order to define it leads to a lot of arguments, and the other reason is that some people feel that poverty is a relative measure, it’s not an absolute measure. It’s not that you have enough in order to be able to survive, it’s how do you feel relative to your neighbours, the people that you live with, the people you’re surrounded by. And if you’re way below them economically, then you feel like you’re in poverty. So therefore it should be a relative issue. And the way it’s done in the rest of the world is that it’s done with a relative poverty level. Relative poverty level basically is done as follows: take the median income, the guy in the middle, take half of that. Anybody earning less than half of the median income is below the poverty line, anybody earning more than half of the median income is above the poverty line. So first of all, that’s really easy to measure, you just stick it in an Excel sheet and you ask for the median, you get it within a second. So that’s not a problem at all. One of the problems is, let’s say you were to double everybody’s income. The percentage below the poverty line would not change at all, not at all, it’s exactly the same. Everybody have twice as much income, but your poverty would look exactly the same as it did before. So, it’s really more of a measure of income inequality than it is of poverty, as at least you think of the word “poverty”, or as I think, maybe, of the word “poverty”.
But now I’m going to show you some numbers. These numbers you see here are with respect to market income. Market income is your gross income, what you have in your wage contract before you pay taxes, before you get any kind of government assistance. It’s just what you’re earning in your gross income before taxes, that you’re earning in your work. Now, take a look at that. So, the poverty level on average in the OECD is 28% is below that line. In Israel it’s only 23%, they’re actually doing better. The UK is at about 30%, and from those numbers it looks like Israel is doing pretty well. Now, what do countries do? Countries tax their workers. They tax, and usually taxes are progressive. They take those taxes, and they use some of the proceeds; the result is that they help the weaker populations, and the result is that all countries as a result of taxation and transfer payments, they lower that poverty rate. So I’m going to show you what it looks like on disposable income, which after all of that type of behaviour, and we’ll look at our extremes again. Extreme – Denmark. Denmark is halfway between Israel and the OECD, those blue lines. Denmark, which took the 52% taxes; by the way, you really should ask questions, I’m talking, but you should ask, interrupt me and ask questions, I want you to. [Inaudible] Thank you. You’re going from 25% all the way down to 6% because Denmark is taking that 52% tax and they’re redistributing it, they’re giving a lot of welfare payments. Mexico was the other extreme, they were only taking the 20% tax, well they’re only going down from 20% to only 17%, and they’re basically not doing much. Here is Israel, the UK you can see what happened, all the way down to 11%, very good job. Here is Israel. Israel is number one. We have the highest poverty rate in the developed world. For disposable income. Not a real badge of honour, you want to be number one in some things, but not necessarily there, and it’s happening both because they’re not taking as much taxes, what we talked about before, but also because Israel has two very special populations that are fairly large. One is the Arab-Israeli population and one is the Haredi population, totally [inaudible] if you added those two numbers up to about a third of the population inside of Israel. Now, those two populations share the following characteristics: they tend to have relatively low levels of human capital, they tend to have only one person working, so for the Haredi it’s the women working more than the men, and for the Arab-Israelis it’s the men working more than the women, and they tend to have large families. Put together a low income, because you just don’t have enough workers, or a high level of capital, of human capital, and a large family, you have an outstanding recipe to create poverty. And it’s not just going to be, you know, a little below the poverty line, you’re going to be way below that poverty line. So, the ability to combat it directly is really hard. The only way to really combat it is to change those underlying factors. Now, if the factors change so that people are getting a better education, people are going out to the workforce more, then that has the potential to make a very big difference.
What is the government doing? Well, the government is, of course, trying to help with respect to welfare policies, Israel does a lot of welfare policy. Lately it’s been concentrating on the types of programmes that are aimed at getting people into the workforce. They’re not giving the money to the income support, that’s all the way down to the left there, there they’re decreasing, that’s those people who are not going into the workforce. They’re not giving it to unemployment benefits, you have a slight decrease there, they’re not going into the workforce. They’re giving it to day-care centres, they’re giving it to all kinds of stipends for employers, for employment, to pull people into the workforce, work-grants. Those are the types of things that Israel is doing. That sounds great on the one hand, on the other hand, the head of our welfare programmes says, and he’s not wrong, to some extent, you’re actually leaving the weakest populations in Israel behind. That the ones who can’t get out to the workforce, they’re the ones who are suffering from the fact that you’re not giving them as much support as you were in the past.
A lot of countries are doing this, trying to get more people into the workforce, that’s what Israel is doing, there’s justification, and there’s also some problems with it. This is just showing you what’s happened to day-care centres, it really has increased the expenditures very significantly over time. Both the amount being poured in, the amount of money being poured in, and also the construction, the building of new day-care centres.
A little bit about education again, I’m just giving you (we have a lot of materials), but I’m just giving you a little bit of a taste, by the way you should take these books home, I hope you will enjoy them. A little bit of a taste of what’s going on. This is showing
Member of the audience:
Surely, the army, you know, the forces, isn’t that a means of raising the level of education and skill and so on, is that not having an effect on society?
Prof. Avi Weiss:
It definitely has an effect in terms of the skills. Again, when you go to those same units that I was talking about before, people ask, you know, the army is spending 6%, but maybe you’re getting back a huge return, and you are. There’s no question that, to some extent, a lot of the high tech inside of Israel has come out of the army, and that would not have appeared without that. So yes, there is definite payback, I think we would still be happy to do with less army, less need for the army, I think that’s something that everybody would be happy with. But education in the army, less, there is education in the army, but it’s not as significant. What you’re doing is creating skills, you know, inter-personal skills.
Member of the audience:
Just before you get on from the poverty question, on page 90 in your book, there’s a graph there that has the UK on one end of the chart, I think very good, this is on our work to get out of poverty, and Norway on the other end. I don’t think I’ve ever seen a poverty graph with Norway on one end and UK on the other. I was wondering if you could explain what’s going on there.
Prof. Avi Weiss:
Well, this is taking a look at the wage that you would earn in order to basically rise above the poverty line. [Inaudible] I can’t really tell you why Norway’s on one end the UK’s on the..
Same member of the audience: [Inaudible] You can speak on Israel, ’cause Israel is next on the list, right after [Inaudible]
Prof. Avi Weiss:
Right, Israel, for a married couple with two children, it takes a lot of work-hours in order to be able to earn enough at a minimum wage in order to rise above the poverty line. That’s basically [Inaudible]. How much do you need, how many hours of work do you need in order to be able to rise above the poverty line when you’re a married couple with two children, and, for some reason, it’s coming out, I really don’t know enough to say why the UK it’s so low, and why in Norway it’s so high, but [laughter] sorry. I’d have to look into those specific countries a little bit more than I have.
Education. This is an increase, a spectacular increase, in the percentage of Arab-Israelis who are going to high-school. So these are people going to high-school. Take a look what in 1990, for the girls in particular, because the average Israeli girls are a really spectacular population, and I think that Israel’s next big spurt of growth is going to come from there. The girls, and then the boys, but if you take a look at what’s happened to enrolment in high-schools, you can see a huge increase over time that’s happened for the Arab population, and it’s not just that change that happened, there’s a lot more that’s happened aside from that. A couple of the last two education ministers, Naftali Bennett, before that, wow, I see his face, and his name escapes me at the moment, Shai Piron, they both placed the following two goals among their goals for their administration. One was to increase the percentage of students in high-schools who are taking higher level mathematics and English, what we call five units in Israel, and the other was to increase vocational training. The vocational training was because of all the changes that are happening in the labour market over time because of all the computerisation, etc., so the vocational training seems to give skills that are long-lasting, that have longevity, and therefore they’re working hard to do that. This has been very very successful, both of those, so, if you take a look at the percentage of students taking five levels of English, or taking five levels of mathematics, those have started increasing very very significantly. The way they did that was they basically gave safety net to people, to students who tried to take the high level mathematics, but failed. They would then give you a bonus in the number of points, and give you credit as if you took it at the level below it, at the four unit level, which meant that you could try it, and if you didn’t succeed, you still [Inaudible]. And that really helped get a lot more children into taking those types of high level exams. If you take a look at the, again I’m going to concentrate here on the Arab women, on the bottom there, if you take a look at what’s happening with respect to the percentage who are getting the Bagrut, that’s the [inaudible] exam at the end of high-school, who are succeeding in those tests, there are two levels of success in the Bagrut. One level is just, you’ve gotten a, you know, a pass, but the other level is, it’s a high enough pass, you’ve done enough credits, a high enough level of math, a high enough level of different, you’ve taken something at the highest level, etc., to be able to get into college with it. And if you take a look at those percentages, take a look at the Druze women down at the bottom. You’ve gone from 23% getting that college level to 46%. Look at the Bedouins – from 15% to 28%. The Muslim women – from 23% to 42%. Those are huge increases, those are huge increases in the percentage of who are succeeding, and the percentage who are succeeding all-together, you see movement by everybody, all groups, except you see it much more for the Muslim women, much stronger, not for the Muslim, for the Arab women, than you see it for the Jewish population, for instance.
Member of the audience:
Is that then translated into more women going to higher education, [AW: Yes] more Arab women going into employment?
Prof. Avi Weiss:
Yes. So, it’s translated into, yes, the answer is yes. I hope to bring you those, we’ll see how time works, but, you know, when Emma tells me I have to stop. [Laughter]
Five minutes, until [inaudible]. We’ll go on for a bit.
Prof. Avi Weiss:
We’ll go through, you know, and any questions you have. The answer is absolutely. If were to take a look, in 2010, the government of Israel set goals for every population inside of Israel, employment goals for 2020. What percentage they wanted employed in 2020, and now they’re creating the goals for 2030, and the goal in 2010 for 2020 for Arab-Israeli women was 41%. They had started off the period at somewhere around 25, they wanted to get all the way up to 41%. They’re now at 40%. They’re going to get there. The percentage who are getting higher education is increased, the percentage who have entered the labour market has increased. Take the Haredi men as another example, and Haredi men, they actually set a goal for them for 63%, and they’re under 50%. So they’re not getting anywhere near the goal. By the way, the government’s going to increase that goal for 2030 to 65%, and I told them that they’re dreaming, but, you know, I just don’t think it’s going to get anywhere near that. It’s just the ultra-Orthodox population, among the men, the growth that has occurred since 2003 basically stopped about three years ago.
Let’s go on a little bit about vocational training. The other goal, I told you, was vocational training, there has been an increase for all populations. Vocational training can be divided into different types of vocational training. This is a new classification that we suggested, and that has been adopted by the Bank of Israel and [inaudible] by the CPS, but the high technology are the ones that are giving you computing-type skills, or mechanic-type skills, the things that really will allow you to go on to, [inaudible] engineering, be able to go on and do a college degree, and do really well and have a really good profession, and you can see that there’s been a large increase of the percentage who are doing that high technology. It’s come at the expense of the general type of high-school, where you’re not getting that type of focus on high technology. If you take a look at how that divides up by the different populations, the important bar is that little orange bar in the middle. That little orange bar in the middle, you can see, has increased for all groups, except for Haredi, ultra-Orthodox, there it has not increased. Now, some of that may surprise some of you because you think, you’re going to say: “The women are working in more in high tech than they were in the past,” and that’s true, I’ll show you where that’s going in a second, but the huge increase, the biggest increase is among the Druze. If you now divide it by men and women, then you see that, for the Arab-Israeli population the biggest increases were for the women, and that’s what I’ve been talking about before. For the Jewish population the increases have been more for the men, and the ultra-Orthodox have not gone anywhere with respect to their percentages, neither women nor men. So what are all these new advanced training programmes for Haredi women who are moving into high tech, they’re not in the high, they’re in the medium technology. So, take a look what’s happened in the medium technology. There the ultra-Orthodox women are taking off like crazy. So they’re not becoming the high-level programmers, they’re becoming the next level down of the operators, and they’re doing a great job there, and they’re getting into there significantly. So, that’s having an effect on the Haredi population where they’re getting higher wages, some of them, getting higher wages than they were in the past. That’s a growing percentage.
You, whatever you want. [Laughs]
A couple more minutes. [Laughs] A couple minutes. Everyone’s very interested.
Prof. Avi Weiss:
Good, as long as you guys are interested, then that’s great. Higher education. Here I’m going to be concentrating a little bit on the ultra-Orthodox. So, this is a six year period here, and over that six year period you see a tripling in the number of Haredi students going to higher education. There’s been a large increase in that percentage. Two thirds of that is women, one third of that is men. Now, with a couple of “but”s, the first “but” is that it’s still a very low percentage of the population, it’s still not that there are a lot, a high percentage who are going to higher education, it’s still a low percentage, okay, that’s what we see. The second “butt” is that, and look at that bar all the way to the left. What that is saying is as follows: of a hundred Haredi students, Haredi men, who start their studies 20 drop out even before they start, they go to a preparatory year and they don’t manage to finish that preparatory year. For 38, are dropping out sometimes during their studies, they don’t complete their degree. Only 42 out of a hundred are actually completing their studies. Only 4 out of every 10 are actually completing their studies. That’s a very very low rate. Now, what’s going on? Why aren’t they succeeding? The answer is that it’s just completely foreign to them. So, first of all, these kids just starting at the age of 25, they’re not kids anymore, they’re men. They’re starting at the age of 25. They tend to be married and have a couple of kids, and they’re suddenly moved from the Yeshiva to a world that they don’t really know very well, they don’t know what it really means to do homework, they don’t know what to means to do problem sets, they don’t really know what it is to do a test. They don’t have the skills in their studies, they haven’t gotten mathematics since about sixth grade, they haven’t gotten English, they haven’t gotten computers, and they’re put into a situation where suddenly they need to be able to do these things, and there are those who can succeed at it, but they’re the exceptions, they’re not the rule, and many of them have great difficulty, so there are all these wonderful philanthropic programmes that get these Haredi young men, help them move into that world, and give them a preparatory course, and get them into those colleges, but then that’s very often the end of it, and what they need is they need some type of close tutoring while they’re in school, they need to be able to get over all those humps that they’re going to hit. Because now they have a family with kids, that they’re no longer getting the stipend from the Yeshiva, so they’re getting some other money, maybe, but they suddenly have a different level of responsibility. It’s very very difficult for them to move into that. I think you really need more tutoring in order to be able to overcome the difficulty, but mostly you need to be able to get them either into the workforce early or get them education at the high-school level, you can’t just leave it where they don’t have that. That’s a real difficult situation.
If you take a look at enrolment on, oh and that will show why I put that, oh I went the wrong way, okay. Employment, again, whenever you want to stop me, you cans top me, these are the numbers I talked about before, so look at the Arab-Israeli women on the right, the bottom line. So, they’re way below the other women, at very very low percentages, but in 2003 that was 20%, and now that’s almost 40%. That’s a huge difference. You can see the ultra-Orthodox men, the bottom one on the left, and you can see that it’s plateaued out in the past number of years, it’s basically stopped increasing. The same is true for the Arab-Israeli men, who [inaudible] at a much higher rate, but it’s also plateaued out, they haven’t continued increasing. Arab-Israeli men are below the Jewish men with respect to employment figures because of the types of jobs that they do. The jobs that they do, to a large extent, are very very menial jobs. They work in professions, many of them in the building industry, which is very very hard physically, and they tend to have to retire at much earlier ages than the Jewish population does, so that’s a difficulty in terms of the skills they get. Increased schooling, improved schooling is going to be very important for them to continue, to be able to continue to improve that situation. The other thing that’s going to be necessary is being able to have employment centres near the villages in the north that will allow them to be able to work in high tech type of jobs, you know, near their villages and not have to travel very far. If you take a look at what’s being studied, you know, I’ll tell you a personal anecdote. I teach at Bar-Ilan University. I teach economics. Now, Bar-Ilan University has a lot of Arab students, but until the past few years, in my classes I would see one or two, or three Arab students in a class of a hundred. Very very few were coming and studying economics, they were studying social work, they were studying education, they weren’t studying economics. The same is true in sciences. The past few years that’s changed drastically. Today my class is 25% Arab-Israeli, and that’s really, just the past few years that’s started. Now, until this past year, it was almost all women. In this past year there was suddenly a large group of men that also showed up, and I found that very, I mean I think it’s wonderful because I think that’s the way they have to go, but the women are the ones who are leading. By the way, there are huge changes happening in the Arab-Israeli society, and it’s not just the education and the employment, it has spill-over effects. There’s been a lot more divorce in Arab-Israeli society that there were in the past. There’s a not insignificant amount of strife inside the families because of differing education levels. That, you know, this has caused, and they’re getting married later, and, of course, you saw the fertility numbers, how much that is dropping. This is all part of what’s going on there. At some point the men are going to start getting the higher, the better education also, and then that will quiet down.
Member of the audience:
How do you explain a disproportionate amount of Arab doctors in Israeli society?
Prof. Avi Weiss:
Those two, you know, I had a student, a wonderful Arab-Israeli student, quite a few years ago, maybe about eight years ago, no, probably not that long, five years ago or so, who wrote a paper on why so many Arab-Israelis go into education and health. Though health in Israel is probably the sector in which there is more equality in employment possibilities between Jews and Arabs and than any other sector in Israel. Well, education also, but they’re separate there, separate education systems, but you can’t go into a pharmacy in Israel without seeing both Arabs and Jews behind the counter. You go into any hospital, you know, they’re working side by side completely, the patients are being treated by whoever is treating them, and it doesn’t matter if they’re Jewish or Arab. Heads of departments who are Arab-Israelis is common, it’s not just, you know, there are. It’s just not a big issue. The place in which there’s been the most integration between the Jewish population and the Arab population, you know. If you take a look at people who want to study high tech, it’s really hard for an Arab-Israeli to find a job in high tech in many instances. First of all, if they live in the north, the far north, they’re not going to have anything near them. The firms that do exist near them will be firms like Rafael. A firm like Rafael, which is a wonderful firm, is a high security firm, and it’s not going to take anybody who didn’t serve in the army. It’s just not going to employ you. So it’s a non-starter. They don’t have access to those jobs. So, they don’t have anything near the house, they have to move down to the centre of the country in order to do that, that’s another [inaudible] difficulty, so, you know, a lot, what you see, I didn’t show you this slide, but the Arab-Israeli girls when they’re studying in high-school, it’s not just that more of them are matriculating, more of them are taking high level mathematics, more of them are taking high level computers, and they’re getting a lot of it inside of high-school. When they get to the college level, they go back to education, they go back to healthcare because those are the things that they know that they can get jobs in near where they live, and that is beneficial also inside the family, and they’re not going into high tech, and a lot of it is, they’re worried that they’re not going to be able to find employment afterwards. That they will be discriminated against, that they would have to travel too far, and therefore they’re just not going there, but that’s changing. It’s changing slowly, but it’s changing. This is the point, this is the spring, this is when that is starting to move forward. I know call the Arab Spring was something else.
Let me just stop you, Avi, so sorry [inaudible], absolutely fascinating, I think we could go on for another 40 minutes or so, but
Prof. Avi Weiss:
I can do it if you want.
I think, read the book, I think is the main takeaway, and hopefully you can stay behind and take some questions from people, I’m worried that some may need to go, but Professor Weiss will be here. Thank you so much for coming, that was an absolutely fascinating talk. Thank you so much.
Prof. Avi Weiss:
Thank you so much
Let me add one thing. This book that you have here, that’s one of our many publications This is our best-seller, okay, we don’t sell anything, but this is our best-seller. Everything’s free, but the thing is [inaudible] I’m mentioning it, this is the 2019 edition, this is not an update of the 2018 edition. Every year I try to cover completely different issues, so it’ll still be education, it’ll still be health, it’ll still be welfare, but different questions, different things to look at, everything’s free on our website, or if you want a hard copy you can write to us and you can get it. We have a wonderful newsletter that we put out every month which tells you some new research findings, anybody who wants can sign up to it, see Casey if you want to do it now, you can just do it online, and I hope you all enjoy and continue to get facts.