OECD Economic Surveys: Israel 2018
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OECD Economic Surveys OECD Economic Surveys ISRAEL Israel’s economy continues to register remarkable macroeconomic and fi scal 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 OECD Economic Surveys and signifi cant 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 ISRAEL 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 defi ciencies 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. Volume 2018/5 SPECIAL FEATURES: EDUCATION AND SKILLS; INFRASTRUCTURE MARCH 2018 ISRAEL Consult this publication on line at http://dx.doi.org/10.1787/eco_surveys-isr-2018-en. This work is published on the OECD iLibrary, which gathers all OECD books, periodicals and statistical databases. Visit www.oecd-ilibrary.org for more information. Volume 2018/5 ISSN 0376-6438 2018 SUBSCRIPTION March 2018 (18 ISSUES) March 2018 March ISBN 978-92-64-29171-3 10 2018 05 1 P 9HSTCQE*cjbhbd+ OECD Economic Surveys: Israel 2018 This document, as well as any data and map included herein, are without prejudice to the status of or sovereignty over any territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city or area. Please cite this publication as: OECD (2018), OECD Economic Surveys: Israel 2018, OECD Publishing, Paris. http://dx.doi.org/10.1787/eco_surveys-isr-2018-en ISBN 978-92-64-29171-3 (print) ISBN 978-92-64-29172-0 (PDF) ISBN 978-92-64-29173-7 (epub) Series: OECD Economic Surveys ISSN 0376-6438 (print) ISSN 1609-7513 (online) OECD Economic Surveys: Israel ISSN 2225-1839 (print) ISSN 2225-1847 (online) The statistical data for Israel are supplied by and under the responsibility of the relevant Israeli authorities. The use of such data by the OECD is without prejudice to the status of the Golan Heights, East Jerusalem and Israeli settlements in the West Bank under the terms of international law. Photo credits: Cover © Dmitry Pistrov/Shutterstock.com. Corrigenda to OECD publications may be found on line at: www.oecd.org/about/publishing/corrigenda.htm. © OECD 2018 You can copy, download or print OECD content for your own use, and you can include excerpts from OECD publications, databases and multimedia products in your own documents, presentations, blogs, websites and teaching materials, provided that suitable acknowledgment of the source and copyright owner is given. All requests for public or commercial use and translation rights should be submitted to [email protected]. Requests for permission to photocopy portions of this material for public or commercial use shall be addressed directly to the Copyright Clearance Center (CCC) at [email protected] or the Centre français d’exploitation du droit de copie (CFC) at [email protected]. TABLE OF CONTENTS Table of contents Basic statistics of Israel, 2016 ................................................ 8 Executive summary ......................................................... 9 Assessment and recommendations........................................... 13 Maintaining solid increases in living standards and well-being in the longer term will be challenging ................................................. 17 Improving social cohesion would promote sustainable growth ................ 37 Bibliography............................................................ 61 Annex A.1. The simulated impact of increasing employment rates on poverty in typical families of the main Israeli communities ......................... 67 Annex A.2. Progress in structural reform ....................................... 73 Thematic chapters Chapter 1. Improving the education system to enhance equity.................... 79 Large dispersion in skills contributes to inequalities ......................... 80 Making the education system more inclusive ............................... 83 Improving tertiary education to enhance social mobility...................... 98 Improving the effectiveness of life-long learning ............................ 106 Recommendations to improve the education and training system to boost productivity and equity ............................................................ 110 Bibliography............................................................ 111 Chapter 2. Improving infrastructure to boost productivity and well-being .......... 115 The capacity and quality of current infrastructure need to be enhanced ........ 116 Building more infrastructure and improving its efficiency will require reforms inseveralareas......................................................... 129 Recommendations for promoting suitable and well-functioning infrastructure........ 150 Bibliography............................................................ 152 Annex A.2.1. The Management of Infrastructure for water supply in Israel....... 157 Boxes 1. Disparities in Israeli society ........................................... 16 2. The high-tech sector: share and development in the Israeli economy ....... 18 3. The economic impact of the natural gas discoveries ...................... 21 1.1. A more equal skills distribution will help to reduce wage inequalities....... 82 OECD ECONOMIC SURVEYS: ISRAEL © OECD 2018 3 TABLE OF CONTENTS 1.2. Economic Development Plan for the Arab Sector – Education .............. 87 1.3. Funding of tertiary education in Israel .................................. 99 Tables 1. Macroeconomic indicators and projections.............................. 20 2. Possible extreme shocks affecting the Israel economy .................... 21 3. Past recommendations on improving the stability and efficiency of the financial system ............................................... 25 4. Past recommendations on fiscal policy ................................. 29 5. Past recommendations on tax policy ................................... 30 6. Illustrative fiscal cost and financing of additional spending in the structural reform scenario ...................................... 32 7. Past recommendations on housing policy ............................... 35 8. Past recommendations on labour market policies ........................ 40 9. Past recommendations on social policies ............................... 41 10. Past recommendations on education ................................... 47 11. Past recommendations on improving product market regulation and lowering trade protection ......................................... 51 12. Past recommendations on infrastructure................................ 57 13. Past recommendations on environmental policies........................ 59 A.1.1. Gross earnings in 2015 ............................................... 69 2.1. Fiscal consolidation during 1998-2007 .................................. 122 2.2. Number of airport service providers in selected OECD countries............ 146 Figures 1. Israel’s economy is performing strongly................................. 14 2. Well-being outcomes are mixed ....................................... 15 3. Inequality and poverty remain high .................................... 15 4. Education outcomes are poor for disadvantaged groups, whose share is growing .......................................................... 17 5. Exports of goods by market and commodity are fairly diversified........... 19 6. Competitiveness has been hit by exchange rate appreciation .............. 19 7. Evolution of macro-financial vulnerabilities ............................. 22 8. Capital ratio and non-performing loans................................. 22 9. Inflation developments according to the CPI............................. 23 10. The labour market continues to tighten................................. 23 11. Packages sent to Israel from abroad are rising rapidly..................... 24 12. Inflation expectations are low in the short term but within the target range thereafter ..................................................... 24 13. Market interest rates have stabilised, but mortgage rates have risen somewhat . 26 14. Banks’ exposure to the housing sector is high, but housing credit has slowed. 26 15. The gap in GDP per capita with the OECD average could shrink further with ambitious reforms .............................................. 27 16. Factors contributing to the gross debt-to-GDP decline between 1998 and 2016 . 28 17. Primary civilian expenditure .......................................... 29 18. Public debt sustainability would benefit from the enactment of further reforms . 32 19. House prices are elevated and still rising...............................