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Getting Into the Club: the Impact of the Ultra-Orthodox on the Israeli Economy

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Getting Into the Club: the Impact of the Ultra-Orthodox on the Israeli Economy GETTING INTO THE CLUB: THE IMPACT OF THE ULTRA-ORTHODOX ON THE ISRAELI ECONOMY A THESIS Presented to The Faculty of the Department of Economics and Business The Colorado College In Partial Fulfillment of the Requirements for the Degree Bachelor of Arts By Alison Levin February 2014 1 GETTING INTO THE CLUB: THE IMPACT OF THE ULTRA-ORTHODOX ON THE ISRAELI ECONOMY Alison Levin February 2014 Economics Abstract Israel’s ultra-orthodox population presents a puzzle for economists. This population has large families and forgoes secular education despite high rates of poverty. Iannacone (1992) pioneered the use of a club goods model to explain the behavior of such religious groups. This paper utilizes Iannacone’s (1992) model of club goods in the context of Israel’s ultra-orthodox, and also presents the historical and religious background of the issue. KEYWORDS: (club goods, ultra-orthodox, Judaism, religious economics) 2 ON MY HONOR, I HAVE NEITHER GIVEN NOR RECEIVED UNAUTHORIZED AID ON THIS THESIS Signature 3 TABLE OF CONTENTS ABSTRACT 2 1 INTRODUCTION 6 2 BACKGROUND 16 2.1 Historical Background ........................................................................................... 16 2.2 Theoretical Background......................................................................................... 22 3 APPLICATIONS OFTHE CLUB GOODS MODEL………………………………………. 25 3.1 Yeshiva Studies and Employment ...................................................................... 25 3.2 Fertility............................................................................................................................. 27 3.3 The Paradoxical Rise of Ultra-Orthodoxy......................................................... 29 4 CONCLUSION 31 4 LIST OF TABLES Ultra-Orthodox Employment Rates 2012 ………. …………………………….. 8 Introduction 5 The Jewish orthodox group in Israel known as the ultra-orthodox, or Haredim, has grown from a very small group with origins in Eastern Europe to a population numbering about 800,000 people in 2011 (IMF Country Report 2012). Ultra-orthodox or Haredi men typically have large families and do not work, and experienced a surprising increase in population during the 20th century. Instead of traditional employment, many Haredi men choose to pursue full-time religious educations, and their families are often recipients of substantial government aid, mainly in the form of child allowances. Scanning the headlines of any Israeli newspaper will reveal that many Israelis view them as an economic burden. The ultra-orthodox families’ exclusive communities and deferment from military service have also caused a deep rift to develop between them and more secular-minded Israelis. With more than half of Haredi families living under the poverty line (Bank of Israel Annual Report 2012), it is likely that their economic situation will soon become an unsustainable burden on the economy. According to the International Monetary Fund, the 800,000 ultra-orthodox Jews living in Israel today account for approximately 13 percent of the population, and it is estimated that their numbers will double by 2030, presenting a serious demographic issue (IMF Country Report 2012). Currently, transfers from institutions – otherwise known as unearned income – account for approximately 30 percent of an ultra-orthodox household’s income (The Kemach Foundation 2011). Not only this, but Eli Berman’s projection for the ultra-orthodox population in Israel when he wrote Sect, Subsidy and Sacrifice in 2010 was 510,000, whereas in actuality it reached approximately 750,000 by 2009, demonstrating unprecedented growth. Surprisingly fast growth rates mean 6 that Israel is unprepared to deal with the economic and social consequences of the ultra-orthodox population’s increasing reliance on government support. Additionally, the contribution of taxes and transfer payments to welfare has decreased steadily over the years from 31.7 percent in 2003 to 23.5 percent in 2011 (Bank Of Israel Annual Report 2012). The Israeli public is therefore squeezed at both ends, due to an increasing population, a weak labor supply and simultaneous decreases in welfare payments. This paper will attempt to shed light on why the Haredim continue to be underemployed and have large families, and also underscore the importance of reforming the current situation in which so many ultra-orthodox live in poverty. The choices of the Haredim seem to defy conventional rational choice models, which has caused economists to develop other ways of explaining such behavior. For this explanation, I assert that a model of club goods holds the most explanatory power, and employ Iannacone’s (1992) club goods model of religion. The theory of club goods understands religious groups as mutual-benefit organizations that produce positive externalities for the group members. In order to maintain the group’s quality, the group (or club) must impose restrictions upon the behavior of its members. 7 Employment When the state of Israel was founded in 1948, the ultra-orthodox were few in number. They were not Zionists1 and were often in disagreement with the Zionist Yishuv2, the secular political party that acted as a representative of the Jewish people under the British Mandate. To obtain the support of the Haredim when establishing the State of Israel, the Yishuv leaders agreed to make a number of concessions. First and foremost, it was agreed in the Status Quo letter of 1948 that the ultra-orthodox would be exempt from military service, and that they would have control over their own independent educational system. Details of the split between the two Jewish groups will be explained in greater depth in the next section. The Haredim have had a great deal of autonomy over their education system since 1953, when the State Education Law granted the schools of the Agudat Yisrael3 party formal autonomy within the Ministry of Education. Because of this autonomy, nearly all Orthodox schools leave children, especially boys, undereducated in secular subjects. The Taub Center for Social Policy Studies in Israel (year?) found that Haredi boys typically do not study any core curriculum subjects after the eighth grade, and that the quality of instruction in those subjects prior to the eighth grade is not in keeping with the non-Haredi Jewish and Arab-Israeli schools. The Central Bureau of Statistics found that only 83 percent of Haredi elementary schools were 1 Zionism is political support for the creation and development of a Jewish homeland in ancient Palestine 2 The pre-1948 secular political party 3 Agudat Yisrael, a Haredi-Hassidic party, was established in 1912 in the Diaspora. The famous letter from David Ben-Gurion which set down the guidelines of the religious "status quo" was sent to the leaders of Agudat Yisrael in 1947. (http://www.knesset.gov.il/faction/eng/FactionPage_eng.asp?PG=22) 8 teaching math, while 100 percent of all other schools were teaching math (Taub Center State of the Nation Report 2012). In post-elementary education, the prevalence of math instruction fell to only 41 percent. This study found that other core subjects are similarly affected in the Haredi educational system. An educated population is essential to a nation’s prosperity, and the detrimental effects of insufficient Haredi education will only worsen as the Haredi population grows. In the Taub Center study, it was found that the unemployment rate for Haredi men was around 55 percent in 2011, which was extremely close to the unemployment rate of Israeli men who did not complete elementary school (Taub Center State of the Nation Report 2012). This number is high because some Haredi men choose to continue studying at a Kollel (adult yeshiva). The Deferral of Military Service for Yeshiva Students Law – also called the “Tal Law” – that was passed in March 2001 provides the legislative basis for draft deferrals for ultra-orthodox men, so long as they continue to study full-time at a yeshiva. Deferment of service can be extended and converted into an exemption by remaining in a yeshiva until the age of 41, or until age 35 with five children (Berman 1998). When the ultra-orthodox were informally granted exemption from military service by David Ben-Gurion in 1948, the exemption applied to only 400 men, who were deemed outstanding Torah scholars (IMF Country Report 2012). In 2012, the Bank of Israel estimated that 37,000 men were enrolled in yeshiva and not serving (Bank of Israel 2012). Limited education in the secular subjects and smaller networks, as a result of deferring from military service are a great hindrance to ultra-orthodox men who do 9 wish to work. Some choose to study at a vocational school to further their skills and find employment, but only about 6,500 ultra-orthodox men were enrolled in such programs in 2012 (Haaretz, July 16th 2012). However, there are increasing numbers of Haredi men who do want to find secular work. In a 2008 study conducted by the Jerusalem Institute for Israel Studies, it was found that 60 percent of the ultra- orthodox men surveyed were interested in gaining a secular higher education, and that 28 percent would consider institutions that were not strictly ultra-orthodox. It is important to note that these men would face potential difficulties in pursuing higher education, arising around their yeshiva stipends and draft deferment, if they began their studies before they had received a full exemption. Ultra-orthodox men have been able to remain unemployed for many years because the Ministry of Religion traditionally provides
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