STATE OF THE NATION REPORT Society, Economy and Policy in Israel 2010 The Herbert M. Singer Annual Report Series STATE OF THE NATION REPORT Society, Economy and Policy in Israel 2010 Dan Ben-David, Editor Taub Center for Social Policy Studies in Israel Jerusalem, November 2011 Taub Center for Social Policy Studies in Israel Established in 1982 under the leadership and vision of Herbert M. Singer, Henry Taub, and the American Jewish Joint Distribution Committee (JDC), the Center is funded by a permanent endowment created by the Henry and Marilyn Taub Foundation, the Herbert M. and Nell Singer Foundation, Jane and John Colman, the Kolker-Saxon-Hallock Family Foundation, the Milton A. and Roslyn Z. Wolf Family Foundation, and the JDC. The Taub Center is an independent, nonpartisan, socioeconomic research institute based in Jerusalem. The Center conducts quality, impartial research on socioeconomic conditions in Israel, and develops innovative, equitable and practical options for macro public policies that advance the well-being of Israelis. The Center strives to influence public policy through direct communications with policy makers and by enriching the public debate that accompanies the decision making process. This volume, like all Center publications, represents the views of its authors only, and they alone are responsible for its contents. Nothing stated in this book creates an obligation on the part of the Center, its Board of Directors, its employees, other affiliated persons, or those who support its activities. Editing: Dalit Nachshon-Sharon Translation: Oran Moked; Julie Rosenzweig/Sagir International Translations Ltd. English editing: Laura Brass Layout and editing assistant: Ruti Lerner Center address: 15 Ha’ari Street, Jerusalem, Israel Tel: 972 2 567 1818 Fax: 972 2 567 1919 Email: [email protected] Website: www.taubcenter.org.il Printed at Maor-Valach Press, Jerusalem Board of Directors Chairman: Greg Rosshandler Vice-Chairman: Geoffrey Colvin Helen Abeles, Alan Batkin, Stuart Brown, John Davison, Heinz Eppler, Ralph I. Goldman, Ron Grossman, Ellen M. Heller, Jonathan Kolker, Benny Landa, Dov Lautman, Stephen Lieberman, Steven Schwager, Irving Smokler, Michael Steinhardt, Ofra Strauss, Caryn Wolf Wechsler, Joyce Zeff International Advisory Council Henry Aaron (Brookings), Gary S. Becker (University of Chicago), Mario Blejer (Argentina), Aaron Ciechanover (Technion), Stuart Eizenstat (Washington DC), Han Entzinger (Erasmus University), Adam Gamoran (University of Wisconsin), Eric Hanushek (Stanford University), James J. Heckman (University of Chicago), Peter Heller (Johns Hopkins University), Daniel Kahneman (Princeton University), Lawrence Klein (University of Pennsylvania), Robert Litan (Brookings Institution), Janet Rothenberg-Pack (Wharton), Burton A. Weisbrod (Northwestern University) Center Staff Executive Director: Dan Ben-David Deputy Director and Labor Policy Program Chair: Ayal Kimhi Kasanesh Ambao (Housekeeping), Sagit Azary-Vizel (Researcher), Nachum Blass (Senior Researcher), Haim Bleikh (Researcher), Laura Brass (External Relations), Dov Chernichovsky (Health Policy Program Chair), Yulia Cogan (Basic Research), Aharon Cohen (Maintenance), Nir Eilam (Researcher), Hedva Elmackias (Administrative Assistant), Naomi Krieger (Head of Operations and Strategy), Ruti Lerner (Publications), Asher Meir (Research Fellow), Dalit Nachshon-Sharon (Publications Coordinator), Eitan Regev (Researcher), Michael Shalev (Social Welfare Policy Program Chair), Yossi Shavit (Education Policy Program Chair), Kyrill Shraberman (Researcher), Eran Yashiv (Economics Policy Program Chair) Past Directors: Israel Katz (z”l), Yaakov Kop Policy Program Fellows Economics Policy Program Eran Yashiv, Chair, Yarom Ariav, Adi Brender, David Brodet, Gil Bufman, Vered Dar, Uri Gabbay, Mark Gradstein, Jack Habib, David Klein, Ayelet Nir, Dan Peled, Haim Shani, Shmuel Slavin, Avia Spivak, Michel Strawczynski, Natan Sussman, Shlomo Yitzhaki, Ben Zion Zilberfarb Labor Policy Program Ayal Kimhi, Chair, Leif Danziger, Karnit Flug, Johnny Gal, Amiram Gonen, Daniel Gottleib, Eric Gould, Nitza Kasir, Shelly Levi, Hagay Levine, Noah Lewin-Epstein, Yaakov Loupo, Miki Malul, Guy Mundlak, Dalia Narkiss, Tali Regev, Dimitri Romanov, Moshe Semyonov, Ofer Setty, Sigal Shelach, Arie Syvan, Yossi Tamir, Aviad Tur-Sinai Education Policy Program Yossi Shavit, Chair, Khaled Abu-Asba, Chaim Adler, Shlomit Amichai, Chana Ayalon, Shlomo Beck, Gila Ben Har, Yair Berson, Carmel Blank, Nachum Blass, Ofer Brandes, Nora Cohen, Avital Darmon, Yigal Douchan, Yariv Feniger, Isaac Friedman, Yossi Gidanian, Josh Glazer, Meir Kraus, David Maagan, Zemira Mevarech, David Nevo, Sephi Pumpian, Dimitri Romanov, Analia Schlosser, Rita Sever, Yehudit Shalvi, Kemal Shufniyah, Sidney Strauss, Rami Sulimani, Zvi Yanai, Miri Yemini, Michael Yodovitsky, Noam Zussman Social Welfare Policy Program Michael Shalev, Chair, Leah Ahdut, Mimi Ajzenstadt, Michal Almog-Bar, Dorit Altschuler, Uri Aviram, Shirley Avrami, Roni Barzuri, Yigal Ben-Shalom, Israel Doron, Johnny Gal, Boni Goldberg, Yosef Katan, Chana Katz, Lihi Lahat, Alisa Lewin, Ibrahim Mahajne, Miki Malul, Menachem Monnickendam, Baruch Ovadiah, Amir Paz-Fuchs, Haya Stier, Yossi Tamir, Idit Weiss-Gal, Meir Yaish, Uri Yanay Health Policy Program Dov Chernichovsky, Chair, Uri Aviram, Ran Balicer, Shlomo Barnoon, Yitzhak Berlowitz, Nakhle Beshara, Gabi Bin Nun, Bishara Bisharat, Shay Brill, David Chinitz, Chaim Doron, Asher Elhayany, Leon Epstein, Zeev Feldman, Zvi Frankel, Iris Ginzburg, Kobi Glazer, Eitan Hai-Am, Jonathan Halevy, Eran Halperin, Tuvia Horev, Avi Israeli, Orit Jacobson, Nir Kaidar, Avigdor Kaplan, Rachel Kaye, Jacob Menczel, Shlomo Mor-Yosef, Meir Oren, Yair Shapiro, Michael Sherf, Arie Shirom, Amir Shmueli, Yohanan Shtessman STATE OF THE NATION REPORT Society, Economy and Policy in Israel 2010 Table of Contents Foreword 11 I. THE MACRO PICTURE A Macro Perspective 21 Eran Yashiv 1. Current Developments in Israel’s Economy 22 2. Structural Problems in Israel’s Economy 37 3. Fiscal Policy 45 4. Conclusion 47 Appendix 49 Public Spending in Israel over the Long Run 55 Dan Ben-David 1. Israel and the OECD on Crossing Paths for Two Decades 57 2. Two Decades of Stability in Israeli Civilian Expenditures 60 Versus Fluctuations in the OECD 3. Government Spending – A Closer Look at the Trajectory 64 4. Changes in the Composition of Government Spending Over Time 69 Spotlight A: Changes in Educational Achievement Versus Changes in Expenditure. By Dan Ben-David 78 5. Conclusion 82 Spotlight B: Who is Responsible for Tax Policy? By Yarom Ariav 84 Spotlight C: Israel’s Shadow Economy. By Dan Ben-David 87 Public Expenditure Tables 93 Yulia Cogan II. EMPLOYMENT AND WELFARE Income Inequality in Israel 113 Ayal Kimhi 1. Income Inequality 114 2. Poverty Incidence 117 3. Causes of Poverty: Employment, Extent of Work, and Wage Disparities 129 4. Factors Behind Israeli Wage Disparities 137 5. Conclusion 147 Working and Poor 153 Haya Stier 1. Changes over Time in the Poverty Rates of Working Families 157 2. Who Are the Working Poor? 160 3. Causes of Poverty Among Working Families 177 4. Conclusion and Policy Implications 197 Welfare and Employment Among Single Mothers: 205 Israel from a Comparative Perspective Haya Stier 1. Demographic and Social Characteristics of Single Mothers 206 2. Poverty Among Single Mothers and Support Provided by the 219 Welfare System 3. Conclusion 224 III. EDUCATION Developments in Israel’s Education System 231 Nachum Blass 1. The Pupil Population: Growth and Demographic Shifts 232 2. Teachers: Changes in Employment Patterns, Work Conditions, 246 and Salaries 3. Matriculation Achievements in the Total Population and by 269 Sector Spotlight: Accommodations and Modifications for Pupils 275 with Learning Disabilities Education Reform and Narrowing Educational Gaps in Israel 283 Yossi Shavit and Vicki Bronstein 1. Background: Education Gaps Between Population Groups 284 2. Important Reforms in the Israeli Education System 286 3. Presenting the Current Research: The Expansion of Education 287 and the Changes in Educational Gaps Spotlight: Examining the Decrease in Matriculation 297 Eligibility Rates Among Those Born in the Mid-1970s 4. Summary 299 The Demographic Cost: Birth Rates and Achievement in 303 International Tests Yariv Feniger and Yossi Shavit Spotlight: Study Description 309 School Discipline and Scholastic Achievement in Israel 315 Yossi Shavit and Carmel Blank 1. Background: An Undisciplined Culture 317 2. Findings: Discipline and Achievement in Mathematics 318 and Science Tests 3. Summary and Conclusions 324 Israel’s Educational Achievements: Updated International 327 Comparisons Dan Ben-David IV. HEALTH Israel’s Healthcare System 339 Dov Chernichovsky 1. The System’s Achievements and Performance 341 Spotlight A: Infant Mortality of Bedouin and Jews 346 in the Negev 2. Structural Issues 352 Spotlight B: Flexibility in Wage-Setting – Linking Authority 363 and Responsibility Spotlight C: Physician Salaries and Israeli Standards 365 3. Private Healthcare Expenditure and Its Impact on Income 366 Distribution and Poverty 4. The Meaning of “Periphery” in Israel’s Healthcare System: 373 How Has the Modified Health Fund Allocation Formula Affected the Periphery? V. PUBLIC OPINION The 2010 Social Survey 399 Dalit Nachshon-Sharon and Nachum Blass 1. Introduction and Summary 400 2. The Taub Center Social Confidence Index 407 3. Policy Regarding Disparities and Social Solidarity 412 4. Problems at Education’s