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Grim Picture

Young Israelis 'equipped with tool suitable for a third world country' Photo: Roee Idan
Young Israelis 'equipped with tool suitable for a third world country' Photo: Roee Idan
 
Prof. Dan Ben-David
Prof. Dan Ben-David 
 
 

Report: Standard of living in Israel regressing

Taub Center economists say encouraging growth figures create false pretense that gaps between Israeli and Western economies are closing, while in fact food and housing prices are skyrocketing – 'and that is just the tip of the iceberg'

Avital Lahav
Published: 11.28.12, 13:04 / Israel Business

The State of the Nation Report of the Taub Center for Social Policy Studies in Israel, which was submitted to Prime Minister Benjamin Netanyahu on Tuesday, focuses this year on Israel's economic situation compared to Western countries and on the factors which led to the 2011 social unrest.

 

According to the report, the economic indicators of the past few years, which suggested that the economic situation in Israel is better than in European and North American countries, are deceiving.

 

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"The relatively good economic situation in Israel in recent years, compared to other Western countries, is deceiving. Decision makers are finding it difficult to distinguish between the short-term picture, which is relatively positive, and the long-term picture, which is very problematic," writes Prof. Dan Ben-David, executive director of the Taub Center.

 

According to the report's authors, once the effect of the economic crisis experienced by Western countries fades away, Israel's citizens will discover that the fundamental gap between the economies of Europe and North America and the economy of Israel has not been closed but rather expanded.

 

"The standard of living in Israel is regressing, in relative terms, and moving away from leading Western countries for several consecutive decades," states the report.

 

According to Taub Center economists, the Israeli economy's growth rates in recent years reflect a return to Israel's regular growth volumes since 1973, after the economic depression experienced by the Israeli economy during the Second Intifada. On the other hand, this accepted growth volume is not higher than the long-run growth outline of Western economies in the past decades.

 

The report details many factors hindering the growth and rise in the standard of living in Israel, led by the problematic distribution of resources in the state budget, which prevents essential investment in transportation infrastructures and in education.

 

"Israel's key physical and human infrastructures have been neglected and degenerated, and the State is just beginning to understand the consequences," the report says.

 

The lack of investment in these infrastructures, the report's authors note, results in a population which is unskilled for advanced professions that are becoming available in a modern and technological economy and leads to a particularly low level of productivity (the ratio between the volume of output and the total number of hours worked) among Israeli workers.

 

Considering the fact that Israel has significant security-related spending and that this situation is unlikely to change in the coming years, the report notes, Israel's government must be creative and flexible in regards to the preferences it sets in the state budget, and focus on paving new roads, building railways and improving the quality of education.

 

"Israel is not making any substantial changes in its national list of priorities, which could clearly change the distribution of resources to its principal human and physical infrastructures, which have gradually degenerated, creating the current long-run social-economic outline," writes Ben-David.

 

"All the knowledge Israel needs in order to change direction is here, still, in its excellent universities and in the progressive high-tech and medical sectors. The question is whether the State's leaders will find the courage and ability to guarantee that this knowledge reaches all of Israel's children on time, before they grow up and are required to survive in a modern global economy equipped with tools and infrastructure suitable for a third world country."

 

'Seriously unaffordable housing'

The Taub Center's annual report is known to present a comprehensive picture of the Israeli society, while observing different issues (transportation, education, demography and more) and stressing the long-term ramifications of those phenomena on the Israeli society and economy.

 

In the past, the report emphasized the effect of the rapid growth rate among ultra-Orthodox and Arabs in the Israeli population and warned against the consequences of these sectors' low labor force participation rate.

 

Last year, the report stressed the sharp decline in recent decades in the employment rate among Israelis with a small number of school years, and raised awareness to the fact that the education system has become a more influencing factor on the economic future of young Israeli citizens.

 

In addition, the Taub Report was the first to explain the influence of physical and educational infrastructures on the Israeli worker's productivity level and to connect between the situation of roads, schools and communication infrastructures in Israel to the economy's growth rate.

 

This year the report focused on two issues stressed by the social protest of the summer of 2011: The price of food and the privatization of social services. The report states that "behind the social protest of 2011 stood a decline in the purchasing power and the relative economic achievements of young people and young families in Israel."

 

The report observes a dramatic rise in the prices of food and housing in Israel compared to their prices in the Western world, particularly in 2005-2008. If in 2005, for example, the price of dairy products and eggs was 6% higher than their average price in Western countries, by 2008 their price in Israel was already 44% higher than the average price in Western countries. This trend can be seen in the prices of all food products in Israel.

 

The report also stresses the grim situation of the housing market in Israel, which was the main cause for the social protest. The report presents figures of an international housing survey introduced recently by Bank of Israel economists.

 

According to the figures, in 2009 Israelis had to save up for 7.7 years of work to buy an apartment, compared to 6.8 years in Australia, 5.1 in England and 2.9 in the United States. The report notes that the survey's editors defined a situation in which a person has to save up for more than 1.5 years to buy apartment as "seriously unaffordable housing."

 

In the chapter discussing the situation of the Israeli middle class, researcher Michael Shalev observes that the tent protest was led by young people born in Israel, and that people over the age of 40, haredim and immigrants from the former Soviet Union did not identify with the protest.

 

The reason for this, according to Shalev, is the decline in the status of young people born in Israel, which is reflected in their salary levels compared to price hikes and salary levels of other population groups. Shalev believes that young people born in the former Soviet Union and older populations dealt relatively better with the price hikes of the recent years.

 

Shalev also observes a drop in the number of young families that own an apartment and a rise in the number of young people who continue to live with their parents.

 

The report's authors argue that factors that led to the social protest presented in the report do not reveal the full picture of the economic failures of all Israeli governments, and that the poor achievements of the education system and the grim situation of the transportation infrastructure in Israel continue to slowly consume the economic future of Israel's citizens.

 

"The social-economic situation which led to the protest of the summer of 2011 focused attention on the tips of the iceberg rather than on the iceberg itself," Ben-David writes in the report. "But what we see is a huge iceberg, which will be involved in a frontal collision with the State of Israel due to Israeli demography."

 

 

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