The Bank of Israel published a critical economic analysis on Thursday, questioning the effectiveness of the new draft law currently before the Knesset Foreign Affairs and Defense Committee. The central bank said a significant expansion in drafting Haredi men into the Israel Defense Forces could save the Israeli economy between 9 and 14 billion shekels ($2.8-4.3 billion) annually, but the bill in its current form will not bring meaningful change.
The analysis comes amid a sharp rise in reserve duty since the outbreak of the war in October 2023, which has turned the issue of drafting Haredim from a social debate into a security matter with major macroeconomic implications.
According to Bank of Israel estimates, the economic cost of 1 month of reserve service for a 30-year-old reservist is about 38,000 shekels ($11,800). About 80 percent of that cost comes from the direct loss of productivity during service, while the remainder reflects a long term hit to productivity due to missed experience and lost opportunities for career advancement. In contrast, the economic cost of drafting a young Haredi man into mandatory service is very low because in most cases military service does not replace participation in the labor market. The bank also assessed that service may increase incentives for young Haredi men to join the workforce because it removes the requirement to remain registered as full time yeshiva students to qualify for exemption.
The bank’s calculations show that drafting a young Haredi man for 32 months of service could generate an economic benefit of about 22,000 shekels ($6,800) per month of service if his employment level after the draft matches that of a non Haredi Jewish man. The Bank of Israel presented a scenario in which about 7,500 additional Haredi men enlist each year. Once the process reaches maturity, the move would add about 20,000 conscripts to the army and sharply reduce the need for reserve duty. The economic payoff would be significant, with annual savings of at least 9 billion shekels, equal to 0.4 percent of GDP. If Haredi employment rates rise substantially following conscription, the savings could reach 14 billion shekels a year, equal to 0.7 percent of GDP.
The Bank of Israel sharply criticized the draft bill before the Knesset. According to the bank, the current wording is insufficient and will not produce the level of recruitment required to meet security needs. The bank identified two major flaws. First, the effective recruitment targets are too low and only slightly higher than the current reality. Second, the economic incentives in the bill are too weak and are unlikely to meet even the modest targets set.
The initial target through June 2027 is 8,160 Haredi men. After accounting for the possibility that 10 percent of the target will be fulfilled by civil security service, the actual number is only about 4,900 recruits per year. This figure gains meaning when compared with reality. Since July 2024, about 3,000 young Haredi men have already enlisted, which means the law requires only a very limited increase. Only in the fifth year does the baseline threshold reach 50 percent of the annual cohort, or about 7,000 out of 14,000 men.
The Bank of Israel also noted that the targets do not specify military roles or the ages of conscripts. This means many recruits may not be suitable for combat roles, where the Israel Defense Forces faces severe shortages.
The bank also found the bill’s penalties to be ineffective. The main sanctions for yeshiva students who do not enlist include denial of a driver’s license and restrictions on leaving the country until age 23. The bank said these measures have little relevance in Haredi society. Additional sanctions, such as canceling eligibility for student scholarships or removing affirmative action in public sector hiring, are irrelevant because yeshiva students are not allowed to work or pursue higher education.
Sanctions that apply if recruitment targets are not met are also weak. Loss of eligibility for subsidized housing programs and exemption from purchase tax can easily be avoided by waiting until age 26, when the sanctions expire. Ending childcare subsidies is only a partial measure. The bank added an important point. Sanctions that depend on community level outcomes have low effectiveness because individuals cannot influence whether their community meets its recruitment targets.
The Bank of Israel concluded that passing the bill in its current form risks preserving the heavy economic burden created by the extensive use of reserve forces. The result would be continued harm to the labor market, loss of national income, large fiscal costs and reduced tax revenue.
The bank called for amending the bill so that it meets the needs of the Israel Defense Forces and includes effective positive and negative incentives. Its message was clear. Without substantial changes to the law, Israel will continue to bear a heavy economic cost.