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The Day After Project Overview of the Labor Market – Civil Services and Government Policy

עודכן: 18 באוג׳

Shay Weinblum 

 

Supervision: Yoni Ben Bassat 

Chief editor: Amit Ben-Tzur 

Hebrew editing: Daphna Lev 

English translation: Dr. Carly Golodets 

Design: Adi Ramot 

December 2023 


The project was written in response to the revealed weaknesses of the government and public services during the October 7 War. 

 

 

The Israeli Government’s labor market policies have suffered from severe, long-term under-budgeting compared to other developed countries. This under-budgeting is expressed by very low expenditure, in comparison to developed countries, on Active Labor Market Policies (ALMP)1 directed at improving human capital and productivity, including a vocational training system designed to provide skilled workers for sectors of the economy where there is a shortage of employees. As a result, vocational training is very limited in scope and does not provide a solution for the shortage of skilled workers in Israel’s economy, which is also reflected by relatively low productivity. Additionally, Israel’s unemployment benefits system, which aims to enable workers to support themselves after being fired until they find a high-quality worthwhile job, is more restrictive and less generous than in other developed countries, potentially harming labor market dynamics. 

To ensure that the labor market can provide solutions for the economy’s needs, there is a need for government policies to improve human capital, increase productivity and provide an adequate social safety net for job seekers. Implementation of such policy necessitates a significant budget increase to enable a structural change in the way vocational training is set up and operated as well as improvement and expansion of employment benefit coverage. The estimate of the required budget for this purpose stands at approximately 12 billion ILS. 

 


How Are These Long-term Budgeting Disparities Expressed? 

  1. There is a correlation between low expenditure on ALMP and low productivity 


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  1. The proportion of job seekers eligible for unemployment benefits in Israel is very limited compared to other countries 


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The Four Main Problems 

Government expenditure on ALMP to encourage employment is too low 

The original 2023 state budget for employment2 stood at 3.9 billion ILS. Our analysis, which assessed the disparity in civil expenditure between Israel and the OECD average, indicates that the required supplement for all policy tools in the labor market stands at approximately 1.7 billion ILS (Figure 3, left columns). However, this sum is significantly lower than expenditure on ALMP alone in OECD countries. As of 2021, government expenditure on active policy tools in the labor market stood at only 0.13% of GDP, in contrast to the OECD average, which stood at 0.57% of GDP (Figure 4). What is the budgetary significance of this disparity? As of 2021, a supplement of approximately 7 billion ILS is needed to reach the OECD average, and 16 billion ILS to reach the average of the comparison countries (Figure 3, right columns). This under-budgeting is expressed, among other things, by a shortage of skilled labor in the economy, a mismatch between current skills and vocational requirements and relatively low productivity (Regev, Kedar and Porat, 2020). 


 

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What needs to be done?  

Increase public expenditure on ALMP by approximately 7 billion ILS via a multi-year plan, to close the gap with the average expenditure in OECD countries. 

The vocational training system is complex and spread across many agencies and organizations 

The vocational training system in Israel highly decentralized to a large number of agencies and organizations (Figure 5), which in most cases are not coordinated in regards to substantial issues, such as the pedagogical content of courses in similar vocations, and the division of authority and responsibility among them is unclear (State Comptroller, 2021; Regev, Kedar and Porat, 2020). The absence of a coordinating body in this field impedes the formulation of policy and long-term planning, clear and concise communication of training opportunities to the public, and implementing a unified process of assessment, orientation and recruitment (State Comptroller, 2021). 

In January 2021 the Employers and Human Capital Development Administration was established as a joint initiative of the government, trade unions and employer unions. The administration's role to coordinate all vocational training programs that are run in partnership with employers, tailor them to the needs of the economy and improve services to employers (Flug et al, 2023). However, this body does not coordinate all vocational training courses in the country, rather, only those run jointly with employers; therefore, it is not responsible for most of the training programs supervised or funded by the state (Flug et al, 2023). Although the training courses run in partnership with employers are the most compatible with the labor market and are the most effective in regards to workers placement (State Comptroller, 2021), it seems that the decentralized structure of the system as a whole creates disputes over responsibility and authority that prevent its ongoing operation3. 



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What needs to be done? 

Regularize the organizational structure of the vocational training system by establishing one government agency to coordinate management, supervision and execution in this field. This will remove duplication of responsibility among the different agencies (Regev, Kedar and Porat, 2020). 

Public expenditure on vocational training is too low 

In the early 1990s there was a marked increase in public expenditure on vocational training due to the need to absorb new immigrants from the former Soviet Union, followed by a significant reduction in the following years (Regev, Kedar and Porat, 2020; Maor and Sagi, 2020). Despite a certain recovery in the early 2000s, in 2021 the proportion of public expenditure on vocational training stood at 0.05% of GDP, approximately 800 million ILS (Figure 6), less than half the OECD average (Maor and Sagi, 2021; Weinblum, 2023). 



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This budget cut led to a decrease in the number of participants in vocational training courses. In 2018 the proportion of participants in these courses was less than 1% of the workforce, while in the 1990s it was almost 5% (Maor and Sagi, 2021). The budget cut resulted in a severe shortage of skilled labor, mainly in the manufacturing sectors. This was one of the reasons for the significantly lower contribution of these sectors in Israel to GDP in the first two decades of the 21st century, as well as the low productivity of the economy (Regev, Kedar and Porat, 2020). 

What needs to be done? 

  1. Budget increase of publicly funded training courses by approximately 1 billion ILS, to narrow the gap with the OECD (as part of the overall increase mentioned in Section A), and monitor its implementation annually (Regev, Kedar and Porat, 2020; State Comptroller, 2021).  

  1. Grant significant stipends to participants in training courses (Regev, Kedar and Porat, 2020). 

The minimum criteria for receiving unemployment benefits are too high and the eligibility period is too short 

During 2002–2003, following the recession in Israel and the Second Intifada, the qualifying period for eligibility for unemployment benefits was extended4, as was the period of time for which they are awarded (Svirsky and Connor-Atias, 2003). Many of the changes implemented in 2003 have been in force until today, except for a short period following the 2008 crisis and during the COVID-19 crisis. An international comparison shows that the qualifying period in Israel, which stands at 12 out of 18 months, is very strict in comparison with other developed countries (Figure 7). Moreover, the period of unemployment benefits in Israel, in general, and by age group, is significantly shorter than in other developed countries (Figure 8). 



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The minimum criteria for receiving unemployment benefits, the scope of the payment and the duration of the unemployment benefits period have an impact at both the micro and the macro levels. Unemployment benefits may extend the period of unemployment, but this extension is not usually the result of a negative incentive for employment created by the system, but rather, the search for higher quality jobs with higher salaries. At the macro level, toughening and reducing unemployment benefits may solve the labor shortage of low-skill workers in the short term, but an increase in the number of “desperate” job seekers may actually worsen the state of the labor market (Yakir et al, 2021). 

What needs to be done? 

Establish a unified period of payment for each age group, increase the rate of unemployment benefits as a percentage of the last salary in the first three months of unemployment and increase the maximum amount of unemployment benefits, which is currently equivalent to the average salary in the economy. The maximum cost of these steps is estimated at approximately 3.64 billion ILS (as of 2019)5 (Gottleib, National Insurance Institute, 2019). 

References 

  • Svirsky, S and Connor-Atias, E (2003). Black years. Adva Center [Hebrew] 


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