Growth and Inequality in the Israeli Economy: Trends and Challenges - - PowerPoint PPT Presentation

Growth and Inequality in the Israeli Economy: Trends and Challenges

• Dr. Karnit Flug, Governor of the Bank of Israel

15.5.2018

CEPR

1

GDP per capita in selected OECD countries, constant prices, PPP

, 2011 dollars

10,000 20,000 30,000 40,000 50,000 60,000 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 $

United States Germany Canada Italy Israel Greece Chile OECD

Israel’s GDP per capita is growing at a pace similar to that of OECD countries

Source: IMF

2

GDP per hour worked in selected OECD countries, constant prices, USD, 2010 PPP

10 20 30 40 50 60 70 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 $

United States Germany Canada Italy Israel Greece Chile OECD

Israel is not closing the productivity gap

Source: OECD

3

Labor force participation rate in selected OECD countries, ages 25-64

United States Germany Canada Italy Israel Greece Chile OECD 60 65 70 75 80 85 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 %

The participation rate has increased slightly more than in OECD countries

Source: OECD & CBS (Israel)

4

10 20 30 40 50 60 70 80 90 100 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Jewish Non-ultra-Orthodox Ultra-Orthodox Arab OECD

%

Women

10 20 30 40 50 60 70 80 90 100 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Jewish Non-ultra-Orthodox Ultra-Orthodox Arab OECD

Men

Source: CBS, OECD

Employment rate by population groups, 2001-2017, ages 25-64

%

The employment rate has increased for all population groups, but large differences among groups remain

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The increase in employment rates is most pronounced at the lowest income quintile

Lowest quintile 0.75 1 1.25 1.5 1.75 2 2.25 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Second-lowest quintile

6 *Includes part-time positions SOURCE: Based on Labor Force Surveys of the Central Bureau of Statistics (Bank of Israel Annual Report 2017).

Average # of wage earners per household

Average number of employed people per household Ages 25–54, by net income quintiles, 1997–2016

Other quintiles

Large gaps remain in hourly wages among the quintiles

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Ratio of hourly wage for each quintile vis-à-vis the highest quintile Ages 25–54, 2003–16

Second highest quintile 10 20 30 40 50 60 70 80 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Lowest quintile Second lowest quintile Third quintile

SOURCE: Based on Labor Force Surveys of the Central Bureau of Statistics (Bank of Israel Annual Report 2017).

ratio

For the lowest quintile, labor income as a share of total net income has increased markedly

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86 78 80 35 44 61 10 20 30 40 50 60 70 80 90 100 1997 2000 2003 2006 2010 2012 2016 % Upper quintile Middle quintile Bottom quintile

Labor income as share of total equivalized net income By net income quintiles, households, ages 25–54

SOURCE: Based on Labor Force Surveys of the Central Bureau of Statistics (Bank of Israel Annual Report 2017).

90 110 130 150 170 190 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2 3 4 1 5

Source: Bank of Israel based on CBS data

Net equivalized household income, by net income quintiles, Index 2003=100

The largest gains in disposable income are in the 2nd and 3rd quintiles

Quintiles

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To Sum Up

• Reducing progressive income tax and welfare payments incentivized

an increase in labor force participation, but also reduced the level of income redistribution.

• This policy resulted in a reduction of market income inequality due to

an increase in the number of breadwinners per household in the lowest quintile.

• However, until 2010, net income inequality rose due to the reduced

redistribution policy.

• In recent years, with the stabilization of income redistribution policy,

the continuing reduction in market income inequality also translated into a decline of inequality in disposable income.

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20 22 24 26 28 30 32 0.35 0.37 0.39 0.41 0.43 0.45 0.47 0.49 0.51 0.53 0.55 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Gini - disposable income (left scale)

Government policy contribution to lower inequality (right scale) Gini - market income (left scale)

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Gini Index, for disposable and market income, and the contribution of taxes and transfers to lower inequality, 2001-2016

Source: Bank of Israel

Gini

The Productivity Challenge

80 100 120 140 160 180 200 220 240 260 280

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Headwinds to future potential growth

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Index 2003 = 100

Simulation for WT and GDP growth 2003-2020

Source: OECD ,The Global Trade Slowdown: Cyclical or Structural, IMF, WEO Economic Outlook No 95 - May 2014 - Long-term baseline projection.

World trade World GDP Pace of pre-crisis WT growth

Pace of 2000-2014 Convergence of education and participation Without convergence of education and participation

Demographic trends and exhaustion of the increase in schooling years Global trends

Estimates for GDP growth under different scenario assumptions, 2000-2059, 2010 Prices

Thousand of NIS

1.4% 0.8% 0.5%

Key factors holding back productivity include deficiencies in skills & infrastructure, and overburdening regulation

Source: BoI ,Doing Business, OECD, IMF. 14 Total score (0-100) in 2018 Doing Business index

67 72 77 82 87 92

#54 #26

2018 2007

Israel’s rank

Score

14

265 270 275 280 285 290 295 300

Poland Israel Russia Ireland UK Belgium Slovak… Germany OECD Korea Austria Netherlands Norway Sweden Finland Japan

20 40 60 80 100 120 140

Chile Israel Australia Latvia Ireland Slovak Republic Hungary Poland Germany United Kingdom Belgium Turkey Czech Republic Iceland Canada Norway Estonia Switzerland Korea OECD Austria Slovenia United States New Zealand Spain Italy Netherlands Sweden France Portugal Greece Finland Denmark Mexico Luxembourg Japan

General government capital stock

2015, in GDP percent

Problem-solving in technology-rich environment skills according to PIAAC survey

Aged 15+, 2015

15

200 220 240 260 280 300 320 Pre-High School High School Secondary Bachelor's Degree Master's degree + OECD Average Israel

Score

Source: BOI

Skills level in Israel and OECD countries, by education levels

2014

The level of skills relevant to the labor market is relatively low in all education groups

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150 170 190 210 230 250 270 290 Problem Solving in Technology- Rich Enviroments Numeracy Literacy Non-ultra-Orthodox Jews Ultra-Orthodox Arabs

Score

Achievements in PIAAC by population groups, 2014

There are large gaps in the average skill level between the various population sectors

Increasing productivity is the key to supporting inclusive and sustainable growth

Increase human capital: Education and vocational training, including expansion of

affirmative action

Integrate population groups into the labor market: Active labor market policy and tailoring

the adequate policy for each group

Remove obstacles to growth and productivity

• Infrastructure
• Business environment
• Competitiveness
• Promote reforms (ports, electricity, and the natural gas and energy industry)

Increase quality and efficiency of public service systems (health, long-term care, welfare,

pension, etc.)

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Thank You