Building Israel's Labor Force

The Israeli Ministry of Industry, Labor, and Trade has proposed a plan to increase labor force participation and reduce poverty. The Reut Institute argues that sustainable employment and productivity growth are the key elements of any plan to reduce poverty and increase participation.

The Israeli Ministry of Industry, Labor, and Trade has proposed a plan to encourage employment among the Ultra Orthodox and Bedouin communities in the Negev through employment and transportation subsidies. The goal of the program is to increase labor force participation and reduce poverty.

The Reut Institute argues that this program may turn out to be ineffective in the long-run.

First, it may affect the national competitiveness of the Israeli market because:

  • Subsidized employment discourages capital investment and can reduce productivity growth;

  • Subsidies granted without strict adherence to eligibility criteria for participating firms may perpetuate otherwise uneconomic activities.

Second, it may not create sustainable, well-paying jobs because:

  • Without training and education, worker productivity growth and salary growth stagnate;

  • Removing the subsidies may eliminate the jobs without having created any sustainable employment.

In order to substantially improve the quality of life of Israel's citizens, policies seeking to increase labor force participation should aim to:

  • Create sustainable jobs, which are economically viable and provide workers with reasonable income;

  • Encourage the development of human capital through education and on-the-job training;

  • Contribute to national productivity growth, by promoting management reforms and removing physical, financial and procedural obstacles to labor force participation.

Sources

Ministry of Industry, Labor, and Trade, 4/25/07, full press release (in Hebrew).