Israel’s new government will face many challenges in the coming years following the lack of a budget, unemployment, social welfare, and health challenges. The independent, non-partisan, and non-profit Taub Center for Social Policy Studies in Jerusalem has produced a report titled “A Picture of the Nation 2021” that will help the prime minister and the various ministries to take a broad look at the tasks ahead. 

The center regularly provides them and the public with research and findings on some of the most critical issues facing Israel to influence the decision-making process in Israel and to advance the well-being of all Israelis.

Written by Taub Center president Prof. Avi Weiss, a professor of economics at Bar-Ilan University in Ramat Gan, the report paints a wide-ranging picture of the nation’s economy in general, its labor market, and its situation in the fields of welfare, healthcare, and education following the end of the COVID crisis and the early stages of the recovery period

The outgoing Israeli government wrote Weiss, allocated a lot of resources to dealing with the COVID-19 pandemic – but the crisis and the response to it had a major impact on the deficit, gross domestic product (GDP), the rate of unemployment, disparities in the education system and more. The next government will have to deal with a large deficit, a need to stabilize the labor market and to help workers who left it, a changing education system, the question of whether to allocate additional resources to the healthcare system and a variety of additional issues.

Although the crisis had a major impact on Israel in 2020, its scope was smaller than expected and Israel will be able to recover within a few years. In fact, labor productivity actually increased.

The GDP per capita fell significantly, but it is expected to rise and nearly return to previous levels. The GDP per capita fell by 4.2% in 2020; before the pandemic, it had been expected to grow by 1.2%. The vaccination against COVID-19 and the exit from the pandemic will make it possible for Israel to close most of the gap in the next few years. The GDP is expected to rise by 6.5% in 2021 and by 5.8% in 2022.

To restore the debt-to-GDP ratio to its 2019 level, it will be necessary to maintain small deficits and a high rate of economic growth in the coming decade suggested by the author. The Israeli deficit is particularly high relative to other developed countries, but the national debt is relatively low. However, the rise in the deficit and the fall in GDP raised the debt-to-GDP ratio to 72% in 2020, and this year it is expected to increase further.

Only 80% of the planned allocations for dealing with the COVID crisis were actually utilized. The low rate of usage in the program for accelerating and developing the economy and the program for business continuity is liable to delay economic recovery and may constrain future growth engines, said the report.

Israel provided large fiscal incentives, but the indirect assistance was limited. The total scope of intervention was modest and in particular, state guarantees for borrowers in the private market were minimal. Israel left the management of risk to the banks, and it is worth considering the expanded use of guarantees to assist the business sector in recovering from the crisis, said Weiss.

The labor market suffered a serious blow, but labor productivity actually increased: During the pandemic, the number of work hours dropped sharply in all industries except hi-tech. Production, in contrast, did not fall to the same extent and the loss in production was not more than eight percent in any month relative to 2019 levels. Labor productivity increased at all technology levels. In other words, production became more efficient with the highest profitability actually seen in traditional industries.

Israel showed impressive achievements in healthcare, he wrote, but there were also some failures. “It is unclear whether the additional resources allocated to the healthcare system in response to the COVID-19 pandemic will continue to be allocated in the future.”

The infection rate per capita in Israel was among the highest in the OECD: Through June 9, 2021, almost 10% of the Israeli population had been infected. Israel was the first developed country to experience a second wave of COVID (in September) and, at the peak of that wave, Israel’s total rate of infection per capita was the highest among the OECD countries.

The pattern of COVID infection per capita varied across population groups: The rate of infection in each of the eight ultra-Orthodox Jewish (Haredi) municipalities was higher than in any other type of municipality. In contrast, the highest rates of hospitalization were in fact in the Arab sector. For example, over 1% of the population in Abu Gosh was hospitalized. This reflects the high incidence of multiple medical conditions, especially diabetes and obesity, in the Arab sector. The lowest rates of hospitalization were recorded in Jewish non-Haredi municipalities. The low rate of hospitalization in the Haredi sector relative to its high rates of infection reflects its younger age profile: less than two percent of Haredim are in the 65+ age group versus the national average of 14%. In Bnei Brak, where more than eight percent of the population are aged 65 or over, the rate of hospitalization was higher than in the other Haredi municipalities.

The death rate from COVID here was lower than expected given the high levels of infection because the elderly population accounts for a smaller share of the total population than in other countries (about eight percent versus close to 13% in the OECD). In addition, the cases of infection from July 2020 until the end of the year were concentrated primarily in the 20 to 55 age group, for whom the risk of mortality is close to zero. If the rates of infection had been in line with Israel’s age profile, the death rate would have been about 30% higher.

Israel’s vaccination program was implemented rapidly and successfully: During the first two months of the program, more than 90% of the 70+ age group and about 80% of the 50 to 70 age group received the first vaccination. Thanks to the age profile of the population, most of the elderly were vaccinated, although it will be difficult to achieve herd immunity as long as children, who make up 35% of the population, are not vaccinated, said the report.

The unemployment rate is now dropping, but it will take years for it to return to its pre-crisis level, wrote Weiss. The unpaid leave policy that was adopted has weakened the connection between workers and employers and for many, many will not return to their previous jobs. The unemployment rate was particularly high at the end of 2020 – over 16%. It will drop over the next two years but it will take a long time to return to the historic low reached in 2019 (3.8%).

The rate of unemployment at the height of the first lockdown was 27% among university graduates as opposed to 41% among the rest of the labor force. Those aged 18 to 29 were especially affected since they tend to be employed in temporary jobs or in industries that experienced the greatest impact, such as waiters. Workers over 65 were also affected to a greater extent because they belong to a high-risk group.

Haredi workers were particularly affected by the crisis: While Haredi men who had worked suffered unemployment, Haredi women were also greatly affected despite their higher level of education because a large share of them work part-time because of their large families In contrast, since June, the unemployment rate among Arabs has been lower than among non-Haredi Jews due to the recovery in the construction industry in the case of Arab men and the high level of education and high level of employment in the public sector of Arab women.

The rate of unemployment fell but remained high; the rates of poverty and inequality are expected to grow. In 2020, the welfare budget grew by 42%, and the number of recipients of unemployment benefits grew 13-fold. When the period of eligibility for unemployment benefits for those not working due to the COVID pandemic ends soon, it is expected that poverty and inequality will worsen, at least in the coming years. The long-term effects of the crisis are dependent to a large extent on the social policies adopted by the new government following the crisis.

The expenditure on social protection has grown and the expenditure on social investment is expected to grow: The expenditure on social protection as part of the assistance program for dealing with the COVID crisis in 2020 totaled about NIS 42 billion out of an allocation of NIS 49 billion while the expenditure on social investment stood at only NIS 2.5 billion out of the approximately NIS 4 billion allocated.

This year, the expenditure on social investment is expected to grow somewhat with the adoption of new employment programs and the expansion of investment in vocational training programs financed by the Ministry of Labor, Social Affairs, and Social Services. But while there is a strong emphasis on social investment in Israel, the level of the expenditure as a percentage of GDP is relatively low (less than eight percent versus 11% in those countries).

Most teachers have reported that remote teaching has been beneficial for them, and harmed weaker pupils. Many pupils and primarily those in the Arab sector lack the resources required for distance learning. Before the pandemic, one-half of teachers did not have any training in remote teaching. At the beginning of the crisis, 90% of the Jewish and Arab respondents to a survey carried out by the Taub Center and the Histadrut Teachers Union reported that they used remote teaching more than once a week during the lockdown. Most of the teachers felt that remote teaching had a positive effect on their teaching skills, especially on their self-confidence and confidence in their ability to overcome difficulties.

The best pupils became stronger and the weak became weaker: The teachers unanimously reported that remote teaching advances stronger students and harms weaker students and this is particularly true in the case of students from weaker socio-economic backgrounds.

The number of physicians in Israel has grown but has not kept up with the increase in the population. The share of Arab physicians among total practicing physicians grew to about 15% in 2016 and is approaching the total share of Arab Israelis within the overall population (21%).

The number of practicing physicians grew by 31% from 2000 to 2016 while the number of practicing specialists grew by 67%. But after adjusting for the rate of population growth, there was a drop of eight percent in the number of practicing physicians per 1,000 population and an increase of about 15% in the number of practicing specialists.

The share of medical graduates who studied in Israel has fallen continuously and is now at a level of 51%. One-tenth of Israeli-born medical graduates studied in Hungary and a growing number of studied in Jordan.

Graduates in liberal arts and the social sciences, as well as immigrants with a low level of Hebrew language proficiency, are most likely to be overeducated and suffer from underemployment, taking jobs whose educational requirements are below their education level.  

Graduates in liberal arts and the social sciences have the highest chance of being overeducated, in contrast to graduates of medicine, law, mathematics, statistics and computer science who have the lowest probability.

Over 11% of the population in Israel are children age six or under. Israel is breaking negative records with respect to the number of children per preschool teacher and auxiliary staff in preschools and holds the record for highest  participation rates of children in early childhood educational frameworks.

More than one-half of children ages birth to two attend an early- childhood educational framework; 31% of them are less than a year old. This is in contrast to 35% and 9% respectively in the OECD. However,  public expenditure per child in the early childhood education system is among the lowest in the OECD. The ratio of children to number of staff in preschools is particularly high – about five staff members per 29 children on average, which is 23% less than the average in other countries.