Israel below OECD average on ‘basic cognitive skills’
BOI report tells tale of two economies
Israel: Home to Silicon Wadi and the worst poverty rate in the OECD.
The Jewish state houses R&D centers for Intel, Microsoft, Apple and Google, yet has one of the worst levels of economic inequality among industrialized countries.
While Israelis take pride in the many impressive achievements that have earned it the moniker “Start-up Nation,” there is also a persistent economic failure in the country.
A report on skills released Tuesday by the Bank of Israel, highlights some of the ways in which Israel might more accurately be characterized as having two economies; one high-skilled, high-tech powerhouse and the other – lowskill, insulated and laggard. The latter, sadly, is more widespread than the former.
All in all, the study found, Israel’s labor productivity – its output per worker – is 14 percent lower than the average in advanced economies.
That lack of productivity, however, is concentrated in a handful of sectors, most prominently the food and accommodation services, construction industry and trade industries. Unsurprisingly, productivity in the electronics industry is higher than average, but not high enough to outweigh the other sectors.
One reason behind these differences, that Bank of Israel Gov. Karnit Flug frequently points out, is competition. Industries exposed to global trade that have to compete in international markets tend to step up to the task. Those that sell mostly to the domestic market and are shielded from competition have no reason to follow suit. That’s one reason
Finance Minister Moshe Kahlon is obsessed with reducing market concentration, and even wants to invite foreign construction companies to compete with local ones in his crusade against the high cost of housing.
But the report found another fundamental problem.
“The basic cognitive skills of workers in Israel are lower than the OECD average, even though the share of Israeli workers with an academic degree is greater than the OECD average,” it said.
In areas such as literacy, numeracy and problem-solving skills, Israelis lagged significantly based on data from the PIAAC Survey of Adult Skills.
In other words, despite the fact that more Israelis study in universities than in other places, either their quality of education is lower or those who aren’t educated are even less skilled than their OECD counterparts.
Where do these workers work then?
“In non-tradable industries or in tradable industries that sell most of their output to the domestic market,” according to the report.
The best investment it seems would be in early childhood education, which provides the most bang for its buck in terms of lifetime payoff in skills. The key, however, isn’t more education.
“Competency is especially lower in construction and trade, and is also inferior in manufacturing industries with a low share of exports, even though the share of college degree holders in these industries is high compared with the share in the OECD,” the report noted.
Also, new workers and veteran ones were just as unskilled.
The answer may be, simply, that workers in insulated industries use out-of-date and low-tech methods, and fail to develop better skills on the job because they don’t have to. Why automate a process when you can use cheap, unskilled labor?
“The low quality of employees is in line with non-complex and low technology work methods,” the report said.
By way of example, it noted that construction workers in Israel do more physical work than in other OECD countries, and use computers less frequently. In exporting industries, the opposite is true.
Unquestionably, there are other factors; high among them the low levels of education and labor participation among ultra-Orthodox men and Arab women, in particular.
But forcing more competition and providing education to endow workers with the necessary skills appear to be central in the cause of uniting Israel’s two separate, and very unequal, economies.