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Economic Survey of Israel 2009: Policy options for reducing poverty and raising employment rates

 

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The following OECD assessment and recommendations summarise chapter 4 of the Economic Survey of Israel published on 20 January 2010.

The  Policy Brief (pdf format) can be downloaded in English. It contains the OECD assessment and recommendations.

Contents

Laudable initiatives to encourage working are underway…

For some years, a "welfare-to-work" approach similar to that in a number of OECD countries has been underway. First, contracted private-sector services are partially replacing the regular public employment service (PES) in job placement and in administration of the "employment test" required for income support. The Light for Employment programme (familiarly known as the Wisconsin programme) operates in four areas, and nationwide rollout is planned after further parametric adjustments. This is broadly welcome. However, the PES’s future role must be firmly established prior to rollout and should dovetail appropriately with contracted services. Also, an open mind to further adjustment of the programme, post rollout, is imperative. Significant uncertainties regarding the programme’s effectiveness remain. In particular, the lack of immediate competition between providers may prove to be a serious weakness. Second, a small earned-income tax credit (EITC) is available in those areas where Light for Employment operates. Plans to expand this are also welcome. Indeed, the credit should be increased, particularly if combined with other measures (see below). That said, take-up so far has been limited and should be closely monitored. Third, admirable efforts are underway to help parents combine family and work through wider provision of daycare and early-childhood education. These include significant additional resources and requirements on municipalities in Arab-Israeli neighbourhoods to provide free services for three and four year-olds.

… but need to be backed by additional measures

However, other measures should be taken to tighten the focus of policy on low-income households. As regards the level of cash benefits, some increase in income support should be made. If backed by Light for Employment and a more generous EITC, this could reduce poverty levels without excessively compromising work incentives. At minimum, universal child allowances should not be increased more than is currently scheduled and preferably savings should be sought, for instance by wider application of the lower rates that currently apply only to children born after May 2003.

The coverage of income support also needs attention. Large numbers of working-age and pension-age households below the poverty threshold are seemingly not eligible for income support. Excessively stringent conditions on car ownership should be reviewed and a general investigation of the coverage of welfare support conducted. Conversely, relatively rapid growth in the numbers receiving disability benefit is somewhat worrying. Initial processing and reviewing of benefit applications requires attention to curb inflows as a complementary move to the Laron Committee reforms that have made it easier for those already on disability benefit to work.

At the same time, there is room for savings in tax credits that primarily help middle- and upper-income earners. In particular, the introduction of mandatory second-pillar pension savings weakens the case for tax breaks on such savings. Also, standard credits on earnings could be reduced. However, on the grounds of equal treatment, the basic credit should be made the same for men and women and those for children ought to be made claimable by either fathers or mothers (at present only the latter may do so).

Tighter enforcement of labour regulation is required, particularly as regards the minimum wage. Light application of the rules is notably contributing to employers’ preference for non-Israeli workers in low-wage sectors, because these employees are typically more willing to accept below-minimum conditions. This said, the minimum is high in relation to the average market wage compared with OECD countries, risking negative employment effects, and the ratio should be progressively reduced over time in parallel with increased enforcement; there are better ways of ensuring workers a minimum standard of living (notably enhancing the EITC). Some sectors of the economy are dominated by non-Israeli workers under temporary work permits (around one quarter of which are cross-border workers; the remainder are from much further afield). Measures to limit rent-taking in the permit system in these sectors should be taken. For some years now it has been Israeli government policy to limit the number of permits given to temporary foreign workers so as to support wages at the low end of the earnings distribution.

How to obtain this publication

The complete edition of the Economic Survey of Israel is available from:

Additional information

For further information please contact the Israel Desk at the OECD Economics Department at eco.survey@oecd.org

The OECD Secretariat's report was prepared by Philip Hemmings and Charlotte Moeser under the supervision of Peter Jarrett. Research assistance was provided by Françoise Correia.

 

 

 

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