Remarks by Angel Gurría, OECD Secretary-General, delivred at the Seminar: Social Policies - Future Directions, Organised by the Bank of Israel and the Hebrew-University of Jerusalem-Falk Institute for Economic research
Jerusalem, 5th June 2012
Governor Fischer, Professor Trajtenberg, Professor Grunau, Ladies and Gentlemen:
It is a great pleasure to be here at this seminar on “Social Policies – Future Directions.”
Thank you for the invitation.
This is a very timely topic. Improving social policy to make growth work for all and combat rising inequality is a pressing issue. Income inequality in OECD countries is at its highest level for the past half century. The average income of the richest 10% of the population is about nine times that of the poorest 10% across the OECD, up from seven times 25 years ago.
Income inequality was a key matter of discussion amongst our member ministers and partner representatives at the annual OECD Ministerial Council Meeting last May. Indeed, the theme, “All on Board: Policies for Inclusive Jobs and Growth,” intended to provide policymakers with tools to close the growing gap between the rich and the poor throughout the world.
Income inequality has economic and social consequences. It limits the capacity of an economy to grow and deliver better lives for its population. It also translates into eroded trust and social unrest, as you’ve seen from the indignados in Spain, the Occupy Wall Street movement in the United States, the March for Jobs in the United Kingdom, and, of course from the Tents Protests here at home.
As Professor Trajtenberg’s report on the Tents Protest reflects, this is quite a pressing issue in this country. In Israel, income inequality has risen substantially over the past three decades, from already high levels. In the mid-1980s, the average income of the top 10% of working-age Israelis was 9 times that of those in the bottom 10%. In 2010 it had risen to 13 times.
It is essential to reverse this trend. One of the most efficient tools to do so is by promoting high quality and inclusive education.
Investing in education: the great equalizer
Education narrows income gaps, enhances social cohesion, and provides a fundamental source of economic growth. This is a particularly useful tool in Israel, given that almost half of all children starting primary school belong to low earning Arab-Israeli and Ultra Orthodox communities.
Our recent in-depth review of education in our latest Economic Survey of Israel identified two key issues that policymakers need to focus on in primary and secondary education.
Firstly, policymakers can improve outcomes in mainstream education, particularly for Arab-Israeli children. Secondly, policymakers can foster universal quality of education, specifically in Ultra-Orthodox schools.
Some progress has been made on these fronts. The 2009 results of the OECD’s PISA tests showed improvement, particularly in reading attainment. Additionally, there are plans to make day-care and early childhood education more widely available.
These initiatives provide a double dividend. They give children from disadvantaged groups a better start and help parents balance work and family commitments.
However, there is still work to be done.
Israel remains one of the lowest-scoring OECD countries in PISA. Furthermore, test scores have widened between Arab-Israeli students and their Jewish counterparts. No country can afford, either economically or socially, to raise children that lack basic numerical and literacy skills. It is therefore essential to reduce these performance gaps.
But improving education is not the only policy tool to reduce inequalities.
Education reforms can be further compounded by labour-market and social-policy measures.
Israel’s approach in these areas has, by-and-large, embraced the OECD maxim that engaging poor and excluded communities in paid employment produces substantial social and economic benefits.
Previous OECD assessments of Israeli social policy have consistently supported the introduction of an earned-income-tax credit. We applaud Israel’s implementation of a nationwide earned-income-tax credit and its substantial increases for working mothers. However, credits could be further increased to ensure that financial incentives work and to fight in-work poverty.
Our assessments have also supported the introduction of welfare-to-work programmes. The “Light for Employment” programme was unfortunately discontinued. But the welfare-to-work programme should not be abandoned altogether.
The scheme’s previous shortcomings can be tackled. Incentives for private employment agencies to place clients in regular jobs can be strengthened. Employment support can be more personally tailored to fit clients’ needs. There is also room for improvement in vocational training and childcare. These measures must be reconsidered and revamped.
Further reforms are also needed to tackle income inequality.
Increases in work-tested income support can be a powerful tool for raising incomes in poor households. These increases must be carefully chosen to maintain work incentives and to ensure proper targeting of poor and disadvantaged households.
Schemes and initiatives targeting specific communities can also reduce income inequalities; investing in infrastructure in Arab localities provides one approach, targeted actions to eradicate discriminatory practices provide another.
This can be done by implementing existing public-sector employment minority quotas, guaranteeing equal professional opportunities for public-sector employees, and supporting private sector contractors who promote and practice equal opportunity.
Expanding the number of staff on the Equal Employment Opportunities Commission will further enable employer accountability and encourage Arab workers to come forward with their grievances.
Let me conclude with one last comment. For these reforms to produce the best results, it is essential to promote strong enforcement measures.
OECD’s work has highlighted important gaps in the enforcement of Israel’s labour laws. This puts workers not covered by collective agreements – many of which are Arab or Haredi – in a very precarious situation. Improving sanctions for non-compliant employers and strengthening monitoring are key to ensuring fair and equal employment conditions.
Ladies and gentlemen:
Economic growth must translate into social progress. Presently, the benefits of growth are not trickling down. We must make growth inclusive by applying whole-of-government approaches to reduce inequalities. Be assured that the OECD will continue to support Israel in its enforcement, labour market, and education efforts with this objective in mind. Our Economic Surveys will continue to provide regular updates of progress on labour market and social policies.
Next October, the OECD’s Employment, Labour and Social Affairs Committee will discuss progress on the policy recommendations presented in the 2010 OECD Labour Market and Social Policy Review of Israel.
The OECD stands ready to help Israel turn its economic growth into social progress. Together, we can succeed.
Thank you very much.