The Governor's remarks at the The Marker conference
- "The Ultra-Orthodox community is a very important component of the Israeli economy. Demographic developments are making the ultra-Orthodox community a significant factor in Israel's economic tomorrow. We must recognize this, and it is important to plan for it now."
- "The income gaps between the ultra-Orthodox community and the rest of the population are mainly due to gaps in the labor market. Ultra-Orthodox women work less hours than other women, while their hourly wage is similar to women from other groups. Among men, there is also a significant gap in the labor force participation rate."
- "The economy has already benefited from increases in the employment and earning capacity of ultra-Orthodox women in recent years, and there is no reason that this trend should not grow to include the entire ultra-Orthodox community. Continued improvement in the skills and education of ultra-Orthodox workers will contribute to both the prosperity and well-being of the ultra-Orthodox family unit, and the Israeli economy as a whole."
- "The effort must be integrative. First and foremost, the ultra-Orthodox community must recognize the importance of joining the modern labor market. The government also must create the proper incentives and make the necessary investments, and employers themselves must learn to adjust the work environment to the characteristics of ultra-Orthodox workers."
- "I call upon the appropriate candidates from the ultra-Orthodox community to apply for jobs and to join the ranks of Bank of Israel employees. The ultra-Orthodox workers at the Bank have successfully integrated into a variety of positions. We are making efforts to increase employment diversity at the Bank of Israel."
Good morning to you all.
In view of the short time I have been allotted, and the long and interesting day that has been planned for you, I will begin, with your permission, at the end. Demographic developments have made the ultra-Orthodox community a significant factor in Israel's economic tomorrow. We need to recognize this, and it is important that we plan for this even now.
The process that must now initiate requires the participation of all parties so that in a few decades, we will see positive results from it. First and foremost, Israeli society as a whole, and obviously the ultra-Orthodox community within it, must recognize the economic necessity of integrating the ultra-Orthodox community in the future labor market. The government also must create the proper incentives and make the necessary investments, and employers themselves, if they learn to adjust the work environment to the characteristics of ultra-Orthodox workers, will benefit from the abilities of those workers to join their ranks and maximize their full talents and abilities.
Permit me to briefly review the demographic situation today, the state of the labor market, and expectations for the future. And I remind you of what we all know: time passes quickly.
GDP per capita in Israel remains lower than the OECD average. The ultra-Orthodox share of the population is constantly increasing, and is expected to reach one-third by 2065. Without fully integrating the ultra-Orthodox (and other population groups) in the future labor market, we will not be able to come close to the standard of living of the wealthy countries, and there is even a concern that we will decline in that ranking over the years, since the ultra-Orthodox community is becoming more and more significant in terms of its size. A simulation carried out at the Bank of Israel shows that integrating ultra-Orthodox men into the labor market and providing them with the appropriate education will significantly increase per capita GDP.
While just 7 percent of households today are ultra-Orthodox, they constitute about 16 percent of poor households in Israel. There are a number of reasons for this, and changing this picture will benefit not only the ultra-Orthodox community, but also the Israeli economy as a whole. Net household income among the ultra-Orthodox is 30 percent lower than that of secular households, and the ultra-Orthodox household is of course larger. This gap has been maintained over the past 20 years, while transfer payments have declined as a share of household income, particularly among ultra-Orthodox households.
Direct tax payments by ultra-Orthodox households are about one-third those of other households. If the demographic trends are maintained over the years and ultra-Orthodox participation in the labor market remains as it is today, maintaining tax revenues as a share of GDP at 2065 will require a 16 percent increase in direct taxes in 2018 terms. This is a calculation we made in order to provide a sense of one of the economic implications that we will need to deal with if we don't deal with the challenge of integrative the ultra-Orthodox community in the economy.
In order to deal with the income gaps between ultra-Orthodox households and others, we must understand the sources of that gap, and particularly, how much of it is due to low labor force participation, and how much is due to gaps in education and skills that are relevant to the labor market and influence wage gaps.
As we know, the employment rate of ultra-Orthodox women is high and in an upward trend, and is very close to the rate among the general population. In contrast, the employment rate of ultra-Orthodox men is lower than the general rate for men, while the upward trend has been halted since 2015, and there even seems to be some downward trend. We can see that policy measures had an effect on the employment rate. Another example, the take-up rate of the earned income tax credit among the ultra-Orthodox is relatively high, and a study by Michel Strawczynski and Adi Brender of the Bank of Israel, which will be published soon, shows that the earned income tax credit has a significant impact on remaining in the labor market, mainly among ultra-Orthodox men.
In terms of earning capacity, the hourly wage of ultra-Orthodox women has almost closed the gap with their secular peers. In my opinion, this is a significant achievement. As of now, the gap in the monthly wage is almost completely explained by less hours of work.
The wage gaps among me are due to both the low number of work hours and to earning capacity—gaps that have widened over the years. The gap in earning capacity can be explained by the differences in various qualities of the employee: education, employment duration, and basic skills. These gaps begin with scholastic achievements, and are reflected in employee skills, particularly among younger employees. Later on, the gaps are reflected in low enrollment rates and very high drop-out rates in higher education. These are all reflected in low skills in the labor market, and in relatively low wages. among ultra-Orthodox workers.
The adjustments that will enable the ultra-Orthodox to integrate into the modern economy not only involve the labor market adjustments I have outlined here today. The technological revolution is changing the economy, and is not leaving out any area of our lives. Here is an example from the banking industry. Like many other areas of our lives, banking is becoming more and more digital, while as we know, there are cultural barriers in the ultra-Orthodox community concerning the use of smart phones. Therefore, the Bank of Israel has required the banks to implement a technological solution whereby text messages are converted to voice messages. This solution enables the ultra-Orthodox customer to receive a password for his account on a "kosher" cellphone, and to benefit from the advantages of receiving banking services remotely without having to go to the branch. This is, of course, a small example of an adjustment that succeeded in enabling important business activity while taking the characteristics of the ultra-Orthodox community into account. Such adjustments, which recognize and respect the ultra-Orthodox lifestyle, will help the process of integration into the economy succeed.
Looking forward, the Bank of Israel has advanced the discourse on the two main economic challenges that we face, and that the next government will not be able to ignore: the budget challenge, which I did not speak about today, but which is clearly in the background of any discussion dealing with policy, and the need to increase labor productivity in Israel. Both of these, and particularly the latter, concern the entire Israeli economy, and obviously the ultra-Orthodox community within it. The economy's success in meeting these challenges will be tremendously influenced by the extent of the ultra-Orthodox community's success in taking a significant role in Israel's economy of tomorrow. The integration and advancement of the ultra-Orthodox community in the Israeli economy are very important to the continued growth and prosperity of the Israeli economy, and only a cooperative effort will ensure good results over time that will benefit everyone.
In conclusion, we at the Bank of Israel are committed to promoting employment diversity. The Bank has made adjustments to enable the absorption of ultra-Orthodox employees, such as the appointment of a designated employment diversity coordinator to guide the hiring process, and more importantly the absorption and acclimation of new employees at the Bank. We have held training sessions on the issue for the Bank's employees and managers, and we are in touch with relevant forums and people in the ultra-Orthodox community who are helping with this. Fortunately, the employees we have hired over the years from the ultra-Orthodox community have successfully integrated into the Bank. We will continue our efforts to hire additional highly professional employees. I would like to use this podium to call on appropriate candidates from the ultra-Orthodox community to apply for positions and to join the ranks of the Bank of Israel.