Main Points of an Address by Dr Karnit Flug, Director, Bank of Israel Research Department, at a Conference on Employment in and around Jerusalem from the Viewpoint of the Employers, Organized by the Jerusalem Municipality and the Ministry of Industry,

30.06.2010

Main Points of an Address by Dr Karnit Flug, Director, Bank of Israel Research
Department, at a Conference on Employment in and around Jerusalem from the
Viewpoint of the Employers, Organized by the Jerusalem Municipality and the
Ministry of Industry, Trade and Labor, June 28, 2010.

	The rate of employment in Jerusalem in 2008 was 43 percent, compared with 54 percent in the rest of the country.
	The proportion of the poor in Jerusalem (41 percent in 2008) was almost twice that in the rest of the country.
	Jerusalem's demographic characteristics, with non-Arab and non-ultra-orthodox Jews forming only 44 percent of the population, presents a particularly complex challenge with regard to employment and poverty.
	In Jerusalem the share of employees in highly paid industries, such as manufacturing and financial services, is relatively low––a factor that contributes to the high poverty rates in the city.
	The continued operation of the Earned Income Tax Credit (negative income tax) program would help to reduce poverty in Jerusalem.
	A policy should be adopted that would help boost fields of employment in which Jerusalem has a basis for the creation of a marked comparative advantage.
Dr Flug spoke of the challenges facing Israel's labor market, particularly in Jerusalem. The city's demographic characteristics, with Arabs constituting 35 percent of the population, ultra-orthodox Jews ("Haredim") 21 percent, and only 44 percent non-Arabs and non-Haredim, presents a particularly complex challenge in the area of employment and poverty, a problem that is becoming more and more acute.
The rate of employment in the Jerusalem District in 2008 was 43 percent, compared with 54 percent in the rest of the country. About half of the difference is the result of Jerusalem's demographic features, and the other half is due to the fact that the rate of employment in those groups in Jerusalem is lower than in the corresponding groups in the rest of the country.
It turns out, however, that the rates of employment and demography are not the only features that distinguish Jerusalem's labor market from that in the rest of Israel. Jerusalem is at a disadvantage also from the aspect of its industrial composition and of the average wage in each industry in the Jerusalem District, where only 9 percent are employed in manufacturing, compared with almost double in the rest of the country; in financial and business services, too, in which pay is relatively high, the proportion of employees is lower in Jerusalem than in the rest of the country. The share of those employed in the public services, especially in education, with their relatively low levels of pay, is higher in Jerusalem than elsewhere. The average wage in Jerusalem in most industries is also lower than the average wage in those same industries in the rest of Israel, with these differences being particularly striking in manufacturing, construction and business services.
These facts explain why Jerusalem is a poor city, with the share of poor almost double that in the rest of the country (41 percent in Jerusalem, in 2008, compared with 21 percent elsewhere). This emphasizes the need to take action to integrate the different populations in the labor market and to increase their income when they do become employed. The removal of the barriers to the employment of Arabs and Haredim, among other things by improving the relevant education and child-care services and preventing labor market discrimination, together with a vigorous policy of integration into the labor market via a program that would replace the Lights to Employment scheme, are of the greatest importance to Jerusalem. Also the continuation of the Earned Income Tax Credit program, combined with efforts to maximize the take-up of the entitlement by those eligible, would help reduce poverty in the city. Finally, areas in which Jerusalem has the basis for the creation of a distinct comparative advantage, such as tourism and bio-tech (based on the city's university and hospitals) should be identified and promoted. Improving the employment situation and reducing poverty in Israel's capital ought to be a national priority.