Recent Economic Developments: April to September 2013
Recent Economic Developments: April to September 2013
Economic growth was moderate during the reviewed period. In the second quarter of the year GDP grew rapidly, but this was influenced by the start of use of domestic natural gas. As this impact wears off, and in view of the continuing weakness of Israeli exports, growth in the third quarter was lower.
- In the past five years, the gap between the budget for the basket of health services and the costs inherent in providing the medications and services in the basket has expanded, which has contributed to growth in the deficits of the health funds and the hospitals. In May, the government decided to change the mechanism of updating the budget for the basket of health services, and the yearly addition for this budget will increase. However, even after the change, the budgetary gap is expected to continue expanding in the next few years. The budgeting gap makes it possible to maintain pressure for restraining expenses in the health system, but in the absence of additional complementary budgets, its expansion will negatively impact services to the public.
- Collective agreements are widespread in public service industries, particularly among those with higher education and with high salaries (above NIS 14,000 a month), as well as in concentrated business sector industries. Wages are higher in these industries than in industries where there is a low rate of coverage by collective agreements. The high wages of workers who are covered in the public service industries is partially the result of the return to education for these workers, which is higher than among workers in the public services who are not covered or among workers in the business sector industries.
The review of recent economic developments for April to September 2013 that is being published by the Bank of Israel today deals with a period during which there was a moderation in economic growth. In the second quarter of the year, GDP grew rapidly (4.6 percent in annual terms), but this growth was influenced by the start of the use of domestically produced natural gas. Without that impact, the growth rate would have been slower. As the effect of natural gas production wears off, and mainly in view of the continuing weakness of Israeli exports, growth in the third quarter moderated to 2.2 percent. The decline in exports and the growth in imports moved the goods and services account in the Balance of Payments from surplus to deficit, and were also affected by the appreciation trend of the shekel, which continued during the reviewed period. The moderate growth has not been reflected in aggregate data on the labor market, which continued to improve, but the addition of employed persons was derived mostly from the public services. In the capital market, stock and bond prices were impacted by geopolitical developments and the uncertainty surrounding the timing of the tapering of bond purchases by the Federal Reserve. The uncertainty caused tremendous volatility in financial markets worldwide.
As part of the survey of developments, the Bank of Israel is providing an assessment of the changes made by the government during May in the mechanism for updating the annual budget of the basket of health services—a budget that totaled about NIS 35 billion in 2012. The survey finds that in the past five years, during which the deficits in the health funds and the hospitals expanded greatly, the budget for the basket of health services was only partially updated following the wage increases that the government agreed to provide to doctors and nurses, and in relation to the costs inherent in the growing and aging population. While the changes made by the government in May will increase the annual additions to the budget for the basket of health services, the gap between the basket’s budget and the actual costs to the health funds and hospitals will continue expanding in 2013 and 2014. The under-budgeting of the health system is intended to maintain pressure for restraining expenses in the health funds and the hospitals, but the expansion of the budgetary gap may negatively impact the quality and availability of the services provided as part of the basket of health services. In view of the expansion of the gap, it is therefore worth holding a comprehensive discussion of the priorities within the basket of health services: Should certain services be removed from the basket, where will a negative impact on the availability of services cause minimal damage, and so forth.
The survey finds that in the past five years, the government has increased the budgetary support that it provides to the public health system outside of the official basket of health services, and these budgets provide partial assistance in bridging the gap created in updating the budget for the basket. While the public health system’s increasing dependency on these external budgets maintains the pressure for budgetary restraint, it also prevents budgetary certainty and makes it difficult to manage the health funds and the hospitals. The survey recommends considering transferring some of these budgets into the basket and setting long-term, rigid and uniform financial criteria for transferring the support that will remain outside the basket. (Details are in the first part of the review.)
Employee unionization in the Israeli economy: The situation in 2012
One of the surveys being published in Recent Economic Developments deals with trade unions in Israel and with the coverage spread of collective agreements. In the business sector, there is a high coverage rate in concentrated industries such as the electricity and water industry, and the financial industry. In the transportation and communications industry and in the manufacturing industry, the coverage rate is average for incorporated government companies and veteran manufacturing companies, and for private companies. In the other business sector industries, there is a low coverage rate.
The coverage rate in the public service industries is related to employment patterns: the coverage rate is high in public administration, where direct employment in the general government is widespread; it is lower in the education industry and in the health and social services, where there are both direct employment and employment through public associations; and it is lowest in the social services industry, where employment through private non-profit organizations that compete with each other is widespread.
The distribution of coverage by education and profession shows that educated employees in the public sector industries have a high coverage rate both when compared to workers lacking higher education in the public service industries and when compared with educated workers and workers lacking higher education in the business sector industries. The wage distribution of workers with coverage and workers without coverage shows that in the business sector industries there is a relatively weak correlation between wages and coverage, while the correlation is more significant in the public service industries (Figure 1). In particular, there is coverage for about 80 percent of those with high salaries (NIS 14,000 or more per month) in the public service industries, while just one-third of those receiving low salaries are covered. Wage regression estimates indicate that the return to education for workers with coverage in the public service industries is double that of both workers without coverage in the same industries and of workers in the business sector industries.
(Details are in the second part of the review).
This review of Recent Economic Development includes analyses of a number of other issues, which were published separately a few days ago:
v An assessment of the fiscal developments since the budget was approved, and their effects on the expected fiscal path.
v The development of higher education in Israel and its contribution to long-term economic growth.
v Home purchasing patterns by local investors between 2003 and 2012.
Payment of the Earned Income Tax Credit in 2012—the first year of its nationwide applicability.