The Bank of Israel supports the extension of the Mehalev welfare to work program and the implementation of the proposals to improve it
In the first year of activity of the Mehalev welfare to work program, jobs were found for many of its participants, and their dependence on the system of allowances was reduced. Nonetheless, several flaws in the program came to light, and these are currently being dealt with by the Ministry of Industry, Trade and Labor and the Ministry of Finance by matching the program to the individual, improving the incentives model, and enhancing supervision and control.
 
The main purpose of the purpose of the Mehalev welfare to work program (also known as the “Wisconsin Plan”) is to integrate recipients of income support into the pool of employment and to reduce their dependence on allowances and benefits. The program started operating in August 2005 on a two-year experimental basis, with the option of extending it for a third year. It operated in four centers: Jerusalem, Hadera and its environs, Nazareth and Upper Nazareth, and Sderot-Ashkelon. The target population of the program consists of claimants of income support in the locations defined as the catchment areas of the centers.
The program is based on a switch to a policy that encourages employment and that aims to reduce transfer payments––hence its name, Mehalev (the acronym derived from the slogan in Hebrew (Mehavtachat Hachnasa Leta’asuka Betucha, meaning “from income support to secure employment”)––similar to models developed in many advanced economies. One of the main models on which Mehalev is based is that first implemented in the State of Wisconsin in the US. That program was very successful due to the clear rules of conduct set for those involved, in particular the clear definition of fines and incentives applied to the companies operating the program and to participants in it. The introduction of the program in the US led to a reduction of about 50 percent in the period 1995 to 1999 in the number of those dependent on allowances, and many of them found employment.
In the Netherlands a similar program is in operation; Social affairs and employment were brought together under one roof. Since the start of the program in the mid-1990s, allowances have been cut, the number of employed persons has risen, and the rate of unemployment has declined steeply. Other advanced economies also chalked up successes in similar reforms––the number of claimants for allowances and benefits declined, and many were absorbed into employment.
According to data of the Mehalev administration and the National Insurance Institute, some 23,000 people registered at the program’s centers, and at the end of the first year of operation (July 2006) their number had fallen to about 12,000. Some of the reduction resulted from jobs being found for participants––employment was found for about 10,800 (about 30 percent of whom were found jobs more than once). About 2,400 participants left the program: some continued to receive income support, but not under the auspices of the program, and the rest were made ineligible for the support, either because they found jobs independently, or because they did not meet the conditions of the program (some apparently because they worked without reporting the fact). It should be noted that most of the reduction in the number of income support recipients in the period under discussion was due to the operation of the Mehalev program, while in other locations the number of income support recipients did not show any significant decline. The effect of the program will be analyzed at greater depth in research that monitoring the program.
Towards the end of the first year of operation of the program, the Ministry of Finance and the Ministry of Industry, Trade and Labor tried to draw conclusions from their experience of its activities and to find ways to enhance the program. In June 2006 a review committee was appointed, headed by Professor Yossi Tamir, which indicated several defects and recommended ways of rectifying them:
  Adjusting the program to the individual, relying on professional-occupational testing, and designing a special path for the weaker groups in the population for whom employment cannot be found.
  Reducing the number of hours in the individual programs for some of the groups.
  Setting a separate budget for retraining to promote occupational rehabilitation.
  Adding incentives for those who persevere in the program for a long time.
  Reinvesting in the community money saved as a result of the program.
  Improving supervision and control mechanisms.
Immediately following the publication of the committee’s recommendations the Ministry of Industry, Trade and Labor introduced changes to the program, that served to match the program on a personal level to the needs of the weaker groups, e.g., adults who have received income support for many years, or mothers with five or more children under the age of twelve. It was also decided to cut the number of hours required by the program for particular groups among participants. Following the committee’s recommendations and cooperation between the two Ministries various proposals were made to enhance the program:
(1) Incentives would be based on the quality of the placement of the participant in a job and the occupational retraining given. (2) Monetary sanctions would be imposed on operators who deviated from the rules. (3) Incentives would be offered to participants who remain in employment, and a study grant made available to anyone who stopped depending on the income support allowance. (4) The grant to operators for savings in payments of allowances in the budget for encouraging employment was abolished. (5) A possibility of denying the allowance on a partial basis was introduced. It was also recommended that a unit be established in the program administration to handle enquiries from the public, with the focus on improving the service provided to improve the chances of a participant finding employment.
To summarize, in its first year of operation the Mehalev program succeeded in placing in employment many participated who were income support recipients. Nevertheless, the program encountered several problems, some reflecting the learning process and gaining experience in the trial period. The program should be continued and expanded nationwide, at the same time correcting the defects and implementing the recommended changes. In the light of the expected changes in the program we hope that it will contribute significantly to the welfare of many of the weaker sections of the population by helping them return to the labor force. This process will also reduce dependence on income support payments and thus will reduce the government’s expenditure on those payments.