Social policy in Israel is to be seen against the background of long-term processes such as the fall in demand for unskilled workers that has resulted inter alia from the economy's exposure to imports, high technology oriented growth and the permission granted for the mass entry of foreign workers and during recent years, the slump in the labor market. These processes, which derived partly from the economy's integration in the global economy - in itself a welcome development - have reduced the weak populations' earning ability, adversely affected security of employment, deepened the extent of poverty and expanded income gaps. As a result, the importance of social policy, which is intended to help the weak populations, has increased in the globalization era. This policy also assists in the successful absorption of new immigrants.

Following a general analysis of social policy, this year the chapter focuses on transfer payments and on the area of education. Until the beginning of the decade, the number of transfer payment recipients had increased rapidly and the volume of payments had reached over 14 percent of GDP. Despite their contribution to the welfare of the weak strata, transfer payments failed to prevent the extent of poverty and inequality in disposable income from increasing. It is doubtful whether the growth in transfer payments could have been maintained, especially in view of the negative incentives to work inherent in them.

Since the beginning of the 2000s and especially since 2002, transfer payments have become much less generous (particularly child allowances, unemployment benefit and the income guarantee payment). The policy turnaround derived from a conceptual change of reducing government involvement in assuring the population's welfare while focusing on encouragement to participate in the labor force, against the background of the low labor force participation rates - as well as from budgetary necessity. Due to these changes, the generosity of the allowances in Israel is relatively low compared with Western countries. The changes were accompanied by programs - few in number and late in implementation - for encouraging integration in employment, and together with the slump in the labor market, exacerbated the extent of poverty in the short term. However, the reduction in the number of foreign workers contributed to the integration in employment of unskilled Israeli workers.

The social services (such as education and welfare) increase the benefit of service recipients, and have positive implications for the rest of society as well. Government involvement is also important because of the need to assure the quality of the services. During recent years the government has placed an emphasis on increasing the efficiency of the social services and improving their quality. In addition, a number of services that were still financed by the state have been privatized concurrent with a decrease in the government's share in the financing of other services.

The national expenditure on education amounts to approximately 10 percent of gross domestic product, a ratio that has been rising for a long time, and is the largest component of public consumption. The volume of resources that Israel allocates to education is no less than that usual in Western countries.

Over the years the resources available to schoolchildren have increased, the distribution mechanisms have improved and the discrimination that was practiced against various sectors has decreased. As for educational achievements, most of the usual indexes show a substantial and continued improvement and (inadequate) reduction in achievement gaps by nationality, ethnic origin and socio-economic status. Yet there are also a number of indicators pointing to a decline in the level of knowledge of those completing high school and until recently, comparative examinations showed that Israel was falling behind on the scale of achievements.

In recent years calls have grown for a comprehensive reform of the education system, based primarily on a reorganization and increase in efficiency without a significant growth in resources. The main principles of the "National Education Plan" (the Dovrat Report, January 2005) are a strengthening of public education, a reduction in the differentials in the allocation of resources and in educational achievement, and an increase in the school's independence.

Chapter 4: Welfare Policy - PDF file