Summary:

  • The demand for labor continued to expand during the first half of the year, and was reflected by an increase in the number of employee posts in the business sector, a moderate growth in the employment rate, a rise in the nominal wage, which had eroded to some extent due to the increase in consumer prices, and by a decrease in the unemployment rate to about 5.5 percent in the second quarter.  
  • The growth in the demand for labor in the business sector slowed in the second half of the year, the increase in the number of employee posts in the sector ceased, and the unemployment rate ranged around the level of 5.5 percent. However, employment continued to expand to a modest extent and the real wage increased due to the low rate of inflation and the persistent rise in the nominal wage.  
  • Signs of increased efficiency in the labor market during the last five years, including a decrease in the rate of transition from employment to non-employment and reduced friction in the labor market, are suggestive of a decrease in the economy's "natural unemployment rate" (Box 5.1).  
  • Signs of rapid growth in the rate of employment of ultra-Orthodox men are apparent, especially in the business sector industries. The employment rate increased from 39 percent in the years 2008-09 to about 46 percent in 2011. However, the employment rate among ultra-Orthodox is still 15 percentage points lower than the employment target which the government has set for 2020 (Box 5.2).  
  • The growth in the employment of non-Israelis in the economy continued. Authorized and unauthorized employment of Palestinians increased, as did the entry of (work-seeking) infiltrators via the Egyptian border. This resulted inter alia from an inconsistent government policy regarding efforts at ending the employment of foreign workers in the economy.  
  • The real wage in the business sector has not risen during recent years because of increased employment in industries that are not human-capital intensive-which was filled by an elastic supply of labor on the part of unskilled Israeli and non-Israeli workers-and due to wage erosion which was caused by the soaring consumer prices relative to the business sector GDP deflator. However, the increase in the real wage adjusted by the GDP deflator continued to rise due to the continually growing demand for labor.  
  • Although the government is taking policy measures-such as a rise in the minimum wage, an earned income tax credit (negative income tax), and more stringent enforcement of workers' rights-in order to expand the employment of worker with low-income earning ability and to increase their welfare, it is nevertheless continuing to employ workers by means of outsourcing. In the absence of strict supervision, this could harm the welfare of those workers.  
  • Expenditure on private childcare facilities for infants has a decidedly adverse effect on the employment of mothers. Such expenditure is considerably higher in Israel than in other OECD countries. This has held back an increase in the employment rate of mothers of infants, which had been a notable development among all women in the past decade. Implementation of the free education law for children aged 3-4 with effect from the 2012/2013 school year will reduce this expenditure burden. An additional increase in the subsidization of childcare facilities will help to speed up the increase in the employment rate of women.  


The Labor Market - PDF file