January 19, 2017
As we say goodbye to 2017 and kick off the new calendar year, it’s a great time to look back at what has been happening in Israel’s economy during the past year and in recent years in general.
A new Taub Center study by Gilad Brand, Prof. Avi Weiss, and Dr. Assaf Zimring shows that 2017 proved to be a good year for Israel’s economy in a number of ways: the employment rate is the highest it has been for years, the unemployment rate is at a historic low, and wages have continued to increase after a long period of wage stagnation. However, the picture isn’t completely rosy. Other areas of Israel’s economy show worrisome trends, particularly when looking at potential for economic growth in the long term.
Israel’s GDP (gross domestic product) per capita is expected to increase by 1% in 2017, similar to the rise in recent years, but slightly lower than in other developed countries. Therefore, Israel finds it difficult to maintain a standard of living similar to these countries.
In 2017, as in recent years, the main barrier to the growth of Israel’s GDP is the country’s low labor productivity which, according to preliminary estimates, is expected to experience no growth whatsoever this year. Productivity, which measures the amount of goods and services produced per hour of labor, has not risen in recent years. One of the reasons for this is increased employment among population groups with lower skill levels and earning capacity (itself a positive trend).
The relatively good state of Israel’s economy is exhibited by a number of positive trends in the labor market; as noted, the unemployment rate is at a low and the employment rate is high. In addition, participation in the Israeli labor market, which had risen impressively since the early 2000s, seems to have peaked this year. While low employment rates in the Arab Israeli and Haredi (ultra-Orthodox) populations could be a source for potential further growth in employment in the long term, another demographic change – a decline in the share of people of prime working age (25-54) as a result, in part, of Israel’s aging population – likely indicates that the current expansion of Israel’s labor force supply is reaching its upper limit.