Social Report 2016: Wages are Rising but Fail to Match the Increase in Economic Growth

Adva Center’s annual publication for 2016: The fruits of the economic growth trickle upwards more than down

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Equality and social justice are not a top priority of the Israeli government, which relies on economic growth to improve the quality of life of all Israelis. Yet, the fruits of the economic growth trickle upwards more than down. Therefore, state intervention is required.

Over the past 2-3 years we have seen a rise in wages which is, inter alia, the result of wage agreements the government signed with the teachers’ unions (“Ofek Hadash” and “Oz LaTmura”) and with public sector employees —  and of an increase in the minimum wage.

Yet, wage disparities are significant. In 2015 the gross monthly income of a household headed by a salaried employee was NIS 4,644 in the lowest decile and  NIS 58,293 in the top decile. The top two deciles (9 and 10) were responsible for some 43.9% of total household income, while the other 8 deciles shared the remaining 56.1%. It is important to note that there are huge gaps within the top decile between the uppermost one percent and the rest.

The problem is rooted in the fact that Israeli governments reduced their capacity for action and primarily their budgetary capacities. The result is the shrinking and narrowing of the social services the state provides: education, health, welfare and social security. In 2014, the total state expenditure (including local government) of 41.2% of the GDP placed Israel alongside the eastern European countries and nations with a tradition of low government expenses such as Canada and New Zealand (which spend less than Israel on security).

Furthermore, Israeli governments are concerned primarily with political and security problems, mainly the Palestinian conflict, expressed in frequent outbursts of violence. Israeli governments do not invest in the development of long-term plans to increase success rates in the matriculation exams, to enlarge the student population or to include the entire Israeli population in the “start-up nation”.

Additional key findings:

  1. Employment and wages: The CEO of a large corporation earns 91 times the minimum wage.
  • The fruits of economic growth continue to “trickle upwards” more than they trickle downwards. This is clearly reflected in the salary bills of senior executives, which increased in 2015 compared with 2014. The most significant increase was in stock options while wages, management fees and bonuses remained more or less the same.
  • The CEOs of the top 100 corporations traded on the Tel Aviv Stock Exchange (The TA-100 Index) cost their firms an average annual sum of NIS 5.1M, or NIS 425K per month.
  • The average annual salary bill of the 5 most senior executives of these corporations was NIS 4M, or NIS 337K per month.
  • The gaps between the remuneration of senior executives and other employees continue to be significant: The average pay of CEOs was 44 times the average wage (NIS 9,592 of Israeli employees) and 91 times the minimum wage (NIS 4,650).
  • Inequality in pay exists between genders: women are over-represented in the lower echelons of the salary scale: in 2014, 30.9% of women earned less than the minimum wage, compared to only 16.8% of men.
  • Inequality in pay exists also between other population groups, as follows (2015 data):
  • Native Israelis of Ashkenazi origin earned about 31% more than the average;
  • Native Israelis of Mizrahi origin earned about 14% more than the average;
  • Native Israelis from FSU countries earned about average (1% more);
  • Arab employees earned about two-thirds of the average;
  • Immigrants from Ethiopia and native Israelis of Ethiopian origin earned about half of the average wage.

In November 2016, the average unemployment rate was low – 4.6% – but:

The national rate conceals significant differences among localities and population groups: An analysis by locality shows that Arab localities top the unemployment list, and that the Bedouin localities in the Negev are at the very peak. In the largest Bedouin locality of Rahat the rate of job seekers was 14.4%. Similar rates were found in some of the large Arab localities in the North, including Maghar (14.8%), Sahnin (14.7%), and Umm el Fahem (14.6%). In the majority of Jewish localities, the unemployment rate was lower than 5%, yet, in development towns like Mitzpe Ramon, Dimona and Yeruham, unemployment rates were 9.5%, 9.3% and 8.6% respectively.

  1. Education: Twice as many students in affluent localities compared with the periphery

The highest paying professions usually require a college education.

  • In 2015, only 29.3% of young adults who were 17 years old in 2007 had begun studying in a higher education institution.  Twice as many young Jewish adults were enrolled compared with the number of young Arab adults.
  • In the 2014-15 academic year, 14% of 20-29-year-olds were enrolled in universities and academic colleges. There were significant differences among localities: 21.5% from strong localities vs. 12.6% from Jewish development towns and 9.1% from Arab localities.
  • The low rates of college students are the result of the low percentage of high school graduates eligible for a matriculation certificate. In 2013, for the first time, that figure exceeded 50%, and in 2015 it reached 56%. Nevertheless, 44% of 17-year-olds did not matriculate.
  • 40.7% of Jewish teens who graduated high school in 2007 and enrolled in academic studies before 2015 were graduates of the academic track. This is compared with 32.8% graduates of the vocational track.
  • 77% of high schools in development towns are owned by vocational networks. Any existing vocational high schools in strong localities are usually located in the less affluent neighborhoods.
  1. Health: Jews live 3 years more than Arabs

The social gaps also impact health conditions. The level of health is a reflection of the quality of life, and, in general, of socio-economic status: the quality of nutrition, the environment, housing, the level of awareness of health hazards, and the accessibility of public transportation, employment, and health services. Differences in the general quality of life are translated into 2 main indicators used worldwide to mark gaps in health conditions: infant mortality and life expectancy.

  • The rate of infant mortality in Israel in 2014 was 3.1 (15th place in the OECD). Infant mortality has declined sharply since the 1970s among both Jews and Arabs. Yet, nowadays (2010-14) the rate of infant mortality among Arabs (6.4) is 2.6 times the rate among Jews.
  • Life expectancy is relatively high in Israel: In 2014, the average life expectancy of men was 80.3 years (ranked 6th in the OECD). The average life expectancy of women was 84.1. Even though this figure is higher than that of men, it only placed Israel in the 12th place in the OECD. In addition, while life expectancy is on the rise, it is higher for Jewish men (80.9) than for Arab men (76.9). The life expectancy of Jewish women (84.5) is higher than that of Arab women (81.1).