Inequality in Israel

The 9th Caesarea Economic Policy Planning Forum, June 2001

Policy Paper No. 28

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  • Cover Type: Softcover
  • Number Of Pages: 88 Pages
  • Center: Eli Hurvitz Conference on Economy and Society (Caesarea Forum)
  • Price: 60 NIS

Are the economic gaps in Israeli society exceptional when compared to other western societies? And how can Israel cope with these gaps? This paper demonstrates that the attempt to minimize the economic gaps in Israel by establishing a support system and allowances have indeed gained success, but also cost a high price from the Israeli market, since this method weakened the incentive for households to advance on their own.

Are the economic gaps in Israeli society exceptional when compared to other western societies, and how can Israel cope with these gaps? Written for the 9th Caesarea Economic Policy Planning Forum in 2001, this study discusses how the attempt to minimize the economic gaps in Israel by establishing a support system and allowances have indeed gained success, but also exact a high toll from the Israeli market, since this method weakens the incentive for households to advance on their own. Furthermore, the authors investigate the question of Israeli economic mobility, and show how specific populations are able to enjoy it, while others remain static, captives in the circle of poverty. The authors' conclusions are that short term solutions for the issue of poverty are found in creating employment for heads of households and in encouraging such work, and that long term solutions lay in empowering professional skills of the weak population.

Education as a Primary Tool for Narrowing Gaps

The key to reducing the economic gap over the long term, in the view of most speakers, is proper investment in education. The impressive technological developments of the last few years have increased the practical value of education and widened the gap between those with more education and those with less. The participants related to the subject of gaps in the following ways:

  • The government is not doing enough to reduce gaps in education. Budget allocations for programs in this area are relatively small (NIS 1 billion a year out of an annual education budget of NIS 22 billion), and the effectiveness of the programs is doubtful, as the Education Ministry has yet to devise an orderly means of evaluating them. Moreover, the allocation system for schools does not distribute resources differentially. Schools are budgeted according to teaching hours and the quality of the teaching staff; since the more highly educated teachers are located in wealthier communities and neighborhoods, a student from these areas receives a larger slice of the budget than a student from a development region. The system of equal allocation prevents closing the gaps, since schools in wealthier areas are able to raise funds from other sources (such as the local authority or parents), while schools in development regions are almost entirely dependent on the government budget. National Bureau of Statistics data show that in cases where the head of the family has a low level of education, the level of the school essentially determines whether or not his or her child will qualify for a high school diploma. Therefore, improving the quality of schools in depressed areas is of prime importance. It was suggested that contributions from the UJA or Israel Bonds be channeled for this purpose.
  • The government directs many students toward technical high schools, setting them on a path that does not lead to a matriculation diploma. This policy, which was originally intended to prevent early dropout, has turned into an obstacle for many teens, who complete high school with a profession (often an outdated or low-demand profession) but with no matriculation diploma and no chance of continuing on to higher education. These teens are deprived of the employment flexibility enjoyed by those who attend academic high schools. As a result, they have relatively little chance of improving their economic situation. Ironically, schools have an economic incentive to create professional tracks, since the budget for students in these tracks is set according to a higher index. A combination of academic studies, together with the opportunity to learn a profession over the summer vacation or before enlistment in the army would greatly improve the situation of these young people and prevent them from being labeled a “disadvantaged population.”
  • The achievements of the education system do not appear to be impressive, given the enormous resources at its disposal, and especially given the large budget increase it received under the Rabin administration. The example cited several times in the discussion is the gap that continues to exist (though it has been reduced somewhat over the years) among various population groups in rates of eligibility for high school diplomas. One claim was that this gap signifies management failure on the part of the education system. The issue relates to Professor Victor Lavi’s recommendation that a degree of responsibility be instilled in the management of educational institutions.


A discussion was held on suggested steps toward easing university entrance requirements by eliminating the psychometric exam or lowering tuition, thus opening the door to higher education to those who would otherwise never be able to achieve one. A sweeping reduction in tuition was said to be unjust because it would help those with means to finance their studies at the expense of all taxpayers. It was mentioned that eliminating the psychometric exam would allow unqualified students to enter universities, thus lowering the academic level. A more effective solution would be to expose greater numbers of students from depressed areas to the idea of academic studies through a combination of affirmative action and scholarship programs. It was also mentioned that education is a clear example of inbuilt market failure: families of little means are not able to borrow the money required for high-quality education; children of these families, therefore, do not fulfill their potential. One function of the government is to intervene in order to allow every sector of the population to acquire a good education.

The State of Israel, it was claimed, can compel all educational institutions to use a basic curriculum that includes the subjects needed for students to function satisfactorily in the job market: mathematics, English, and computers. Ultra-Orthodox schools do not teach these subjects, and their graduates become dependent on society, rather than contributing to it.

A number of speakers mentioned specific projects that promote achievements by youth in depressed areas–earning a high school diploma, exposure to the world of higher education or hi-tech. They had strong praise for pinpointed, focused treatment administered over the course of several years, which has led to very positive results.