Introduction Characteristics of the Israeli labor market –Low participation rate in the labor force compared to OECD countries –High rate of foreign workers –Growth in the number of dependents on benefits Growth in the burden of transfer payments

Labor Market Figures

Participation Rate of Men in the Labor force Ages OECD Average: 92.7 Israeli Average: 84

Participation Rate of Women in the Labor force Ages OECD Average: 71.8 Israeli Average: 68

Foreign Workers (thousands) and Rate (%) of Total Labor Market Source: CBS

Rate (%) of Foreign Workers in the Labor Force OECD 2000

Israeli and non-Israeli Employees in the Construction Industry (thousand) Source: CBS

Recent Changes Reduction in the number of work permits to foreign workers Strict enforcement of employment laws “ Closed Sky ” policy Increase in cost of employing foreign workers

Trends in Number of Welfare Recipients

Growth in Income Support Recipients Source: CBS

Increase in Income Support Recipients Vs. Increase in General Population & Number of Unemployed (1985 Index=100) Source: CBS

Recent Changes Reduction in payment levels for income assurance Reduction in rate of taxation on employment income Reduction of ancillary benefits Comprehensive employment test – “ No Exemptions ”

Financial Aspects

Transfer Payments as Rate of GDP Source: CBS estimate 2003

The Financial Burden Comparison of Various Budgets: Welfare payments: 8.5% Defense: 9.1% Education 8.5% 2002

Conclusion of Current Situation Reduction of participation rate in labor force. Increase of foreign, (mostly illegal) workers Growing inequality and a widening of the income gap Increase of public expenditure on welfare payments Drastic failure of the system in implementing a policy of remunerating those earning their wages in the labor force and assisting those who are unemployed to return to the labor force

Consequences Long term effects on the labor force, the GDP and the national Budget Social Impact – Creation of a culture of unemployment and dependency