OECD Economic Surveys: Israel 2018

Report

OECD Economic Surveys: Israel

11 March 2018

Chapter 1. Improving the education system to enhance equity

Abstract

Israel suffers from substantial income inequality and a high poverty rate. The labour market is characterised by severe polarisation. At one end are the high-tech industries with high-quality jobs and on the other end are low productivity jobs with low wages. This reflects substantial dispersion in skills, which is the highest among all OECD countries. Israel has adults with outstanding skills and at the same time a large share of low-skilled adults. Education should play a major role in reducing these differences, but students’ outcomes are dispersed and weak for disadvantaged groups, and their share in the total population is expected to increase. Changes in the education system require a reduction in the significant differences between individual educational streams. This is challenging due to existing cultural barriers. Another major challenge is to improve the achievement of disadvantaged children. The educational system should also be more linked to the labour market in order to increase wages and job satisfaction for all graduates. There is scope to use skills at work more effectively by introducing training programmes for adults who have already left initial education without proper skills.

The statistical data for Israel are supplied by and under the responsibility of the relevant Israeli authorities. The use of such data by the OECD is without prejudice to the status of the Golan Heights, East Jerusalem and Israeli settlements in the West Bank under the terms of international law.

Large dispersion in skills contributes to inequalities

High share of adults in Israel is lacking basic skills

The skills of Israel’s adult population appear relatively weak when measured by the results of the OECD’s 2015 Survey of adult skills (PIAAC). Despite having on average more years of education than the OECD mean, those surveyed demonstrated poor reading, math and problem-solving skills. Skills are weak at each level of education and are low across all age cohorts (Figure 1.1, Panel A). Weak average results stem from a large dispersion of skills across society. Israel has one of the largest achievement gaps between adults with outstanding skills and those with weak outcomes (Panel B). On the one hand, the share of adults with outstanding numeracy skills is comparable to the OECD average. On the other, the proportion of low-skilled adults is exceptionally high, as almost one-third of Israelis lack basic maths skills and more than a quarter performed poorly in reading.

Figure 1.1. Adults in Israel have weak numeracy skills with significant variability

More worryingly, the skills differences rooted in strong cultural and socio-economic divisions in Israeli society are much more pronounced between communities. Differences in skills are prominent between Jewish, Israeli-Arab and Ultra-Orthodox (Haredi) adults. Jewish adult scores are significantly higher compare to Israeli-Arabs, which scores are similar to the countries ranked at the bottom. The gaps between the Arab and Jewish populations are even more evident when examining computer skills, as a third of Arab adults lack them even at basic levels, compared with only 9% of Jewish adults and an OECD average of 15%. At the same time, average test scores of young Ultra-Orthodox adults are much weaker than those of the rest of the Jewish population (BoI, 2016).

High dispersion in skills contributes to a segregated labour market

This significant skills dispersion is contributing to the highly segregated labour market. On the one hand, booming high-tech, banking and financial sectors offer attractive working conditions with high and growing wages. On the other, low skilled disadvantaged workers are employed in blue-collar occupations with low wages in industries such as construction. There is a significant and growing gap between these sectors in terms of wages and productivity, which can be explained mainly by differences in workers’ skills (BoI, 2016). Mobility between these two sectors is low and decreasing over time (Brand and Regev, 2015), meaning that the labour market continues to be polarised.

The high-tech sector, which attracts mostly high skilled workers, is facing growing labour shortages, undermining its growth and competitiveness. Employers are voicing concern about this inadequacy of highly skilled labour (Musset et al., 2014). More than half of the companies reported difficulty filling jobs, particularly for engineers (Manpower, 2016). Despite strong demand, the high-tech sector’s share of total business employment hovered at about 12% for a decade, and the sector is said to lack more than 10 000 engineers (Ministry of Economy, 2016). Still, less than 2% of Haredim and Israeli-Arabs work in this sector and only 3.4% of Israeli-Arabs work in the financial services sector. A shortage of trained graduates is increasing wage pressures, thereby undermining Israel’s cost advantage, especially in the key area of multinational R&D centres, and fuelling growing wage dispersion and inequality. Average salaries at R&D centres in Israel have risen from less than 60% of a corresponding US salary in 2009 to close to 80% in 2014 (Ministry of Finance, 2016), while the average compensation per employee has increased in the same period from 54% to 60% of the US average.

At the same time, the share of low-paid workers is comparatively high (Figure 1.2, Panel A), as many workers are trapped in low-wage jobs partly due to their weak skills. In Israel, the relation between wages and skills proficiency is much stronger than in other countries (Panel B). The wage gap between Arab and Jewish males is 28% and for the most part can be explained by the differences in skills. The same goes for the wage differences between Ultra-Orthodox and other men, which can be entirely explained by the skills gap (BoI, 2016). High skills dispersion contributes to inequalities (Box 1.1).

Figure 1.2. Israel has many low-paid workers, and the effect of skills on wages is particularly strong

Box 1.1. A more equal skills distribution will help to reduce wage inequalities

Skills and their dispersion in economy matter for wage inequality. The OECD’s Skills and wage inequalities (OECD, 2015a) confirms that wage inequalities linked to skills and their prices and that skills can help explain wage gaps between socio-economic groups. This analysis used PIAAC data and simulates alternative wage distributions to assess the role of skills in explaining differences in wage inequality across countries. To estimate the role of skill inequality, each country’s skill distribution was “reweighted” so that it has the same skills inequality as the average PIAAC country, while leaving the average level of skills unchanged (for more details see OECD, 2015a). This then allows the calculation of difference in wage inequality associated with changes in skills dispersion.

The results of this analysis (Figure 1.3) indicate that wage inequality would be reduced by almost 4% if Israel had the same skills dispersion as an average PIAAC country. This impact is the highest among OECD countries. This estimate shows only the impact of a change in skills dispersion, but a reduction in wage inequality in Israel will above all require improving the levels of skills of disadvantaged groups (see below). This confirms that skills inequality matters for wage inequality in Israel and that investing in skills, which is a form of active redistribution policy, is likely to lower the need for increased spending on passive redistribution and can help to reduce income inequality.

Figure 1.3. The impact of skill inequality on wage inequality

Percentage change in wage inequalityref refid="fn-0063" format="note"/> after imposing the skills dispersion of the average PIAAC country

The considerable dispersion in skills among adults from different communities is a serious issue because of ongoing demographic trends. The wave of migrants from the former Soviet Union that increased the working-age population by 15% some 25 years ago is approaching retirement age. Most of them held a tertiary qualification, and around one‐quarter worked as professionals, technicians and managers, which requires higher-level technical and analytical skills. As a result, approximately 100 000 newly trained technical and professional recruits will be needed in the coming decade to replace them (Musset et al., 2014), assuming that the demand composition will not change. At the same time, the share of workers from communities with low skills is increasing. Currently, Haredi Jews and Israeli-Arabs represent one-third of the population, but in 2059 they are projected to represent a half (Central Bureau of Statistics, 2017). For young adults (20-24) for instance, official estimates show that it will increase from around one-third currently to 55% by 2059. This represents a major challenge for the Israeli economy, as Haredi men do not want to study secular subjects, schools in the Arab sector remain underfunded and Arab women face cultural constraints on their ability to work.

These findings suggest that much more needs to be done to lower skills dispersion and improve the skills at the bottom end in order to reduce income inequality and improve overall well-being. One of the most effective ways is to improve the education system and make it more inclusive by giving all children opportunities for good-quality education. At the same time, the government should also focus on programmes for adults who have already left initial education without proper skills.

Making the education system more inclusive

The education system in Israel is free and obligatory for children aged 3 to 18. Upper-secondary education lasts three years, and around 90% of today’s young people are expected to complete upper-secondary education. The education system comprises four main streams. One is for Arabic speakers and three for the Hebrew-speaking communities, which consist of state, state religious and Ultra-Orthodox schools. The share of the pupils in state secular schools has been shrinking over time, while those in Arab and Ultra-Orthodox schools are increasing (Figure 1.4). Almost 60% of students go into general academic upper-secondary education, and one third enrol in technological programmes, while 3% enrol in industrial schools or apprenticeship pathways (ETF, 2014).

Figure 1.4. The shares of Israeli-Arab and Haredi pupils are increasing

Education plays a central role in the acquisition of skills at an early age. However, international assessments of students’ outcomes (including PISA) show poor results for Israeli students. Although PISA results for 15 year-old Israeli students show a slight improvement over the last decade, they still lag considerably behind the OECD average across all areas tested (OECD, 2016a; Figure 1.5).

Figure 1.5. Israel lags considerably in students’ school outcomes, particularly in case of Arab students

PISA performance in mathematics, 2015

The weak results of Israeli students are confirmed by other international testing of 8th grade students in mathematics and science by TIMMS, which shows a significant gap between high performing OECD countries and Israel (TIMMS, 2016). Moreover, these results can be overestimated as Haredi students do not participate in tests and their outcomes might be weak as boys in Ultra-Orthodox streams do not study core subjects (see below).

More worryingly, here too significant differences can be observed in students’ results. The Israeli education system shows the largest dispersion in results, including large differences among students and schools. The share of students with exceptional performance in mathematics is comparable to the OECD average, while the share of low performing students is extremely high. Moreover, the differences in students’ outcomes are significant between different communities. PISA results show that Hebrew-speaking students scored similar to or even surpassed the average OECD student, while Arab- speaking students lag behind. The share of poorly performing Arabic-speaking students was 45%, while the share was 12% for Hebrew speakers. Almost no top performing students were found among Arabic speakers. These results confirm considerable differences between different education streams, which weaken skills formation and contribute to the considerable inequality in Israel society. This is in stark contrast to the best performing education systems across OECD countries that successfully combine high quality with little dispersion (OECD, 2012a).

Education funding needs to increase in order to lower dispersion and confront the bottom end

Overall spending on education relative to GDP is higher than the OECD average, but this reflects a higher proportion of young people in the population. Despite significant increases in recent years, expenditures per student in primary and secondary education remain low (Figure 1.6). OECD countries spent almost twice as much per secondary school student as Israel. Available resources and the way they are spent influence students’ learning opportunities (OECD, 2012a). Poor educational outcomes accompanied by significant differences among individual streams and communities call for higher education spending, especially at secondary level. The government should continue to increase its spending on education in order to reduce the large differences between students’ outcomes. Additional spending should be allocated effectively to promote bridges between different educational streams and improve the outcome at the bottom end (see below).

Figure 1.6. Education financing remains low, especially at secondary level

Annual expenditure per student relative to per capita GDP, 2014

Budget allocations do not provide enough support for disadvantaged groups. School funding is provided by national and local governments, households, and non-profit educational organisations. The bulk of the funding (almost 90%) comes from the Ministry of Education, which provides schools with grants for teaching and infrastructure, with municipalities providing additional funding. The funds allocated to each class are comprised of two main parts. The first is a basic budget that is equally distributed to each school and class. The second comprises two supplements, one of which reflects the number of students and the other the school’s socio-economic profile. However, the latter amount remains low: only around 6% of the total. At the same time, additional financing from the municipalities and parents favours schools in more affluent areas and lessens the effect of national affirmative action policies, but only to a small degree (Blass et al., 2016). Despite some effort in the recent years, the schools in Arab streams remain comparatively underfunded (Blass and Shavit, 2017). Also schools in Haredi streams receive lower funding because some depends on teaching of secular subjects (see below).

The government should aim for equitable and effective resource allocation to prevent school failure. Therefore, the current 6% share of budget allocation to reflect schools’ socio-economic profiles seems insufficient and should increase. In many other OECD countries the financing of schools with weaker socio-economic indices is much higher. For example, in Chile, a weighted voucher system was adopted to provide more resources for students from low socio-economic backgrounds. The value of vouchers is 50% higher for these students than others (Elacqua, 2012). Higher budget financing can be complemented with programmes that allow governments to address specific needs. These targeted programmes are widely and effectively used in some OECD countries and represent a significant share of the budget (OECD, 2012a). For example, UK schools receive additional discretionary resources for every disadvantaged student they enrol. The additional resources for disadvantaged schools are meant to provide help for pupils such as additional teaching time or specialised learning materials. The government has recently launched several programmes in this respect (see Box 1.2 below). However, education systems such as Israel’s with large differences between schools and a concentration of poorly performing schools should expand funding further to reduce these differences.

Box 1.2. Economic Development Plan for the Arab Sector – Education

On 30 December 2015 the Government launched a five-year plan to close gaps for Israel’s Arab society called “Economic Development Plan for the Arab Sector” (the “Plan”). It calls for allocations of NIS 15 billion over five years to simultaneously address multiple barriers to economic development, including education. The Ministry of Education has plans in five major areas:

1) Increasing teaching hours and enhancing academic achievements

Budgeted at around NIS 1 billion over the five years to give preference to more teaching hours to junior high schools in weaker communities around Israel. Specialised programmes include enhancing Hebrew proficiency for Arab children from kindergarten to high school.

2) Quality of teaching

Budgeted at around NIS 40 million for 2016 and NIS 315 million over five years. This includes improving teacher education by setting higher college acceptance criteria, enhancing academic skills development in the first year of study and special preparatory courses for future teachers of Bedouin in the Negev.

3) Informal education

Budgeted at NIS 130 million per year for a five year total of approximately NIS 650 million. It includes incentives for non-governmental organisations to work in the Arab community.

4) Access to higher education

The Plan includes targets for increasing participation of Arab students in higher education without specified budgets. It includes measures to support higher education institutions in becoming more accessible to and retentive of Arab students.

5) New classrooms in Arab localities

This programme area has not yet been developed in detail.

In Israel, class sizes in primary and secondary education remain large in international comparison. The average is 27 at primary level and 28 at the secondary level, compared to 21 and 24, respectively, in the average OECD country. More than a third of all classes have more than 32 students, and these overcrowded classes are much more pronounced in the Arab stream. The government intend to reduce the class size to a maximum of 32 pupils in primary and secondary schools.

However, merely decreasing class size is insufficient to guarantee improvement in outcomes and should be complemented with measures to improve the quality of teaching. Empirical research suggests that reducing class size in itself does not improve student achievement (Sharif et al., 2016). Therefore, making classes smaller should not be at the expense of teaching quality or salaries. However, smaller classes can still facilitate the adoption of other teaching methods and help with individualised or small group instruction, particularly with disadvantaged underperforming students (Zyngier, 2014). Hence, shrinking class size in disadvantaged schools needs to be accompanied by better classroom practices (Bascia, 2008) and learning conditions (Hanushek, 2002) and measures prioritising teaching quality (see below).

Promoting high-quality teaching should be a priority

Highly qualified and motivated teachers have the largest effect on students’ performance, strong enough to close the achievement gaps between advantaged and low performing students (Chetty et al., 2014; Schacter and Thum, 2004).

However, Israel’s non-Haredi Jewish stream is increasingly lacking qualified teachers, and their shortage is already having a negative impact on teaching quality. The growing number of students automatically results in extra vacancies for teachers, which are difficult to fill, especially for those responsible for core curriculum subjects. Every year schools are facing teacher shortages, and it is expected that 12 000 new teachers (almost 10% of the current level of teachers) will be needed by 2019 (CBS, 2014). As the schools are not able to fill vacant teachers’ positions, they are forced to increase the workload of existing teachers or more worryingly to assign classes to teachers who lack formal qualifications in the corresponding subject. Indeed, school principals recently reported that approximately 40% of the recruited new teachers are unqualified and not trained to teach the subject for which they were hired (Donitsa-Schmidt and Zuzovsky, 2016). In Israel, only 70% of teachers are certified, which is one of the lowest in the OECD (Figure 1.7). Empirical research suggests that out-of-field teachers have a negative impact on the quality of education and can undermine students’ ability to master the curriculum (Dee and Cohodes, 2008; McConney and Price, 2009). This is confirmed by analyses of the PISA results, which shows that the proportion of certified teachers is positively associated with student performance (OECD, 2016c).

Figure 1.7. Shortages of teachers are prevalent in Israel

Percentage of fully certified teachers teaching in schools, 2015

At the same time, current teachers’ skills are much worse compared to other professions. Students applying for teacher education programmes have worse psychometric scores than other applicants, despite some improvements in recent years (Ritov and Kril, 2017). Overall skills of teachers are also worse compared to teachers in other OECD countries (Figure 1.8, Panel A). Moreover, teachers with better psychometric scores teach in more affluent schools (Panel B). Arab schools have teachers with weaker psychometric scores, but this reflects the overall weak performance of Israeli-Arabs in these tests.

Figure 1.8. Quality of teachers is weak, particularly in disadvantaged schools

One way to increase the attractiveness of a career in teaching is to continue with recent salary increases. Teachers’ wages have already increased over the last decade by more than 30% in real terms and are now close to those of other tertiary educated workers (OECD, 2017a). This had led to an increase in their job satisfaction and a slight decrease in teacher attrition (Blass, 2016). However, this increase in salaries has affected young and other starting teachers less. The gap between young teachers and the senior teachers has been widening over time and is now one of the highest in the OECD (Figure 1.9). In order to attract more and better teachers, their salaries should continue to increase and be more linked to students’ outcomes. One option would be a permanent individual bonus for teachers linked to students’ performance. Experimental evidence confirms that making Israeli teachers’ pay a function of their performance has positive long-term outcomes (Lavy, 2015). A pilot programme led to improvement in the matriculation exams, a gradual increase in students’ university attainment and better employment and earnings in the long run.

Figure 1.9. Salaries are relatively low for young and starting teachers

Generalised wage increases should be complemented by wage incentives targeted at teachers pursuing subjects where there are shortages and at those teaching in disadvantaged and high-needs schools where effective teachers are particularly important. In many countries teachers are financially rewarded for teaching in disadvantaged schools. For example, Brazil increased teachers’ salaries by 60% in real terms for those working in poorer areas, and in Estonia new teachers are offered an allowance for three years if they locate in rural areas (OECD, 2014). Financial incentives will be effective only when teachers have the capacity to succeed (OECD, 2012a). Therefore higher wages should be complemented with other incentives like smaller classes. For example, Korea offers multiple incentives to candidates working in high-needs schools, such as additional salary, smaller class sizes and additional credits towards future promotions.

Financial incentives should be accompanied by measures improving the quality of teaching, particularly in disadvantaged areas. One way forward is to expand mentoring programmes, which can improve the effectiveness of teaching and increase the retention of novice teachers (Smith and Ingersoll, 2004). For example, in Switzerland all new teachers participate in collaborative practice groups led by trained, experienced teachers and have access to counselling, while in Finland, all teachers are trained in adapting their teaching to the varying learning needs and styles of their students (OECD, 2012a).

Building bridges between Israeli-Arab and Hebrew-speaking streams

Since student streaming and segregation can have a great impact on equity, there is a need to reduce the differences between Israeli-Arab and Jewish streams as much as possible. Public Arab schools enrol one-third of the students and serve the Muslim, Christian, Bedouin and Druze communities. While there is no legally instituted segregation and Arabs can attend Jewish schools and vice versa – the vast majority of Arabs attend Arabic schools and Jews attend Jewish schools. This is also related to the geographical dimension, as the Arab population is mostly concentrated in separated cities or neighbourhoods and children mostly attend schools near where they live. The language of instruction for the former is Arabic, and Hebrew is taught as a compulsory additional subject, while all teachers are Arabs. The curriculum, except for language, is nearly the same as that of Jewish schools. This separation of school systems leads to inefficient management and increased social segregation and indirectly to lower achievement for disadvantaged children (Wolff and Breit, 2012). There has been significant improvement in the achievements of Israeli-Arab students in recent years (Blass, 2017). However, the low level of students’ educational attainment and weak technical and scientific skills of Israeli-Arabs compared to the rest of the population (Figure 1.10) harm their labour market outcomes. The performance difference in PISA score between Arab stream and Hebrew speaking stream is about 100 points, which corresponds to more than three years of schooling.

One of the negative features of the Arab stream is inefficient Hebrew-language teaching. Poor command of the Hebrew language prevents the Arab population from fully integrating into the Israeli job market and reduces their chances of completing tertiary education. The Arabs with a very good command of Hebrew have better chances on the labour market. Their employment rate is approximately 80%, while those who do not understand Hebrew have an employment rate of only 30% (Marom, 2015). Moreover, Arab secondary school graduates find it difficult to succeed in higher education, where the language of instruction is generally Hebrew. Surveys of sixth-grade students in the Arab community show that 93% of Arab students think knowledge of Hebrew will help them succeed in the labour market (Marom, 2015). Still, only 60% of Arabs have a good understanding of Hebrew.

Figure 1.10. Arab students have worse PISA outcomes and lower educational attainmentref refid="fn-0069" format="note"/>

The government recognises the problem and is expanding the number of hours dedicated to Hebrew teaching in Arabic schools. Arab students in grades 3-9 now spend five hours a week on Hebrew lessons, up from four previously. Moreover, Hebrew language will now start to be taught in kindergarten, and some 120 Arab kindergartens will participate this year in a pilot programme that includes getting acquainted with Hebrew for two hours a week. The new Economic Development Plan for the Arab Sector includes programmes to enhance Hebrew in Arab schools (Box 1.2). These are steps in the right direction, but Hebrew studies should be further strengthened, and ensuring substantial teaching of practical Hebrew and teaching some core subjects in Hebrew should also be considered. A complementary approach would include expanding pre-school education to children between 0 and 3 (see above) and increasing their exposure to Hebrew. Many OECD countries expand early education services to help children build a strong foundation for life skills, especially for children from disadvantaged backgrounds (OECD, 2013). To this end, moving the responsibility for this sector to the Ministry of Education would be desirable.

In addition, the quality of teaching can be improved by increasing the small number of Jewish teachers teaching Hebrew in Arab schools, as at present Hebrew is mostly taught by Arab teachers in the Arab stream. Pilot programmes such as Cross-integrating teachers, which place Jewish teachers in Arab schools and Arab teachers in Jewish schools to teach their native language, have proved to be effective (Schneider, 2016). Further changes are required in language-teaching methods, as it remains focused on grammar and does not include everyday speech (Marom, 2015).

Another possible way to increase connectivity between Arab and Jewish schools may be to support bilingual schools. In Israel there are only five bilingual schools, which conduct lessons in both languages simultaneously by two teachers, one Jewish and one Arab. The schools are jointly run by Arab and Jewish principals. The demand for places at these schools is high. In general, many Arab parents prefer to send their children to mixed schools due to their higher quality and because it may help them better integrate in the Israeli labour market (Shwed et al., 2014). However, the number of places has not kept up with the growing demand for bilingual schooling. One of the reasons is insufficient funding and the fact that such schools require bussing of children to schools. Bilingual schools require twice as much funding as regular schools due to the higher number of teachers. The government covers only the normal cost, and the bilingual schools are forced to get the additional funding through fees or private-sector sponsorship. Anecdotal evidence suggests that results in terms of performance and equity in these schools are strong. However, comprehensive and regular monitoring of their outcomes is lacking. The government should therefore analyse their educational and equity outcomes. Should they be positive, it should boost their funding.

Improving the Ultra-Orthodox stream

The Ultra-Orthodox Jewish community comprises about 11% of the total Israeli population. Their rejection of the modern secular culture combined with the paramount importance they attach to the study of the Torah is the reason for low labour force participation of Haredi men. However, Ultra-Orthodox communities outside Israel, for example in Canada, the United States or the United Kingdom, have comparable rates of labour participation to the rest of the population, suggesting that a different balance between work and worship is possible in Israel too. The average skills level of adult Haredis is similar to the rest of the population’s, except for problem-solving skills. However, the younger generation of Haredi is doing much worse in terms of skills (Figure 1.11), because most Haredi men refuse to study secular subjects (see below). Therefore, significant social and economic differences are likely to prevail in the future, and their impact could even grow due to the foreseeable rise in the Haredi population share.

Figure 1.11. Young Haredi adults’ skills are weak

PIAAC scores, 2015

Haredi education differs markedly from that in mainstream schools reflecting an explicit choice of studying religious rather than secular subjects. By entering the yeshiva (Talmudic academy) framework at age 13, boys usually continue full-time religious studies until their marriage so that they do not get any formal education in secular subjects beyond grade 8. As a result, they often lack basic skills, such as mathematics or English, which hinders their future participation in tertiary education or the labour market. Most Haredi girls receive a secondary education with much more time dedicated to secular subjects and are better prepared for the final upper-secondary exams in all subjects. Altogether only a third of Haredi students complete formal upper-secondary education and take the matriculation exams. This is in stark contrast with the state-secular and state-religious streams, where more than 90% of the students complete upper-secondary education.

Public funding of Haredi education institutions is similar to mainstream schools. The Ministry of Education provides grants for teaching services and infrastructure. However, the funding allocation depends on teaching of secular subjects in different Haredi streams. The funding is organised as follows:

Recognised schools that are affiliated with the main networks (Independent Education System and Ma’ayan Hahinuch Hatorani), which are expected to teach 100% of the core curriculum subjects, receive 100% of the per-pupil funding provided to state schools. About 57% of Haredi pupils study in such schools.
Recognised but unofficial schools that are not part of those two networks are expected to teach 75% of the core curriculum subjects and receive 75% of the per-pupil funding provided to state schools. About 17% of Haredi pupils study there.
Exempt schools are expected to teach 55% of the core curriculum subjects and receive 55% of the per-pupil funding provided to state schools. About 26% of Haredi pupils study there.

There is a lack of key statistical information on Ultra-Orthodox education, as Haredi students do not participate in standardised testing programmes, and other key information on outputs in education is scant. At the same time government enforcement of the subjects taught in Haredi schools is weak. Although the Ministry of Education increased the number of inspectors in the Haredi elementary educational institutions from 13 in 2010 to 70 in 2015, in practice, supervision of the implementation of the core curriculum remains largely ineffective. This is important as better supervision and higher compliance of teaching core curriculum subjects can bring large gains in terms of student outcomes for Haredi boys.

Teaching of core subjects in Haredi schools should be strengthened in order to improve the skills of the Haredi population. Most Haredi parents are in favour of more secular subjects in the curriculum. Surveys show that the majority find core subjects a necessary complement to Torah studies, with only one-third preferring that their children learn exclusively religious subjects (Gal, 2015). However, several attempts to increase the share of core subjects in the Haredi curriculum have failed. The latest attempt, which provided budgetary sanctions against Haredi schools that did not devote a certain minimum time for secular studies, was repealed by the new government in 2015 due to opposition by community leaders and insufficient numbers of Haredi teachers and textbooks for these subjects. The authorities should prepare the ground for a possible future situation where teaching core subjects in Haredi schools is politically accepted, provide additional funding for training Haredi teachers and developing core-subject textbooks for schools willing to teach secular subjects. Therefore, additional funding should be provided to schools that are willing to enhance secular studies in their curriculum. This means providing additional funding for training Haredi teachers and purchasing core subject textbooks. However, this additional funding should also impose more conditionality on commitments to teaching core skills. The conditions for state funding should be linked to a comprehensive system of monitoring and student testing in order to improve key statistical requirements for policy making.

A complementary step would be to systematically subsidise the acquisition of formal knowledge by Haredi students after their religious studies. Several frameworks already operate in Israel to prepare for entrance to institutions of higher education for those students who otherwise lack the necessary academic qualifications. However, many families find it costly to take up courses to develop core skills after religious studies. Therefore, the government could introduce post-religious study courses leading to completion of formal upper-secondary education. These courses would have to be supervised by the Ministry of Education and should be free of charge.

Improving the VET system to help disadvantaged groups acquire skills for the labour market

There is slightly less vocational education and training in Israel than in other OECD countries. The majority of all students enrol in general academic upper-secondary education and the rest (40%) opt for technological programmes (Figure 1.12). Israeli vocational education consists of three different educational streams, in which the students are selected according to their abilities: i) engineering, considered as a higher technological track to prepare students for tertiary education in engineering or computer science; ii) the technological track to prepare students to be practical engineers or technicians; and iii) the vocational track, which is considered as a low technological track. While most of these students complete secondary education, only 66% obtain the Bagrut matriculation qualification, which are necessary for accessing tertiary education. The shares of students are almost equally distributed across the three vocational tracks.

Figure 1.12. The share of students in VET is slightly below the OECD average

Students in VET as a share of all students in upper-secondary education, 2015

The engineering track is very selective, and the best students often with the most educated parents usually opt for this track (Figure 1.13, Panel A). On the other hand, students with weak socio-economic backgrounds are mostly assigned to the lower vocational track. However, student selection and grouping can increase educational inequality, as less demanding tracks tend to provide less stimulating environments and weaker student outcomes (OECD, 2012a). Indeed, students in the lower track have much lower probabilities of qualifying for the Bagrut and higher dropout rates (Panel B), and these differences in educational outcomes remain substantial even after controlling for factors such as socio-economic background (Blank et al., 2015). Moreover, pursuing the lower VET track can worsen graduates’ labour market outcomes compared to those following the academic track (Ministry of Finance, 2017a). The empirical research about the impact of the opening of new vocational schools in the 1990s did not find any positive long-term effect on the labour market outcomes of graduates (Demalach and Zussman, 2017).

Figure 1.13. Vocational tracks differ significantly

Education reform should focus on eliminating the effects of streaming in order to reduce the education outcomes gap between the streams. All programmes should deliver benefits from both a learning and outcomes perspective. The two lower vocational tracks should merge in order to decrease number of streams. For example, in Austria the government merged the two lower-secondary education tracks and set out measures to improve the quality of education provided in the lower tracks (OECD, 2012a). At the same time, the share of students in the engineering stream should increase as the quality in this stream is much higher and the shortage of technicians on the labour market suggests that there is a need for qualified technically skilled graduates.

Nevertheless, the most important step should be to increase the quality of the two lower vocational tracks. Being in the lower track can fuel a vicious cycle in the expectations of teachers and students. Therefore, the government should ensure that all tracks give students a challenging curriculum and high-quality instruction with increased attention to basic numeracy and literacy skills (OECD, 2018). This can help not only to reduce achievement gaps between streams, but to facilitate changing tracks (OECD, 2012a; Burris et al., 2006). To improve classroom learning, schools and teachers should use diagnostic tools and assessments to monitor pupils’ progress and ensure they are acquiring a good understanding and knowledge. High absenteeism and course failure are strong predictors of both student disengagement and school failure, and they can be used to identify potential drop-outs early on (Kieffer et al., 2011) so as to provide them with targeted support.

Complaints about the low quality and lack of professional and technical skills of VET graduates have been regularly voiced by public and private companies (Musset et al., 2014). Particularly weak outcomes are found among students from the lower vocational track, which have much lower probabilities of qualifying for the Bagrut and higher dropout rates (Blank et al., 2015). One cause could be the low share of work-based learning in the VET system. Work-based learning strengthens the connection between schools and the labour market, as it provides real on-the-job experience and makes it easier to acquire practical skills with up-to-date equipment. In this regard substantial components of work-based learning can be beneficial (OECD, 2018), as it not only helps students to acquire practical skills, but also to develop key soft skills, such as work discipline, teamwork and problem-solving skills, which can be more effectively learnt in workplaces than in classrooms (OECD, 2010). However, only 4% of upper-secondary education students receive training with employers during their studies (Figure 1.14). This is much lower than in other OECD countries and contrasts with apprenticeship systems in countries such as Switzerland, Netherlands or Germany, where around half of all study takes place in the workplace.

Figure 1.14. Participation in work-based vocational training is weak

Students in combined school- and work-based programmes as a percentage of all students in upper-secondary education, 2015

Work-based learning should be expanded in some vocational programmes and should be linked to expected learning outcomes. In Spain making workplace training mandatory in VET programmes has had a positive impact, as it improved the relationship between schools and companies and facilitated the transition of VET graduates to jobs (Homs, 2007). The work-based training may involve contractual arrangements defining the obligations of trainees and employers in order to achieve learning objectives, whose development should involve employers and schools. At the same time, quality standards should be established to avoid the allocation of students to tasks not involving any skills acquisition. For example, in Germany and Denmark there is strong quality control: firms need to meet quality standards to be licensed to take on apprentices, and the quality of training is regularly monitored.

The major challenge in this regard is to strengthen incentives for companies to introduce apprenticeships and work-based training. One of the reasons why companies may be interested in providing work-based training is to use it as an effective path to recruitment. However, in Israel this incentive among companies may be weaker, as students have to perform military service after secondary school of 3 years for men and 2 years for women, and are thus not immediately employable by firms after this training. Therefore, the government needs to strengthen other incentives for companies to engage them in work-based learning and apprenticeships and minimise the costs of their training provision. Many countries offer financial incentives in the form of direct subsidies, tax breaks, levies and in‐kind arrangements to support initial vocational education and training.

A complementary option is to establish specific bodies that group and coordinate training activities. In Israel vocational training is subject to uncoordinated governance activities, which make it more difficult to engage employers and create long-term policies and planning (Pur and Littig, 2017). To encourage involvement of employers, a council for certified practical engineering and technicians was created, but a high level overarching body in the area of VET is currently missing. The VET system is fragmented, and responsibility is shared among the Ministries of Education and of Economy and, in part, the Israeli Defence Forces (IDF). Establishing a National VET Authority could help strengthen the co-operation between ministries, employers and IDF. Enhancing coordination can help some secondary school students in work-based training to continue with the similar training during the military service (see below), making the technological path more coherent. In addition, the VET Authority could also help companies handle the associated administrative tasks, match employers with students and ensure that training meets the required quality standards. For example, in Scotland and Australia publicly funded intermediary bodies manage apprenticeships on behalf of employers, handle administrative work and match candidates for apprenticeships with employers (Musset et al., 2014).

Military service also plays a role in developing vocational skills. Such service is compulsory at the age of 18 for three years for men and two years for women. It is not universal: Israeli-Arabs are exempt, and the Ultra-Orthodox stream is effectively exempt. Many of the recruits learn valuable skills, and almost one-fifth of soldiers often learn high-end technical skills, contributing to Israel’s successful high-tech industry (Offenhauer, 2008; Musset et al., 2014). These skills learned in the military are certified upon completion. At the same time, the IDF operates a number of programmes targeted at integrating at-risk youth into the military and society. For example, the Centre for Promoting Special Populations provides professional training alongside a special labour market preparation programme. Empirical research confirms that these programmes have been successful in integrating youth (Rabinovich, 2009; ETF, 2015).

As Arabs and the Ultra-Orthodox are exempt from military service, they do not get skills that are sought in the labour market through the army or benefits from post-service grants. To promote inclusion the authorities should therefore consider alternatives in the form of voluntary national service, which would allow young people to work in schools, government offices, hospitals, geriatric services and with teens at risk, disadvantaged communities and many other non-profit organisations. This could provide participants with similar benefit entitlements as military service in the form of grants and expose participants to different aspects of Israeli society. Therefore, as was recommended in the 2016 Survey, the authorities should consider making this civilian service mandatory for those not doing military service. That would help to strengthen social cohesion and at the same time further improve their education and skills, as is the case for those serving in the army (OECD, 2016d).

Improving tertiary education to enhance social mobility

Tertiary education is essential to stimulate the take-up and improvement of technological innovations in an increasingly knowledge-driven global economy and also promotes social mobility. The tertiary education system in Israel is well developed, with impressive levels of academic achievements such as high citation rates, unsurpassed Nobel laureates per capita and large numbers of high-tech start-ups. The share of tertiary educated people in Israel is comparatively high as well (Figure 1.15). Unlike in some other OECD countries, high tertiary attainment is well established in the population, including among older cohorts, mostly due to the immigration of highly skilled people in recent decades. At the same time, intergenerational upward mobility is relatively high as the share of tertiary education graduates with non-tertiary educated parents is higher than in other OECD countries (OECD, 2017a).

Figure 1.15. Share of tertiary graduates is high in Israel

Percentage of 25-64 year-olds with tertiary education, 2016

In addition to migration as a source of highly educated people, tertiary enrolment has increased significantly. The share of 23-26 year-olds enrolled in tertiary education has almost doubled over the last two decades, and today every third young Israeli is predicted to complete tertiary studies. In 1993 the Council for Higher Education authorised the establishment of public and private colleges and entitled them to grant bachelor’s and master’s degrees. This contributed to rising student numbers in colleges, reaching half of all tertiary students (Figure 1.16). Despite the growing population, the number of students in universities has remained almost stable, though in 2015 one of the colleges received university status, causing the jump that appears that year in the chart.

Figure 1.16. Number of students enrolled in tertiary educationref refid="fn-0074" format="note"/>

Per-student funding has increased in the last decade, but remains close to the OECD average (Figure 1.17; Box 1.3). However, more funding will be needed to address the main challenges for tertiary education in Israel, which are: i) broadening the access to high-quality tertiary education; and ii) improving the matching of students’ skills to changing labour market needs.

Figure 1.17. Annual expenditures per student in tertiary education

Box 1.3. Funding of tertiary education in Israel

The higher education system in Israel is regulated by the Council for Higher Education (CHE) and the Planning and Budgeting Committee (PBC). The CHE, the main regulator of higher education, provides accreditation of new degrees and programmes, approves the establishment of new institutions and licensing of branches of foreign institutions, and assesses the quality of existing programmes. It is composed of 25 members, among whom are the Chairman (the Minister of Education), the Chairman of the PBC and two representatives of the students’ union. The PBC operates as a sub-committee of the CHE in charge of all matters relating to the budget for higher education. It prepares the regular budget proposals for higher education at the national level, considering both academic, social and national needs. Budget proposals are negotiated with the Ministry of Finance.

Out of Israel’s 63 academic institutions, 50 are state funded. These institutions include eight research universities, the Open University and 20 colleges that are financed through the PBC. Funding per student is at the OECD average and has increased moderately in the last three years.

Tertiary education funding is divided into three main categories:

i) Block grant allocations represent a major part of tertiary education financing (73% of the overall budget). They consist of teaching and research grants. Teaching grants are based on student numbers and costs of particular studies. Research grants are assigned only to research universities and are allocated on a competitive basis according to specific indicators (income from competitive research funds, income from other research funds, scientific publications, numbers of PhD or equivalent and of master’s research-track degree students).

ii) Earmarked allocations represent 25% of the overall budget and promote specific activities in the higher education system such as the Maritime Biology Laboratory in Eilat or the National Library.

iii) Matching allocations represent only 2% of the budget. They encourage universities to obtain endowment funds from abroad.

Widening access to the tertiary education

Broadening access to tertiary education is an important step in integrating different groups of population into the labour market. Empirical research confirms that increased educational attainment can narrow the gap in minority-majority job market success (Abu‐Saad et al., 2007). In Israel, tertiary education plays an important role in improving social mobility. The chances of students from poorer families becoming richer improve considerably upon entering tertiary education (Ministry of Finance, 2017b). Israel has made significant progress in this regard over the last decade. The expansion of colleges has opened tertiary education to students from peripheral regions, from lower socio-economic status as well as from specific population groups, such as Ultra-Orthodox Jews, Ethiopian Jews and Israeli-Arabs. The enrolment rate of Arab students in the relevant age cohorts has increased significantly from 10% in 2000 to 15% in 2015. The number of Haredi students in tertiary education has tripled in the last five years, and the share of Haredi students enrolled in tertiary education has reached around 25%.

However, the differences between social and ethnic groups remain still large. The enrolment of young adults from affluent localities is twice as high as in Arab localities (Figure 1.18, Panel A) and four times higher than young adults from poorer socio-economic backgrounds (Knesset Research and Information Center, 2016). Despite improvement, the level of enrolment remains low and drop-out rates high among Arab and Haredi students. The share of young Haredim and Israeli-Arabs with a tertiary education degree is significantly lower than in the rest of the population (Panel B). This low share is mainly because of weaker secondary schools (see above), but there are still barriers at the tertiary level.

Figure 1.18. Poorer students, Haredi and Israeli-Arab students are less likely to enrol in tertiary education

One of these barriers is psychometric testing, which is required for higher education entrance. In Israel most tertiary institutions select students according to the aggregate compilation of results from matriculation exams and this psychometric test. It is a standardised national test to predict academic performance and covers three main areas: mathematics, verbal reasoning and English. The test may be taken in Hebrew or in Arabic. A high psychometric score can lead to higher education admission, especially to prestigious universities. However, empirical research argues that psychometric tests discriminate against students from minority or underprivileged socio-economic backgrounds (Arar et al., 2016; Abu-Saad, 2006). This is partially due to the linguistic barriers, which discriminate against Arab applicants since it is written in literary Arabic, which they do not know as well as Jewish students know Hebrew (CHE, 2013). Nearly half of all Arab students who passed their matriculation exams failed to win a place in higher education because they performed poorly in the psychometric test, compared to 20% of Jewish applicants. Thus, the psychometric test can be a factor of social selection, since preparatory courses are expensive and deter the students from socially disadvantaged backgrounds. Recently, the Council for Higher Education has been considering whether to base university entrance only on matriculation exams.

However, psychometric tests together with matriculation exams are important tools in predicting academic performance. Some private colleges have lenient admission requirements, particularly some Haredi campuses, where students can enrol in the tertiary programmes without matriculation and psychometric tests (Regev, 2016). Those students were, however, most likely to drop out: more than 60% of such students did not complete their studies. In the case of Ultra-Orthodox students, around half of them enter tertiary studies without matriculation or psychometric tests, which exacerbates their risk of dropping out (Figure 1.19; Regev, 2016). Therefore, easing the entry conditions with cancelation of psychometric tests does not necessarily improve education attainment among disadvantaged groups.

A more effective way to widen access to tertiary education and reduce the drop-out rate would be to expand preparatory courses for the disadvantaged groups. Such courses can help alleviate the weaknesses stemming from secondary school weaknesses. In Israel there is already a one-year pre-academic educational programme (Mechina) that prepares high‐school graduates for serving in the Israeli army or for studying at an institution of higher learning. The programme helps students complete or improve matriculation certificates and provides coaching for the psychometric entrance exam. However, these courses are less attended by the Arab community due to their high costs and less awareness. Fewer than 10% of Arab students attend pre-academic courses compared to almost a quarter of Jewish students. Grants to pre-academic studies for disadvantaged students should therefore be expanded in order to increase disadvantaged students’ participation.

Figure 1.19. Haredim and Israeli-Arabs are most likely to drop out from tertiary studies

Several government programs try to address these challenges by providing financial assistance. In 2014 the Council for Higher Education launched a campaign to improve the inclusion of Arab students in tertiary education institutions by requiring to be provided with general academic orientation and guidance, personal support and a summer workshop to help them improve their Hebrew and study skills. Each institution must prepare a long-term plan to promote Arab students’ integration by encouraging them to pursue advanced degrees and reducing dropouts.

The share of students benefitting from public loans, scholarships or grants broadly reflects the level of tuition fees (Figure 1.20). In terms of scholarships (38% vs 27%) and loans (17% vs 11%) support is more prevalent for the Arab population than among Jews (CBS, 2016). Yet, many public and private sources of funds require military and civil service, effectively ruling out Arabs, and more Israeli-Arabs rely on financial support from their families to finance their studies compared to the rest of the population (CBS, 2016). At the same time, most students from poorer families live on Israel’s periphery and lack or have only inadequate public transportation, making travel long and expensive. At the same time, the rental market is not very developed, and renting is relatively costly (Chapter 2). This makes it difficult for students from poorer families to enter tertiary education. Therefore, a more robust loan scheme with income-contingent repayments could be envisaged. OECD research suggests that student financial-support systems that provide both loans with income‐contingent repayments and means-tested grants improve access to higher education and lead to better outcomes for weak students (OECD, 2012b). For example, Australia and New Zealand have used this approach to mitigate the impact of high tuition fees and to encourage disadvantaged students to enrol in higher education. Building dormitories for students where they are lacking (around 20 000 places are needed) would also help alleviate burdensome housing costs.

Figure 1.20. Tuition fees charged by public institutions and share of students with financial subsidies

Full-time national students at bachelor’s or equivalent level, 2015/16ref refid="fn-0076" format="note"/>

Another obstacle to tertiary access is a minimum age limit. Some tertiary institutions do not accept students under the age of 20, while most Jewish men and women complete military service and enrol at the later stage around the age of 21. However, this age requirement prevents Israeli-Arab and Ultra-Orthodox students from entering tertiary education studies just after high school and increases the probability that students will start families without entering higher education (Arar and Mustafa, 2011). Therefore, the minimum age rule should be lowered or eliminated. At the same time, most Haredi students are already parents, which makes it more difficult to finish their studies. Although, Israel already subsidises the cost of childcare if the parents are working or studying, the scholarships for students with children should expand to ease their access to tertiary education and to combine studies with their family responsibilities (Regev, 2016).

Improving the responsiveness of the tertiary education system to the labour market

As in other OECD countries the demand for highly skilled workers is increasing, but besides having to invest in more skills, it is equally important to invest in the right type of skills (OECD, 2017b). Tertiary education must therefore ensure that graduates develop the skills needed in the labour market to make the most out of their human capital investments. However, evidence suggests that many Israeli tertiary graduates are employed in jobs not matching their field of studies (Said, 2015) and lack basic skills compared to their counterparts in other OECD countries. One in three Israeli adults seems to be overqualified, and almost 40% of adults are employed in a different field from that in which they have specialised (Figure 1.21; OECD, 2016g), although that is affected by the high rate of immigration in Israel. At the same time, Israel is witnessing severe labour shortages of science and engineering graduates (see above).

Figure 1.21. Mismatched workers are higher in Israel

Percentage of field-of-study mismatched workers by type, 2012 and 2015ref refid="fn-0077" format="note"/>

A mismatch between graduates’ skills and the demands of their job has significant economic implications. At the firm level it increases the rate of turnover and can negatively affect productivity (Adalet McGowan and Andrews, 2015). At the individual level it affects job satisfaction and wages. Wage penalties for mismatched workers in Israel are the highest in the OECD. Overqualified workers in Israel earn about 27% less than well matched workers with the same qualification (Figure 1.22).

Figure 1.22. Workers who are mismatched suffer a large wage penalty in Israel

Percentage difference in wages between over-qualified workers and their well-matched counterpartsref refid="fn-0078" format="note"/>

A poor choice of field of studies can lead to lower wages and thus contribute to income inequality. Students from less affluent backgrounds tend to choose fields where graduates report lower wages. For example, Arab tertiary students are over-represented in education (whose graduates earn 32% less than the average), social sciences, and professions that lead to self-employment opportunities. At the same time, they are under-represented in science and engineering whose graduates earn well above average levels. Also, women are under-represented in science and engineering, as only 20% to 30% decide to study in these fields. These wage differences between fields of studies in Israel are one of the highest in the OECD (OECD, 2016e). Empirical research confirms that choice of field explains about 20% of the variance in wages among tertiary graduates in Israel (Zeev et al., 2017), and part of the gender wage gap can be thus explained as well (Fuchs, 2016). Entering tertiary education on average improves poor students’ chances to get to the richest decile by almost 25%. However, if these students decide to study computer sciences their chances to get to the richest decile increase to almost 70% (Ministry of Finance, 2017b). Despite high wage premia, the share of STEM (Science, Technology, Engineering and Mathematics) tertiary graduates is decreasing (Ministry of Finance, 2016). However, poor choice of study can also partly reflect other difficulties and barriers including transportation issues (Yashiv and Kasir, 2015). The government is rightly trying to increase the number of engineering graduates to meet labour market demands. To do so at the secondary level it is increasing the number of students completing high-level mathematics studies, and, at the tertiary level, it is planning to increase the number of college and university students with technology-oriented majorsby 40% within five years (Israel Innovation Authority, 2017).

However, more needs to be done to better align student’s choices with labour market demands. To affect students’ field of study choice the authorities should make available high-quality data and analysis about graduate labour market outcomes. Providing individuals with information on market returns of various career paths would help them to better respond to labour market signals. Collecting and publishing information about skills needs is considered as good practice (OECD, 2016f). In 2013 the Ministry of Economy established a new Jobs Rated website that provides information on the current demand for various professions in different geographical areas (ETF, 2015). However, this website does not provide information about short- and long-term graduate labour market outcomes of graduates from various tertiary programmes. Therefore, it should be complemented with graduate tracking, including wage and job mismatch. For example, College Scorecard or Unistats are websites in the United States and United Kingdom, respectively, which provide information to potential students on the cost, graduation rate and average wage for each higher education institution (OECD, 2017b). The information not only helps students make informed choices, but it can also put pressure on tertiary institutions. In addition, occupational surveys among employers should be undertaken to provide information about skills needs in the labour market, as in Italy.

Students’ choice of field of studies should be further shaped through career counselling. The current counselling system should be strengthened and scaled up. Public counselling centres have opened in Israeli-Arab towns, supplying information about academic institutions and fields of study to high school students, offering them pre-academic workshops and providing scholarship information. These are steps in the right direction, but they provide only customised guidance at the local level. A general system of career guidance is lacking in Israel and needs to be integrated into higher and secondary education (OECD, 2015b). Secondary schools also need to work more closely with the public employment services and employers to provide relevant information about different career paths. For, example, careers guidance in Austrian and Canadian schools contains lessons provided by specialist guidance teachers, and individual advice is also given by student advisors. In the United Kingdom careers guidance to students is provided by external services or independent career development professionals.

Financial incentives such as scholarships and grants can also steer students into fields of studies where labour market shortages are prevalent. Many countries have scholarships for students to take up certain courses (OECD, 2017b), the vast majority of which focus on science, technology, engineering and mathematics. Israel has the Programme for Integrating Arab, Druze and Circassian Academics into the Hi-tech Industry. More such scholarships should be targeted at courses with high labour market demand and prevalent shortages and combined with extra support for poorer families or disadvantaged communities.

The measures affecting students’ choices should be complemented with incentives for tertiary education institutions to offer courses that are more in line with labour market needs. However, the current tertiary funding system does not sufficiently reflect labour market needs (See Box 1.3). Several options are available. One would be to base some funding on institutions’ graduate labour market outcomes. For example, in Estonia, 20% of funds are based on labour market outcomes, and in Korea the government provides special funding to universities with the best graduate employment rates, shares of teachers with industry experience and shares of students in internships and fieldwork (OECD, 2017b). Another approach is to provide one-off capital funding to support needed skills creation. In Italy technical institutes receive funds to promote collaboration with the regions in response to skills shortages.

Improving the effectiveness of life-long learning

The skills levels of Israeli adults are significantly lower for older cohorts. This is in line with general evidence suggesting that cognitive abilities tend to peak in the mid-20s to early 30s and then decline gradually (OECD, 2016g; Paccagnella, 2016). However, the gap between younger and older adults in Israel is one of the highest in the OECD (Figure 1.23), and skills are particularly low for adults over 55 (OECD, 2016g). This means that many adults are not investing in their skills sufficiently as they age.

However, ongoing technological changes, digitalisation in particular, require workers to keep up with constantly evolving skills requirements. Older workers are exposed to a depreciation of their qualifications in the absence of continuing investment in education and training. They are already in a position of relative disadvantage compared to young adults due to the rapidly growing use of ICT. Age-related differences are more pronounced when it comes to problem-solving skills in the digital working environment (OECD, 2016g). Some 33% of Israeli adults (29% in the OECD) do not have sufficient skills to solve problems in a technology-rich environment, which harms their wages and job quality.

Figure 1.23. Differences in skills between younger and older age cohorts are substantial

Score point difference in literacy proficiency, 25-34 year-olds minus 55-65 year-oldsref refid="fn-0079" format="note"/>

These findings suggest that much more needs to be done for adults to build on their initial education through high-quality adult training. Life-long learning can preserve worker skills and increase employability. Although Israeli workers’ participation in life-long learning is close to the OECD average (OECD, 2016e), weak skills of the older population and large differences in skills between communities (see above) require strengthening policies that encourage skills upgrading and informal in-firm learning.

Improving skills for the unemployed and inactive

A particularly vulnerable group are the unemployed and discouraged workers. These groups can see their skills erode to the point of losing attachment with the labour market with negative effects on their well-being. While Israel’s unemployment rate is low in international comparison, labour force participation for certain communities is weak, particularly for Arab women and Haredi men. Lifelong learning can be a significant tool to provide a second chance for those who did not get very far with their initial education.

In Israel training measures for unemployed and inactive adults are implemented by several institutions with priority given to disadvantaged groups. The Manpower Training and Development Bureau at the Ministry of Economy manages the training system for jobseekers. It provides vocational courses and encourages training participation through vouchers, which are available to around 1 500 recipients annually and enable jobseekers to approach a training institution of their choice and to receive partial funding for the selected course. In parallel, the Authority for the Economic Development of the Arab Sector within the Prime Minister’s Office manages a programme targeted at the Israeli-Arab population. It also offers a voucher programme and direct employment subsidies (OECD, 2015b). In addition, 21 special Employment Orientation Centres providing one-stop services including vocational guidance, soft skills coaching, work placements, training and retraining services for Israeli-Arabs were opened in 2014.

However, overall public spending on training measures for the unemployed and inactive is low. Israel, in general, spends much less on active labour market programmes including training than other OECD countries (Figure 1.24). Experience from other OECD countries shows that well designed training can be one of the most efficient activation measures, by keeping skills up to date and improving labour market matching (Card et al., 2015). This is particularly important for Israel with its large share of people lacking skills in Hebrew, ICT and English. Therefore, government training support should be increased.

Figure 1.24. Spending on ALMPs,ref refid="fn-0080" format="note"/> especially training programmes, is low

As a percentage of GDP, 2015 or latest year available

However, such an increase should take place only after careful evaluation of existing programmes. While there are a plethora of local training provisions in Israel, the impact of many of them remains unclear due to a dearth of evaluations undertaken (OECD, 2015b). Because of the lack of monitoring, inefficient programmes may continue to operate. An agency should be set up to track and assess the net effect of programmes on employment and income of programme participants, for instance by matching benefit, tax and social insurance databases (OECD, 2012a) along the lines of the What Works Centre for Local Economic Growth established by the UK government to promote evidence-based policy-making and evaluation (OECD, 2015b).

Another important challenge for life-long learning in Israel is to place stronger emphasis on job quality. The primary focus of public intervention is on getting people into jobs, but limited attention is paid to overall job quality, the sustainability of the job placement and overall pay (OECD, 2015b). Only few public employment services offer basic skills and literacy training before placing the unemployed directly in jobs. However, in some cases, individuals need appropriate skills training to ensure that they can maintain employment over time.

One way forward is greater use of profiling to determine the needs of the unemployed and provide training in high-demand fields so as to offer higher-quality job placement. For example, the US Work Advance programme offers formal training geared toward current job openings in specific sectors and results in industry-recognised certification. Applicants are screened before enrolment in the programme to ensure that participants can take advantage of the skills training in the sector. An evaluation of this programme showed higher earnings and more rewarding jobs for the participants (Hendra et al., 2016). In Italy profiling is used to determine the amount of training vouchers provided. Profiling the unemployed is also performed in many European countries, with individual action plans offering tailored programmes mixing training, counselling and mentoring to upskill the unemployed (EC, 2015).

Improving the skills of current workers

Another key challenge is to improve the skills of those who already work. Almost one-third of Israeli workers have low skill levels (Figure 1.25). Many adults are working in low paid jobs with low productivity and few chances to improve their skills. Moreover, it is mostly disadvantaged groups that are concentrated in these jobs, as many of them are working in occupations and industries situated at the bottom of the wage distribution (Yashiv and Kasir, 2015). The probability of individuals with little education moving into an industry with high productivity and better wages has decreased over time (Brand and Regev, 2015), meaning that the wage penalty for lower education has increased over time.

Figure 1.25. There is a high share of workers with low levels of skills

Proportion of low performers in literacy and/or numeracyref refid="fn-0081" format="note"/>

Life-long learning can play an important role in fostering mobility across occupations and sectors, but Israel lacks strategic focus on the better utilisation of existing skills (OECD, 2015b). Despite several policies targeting the disadvantaged unemployed, there is little policy support for training the existing workforce, particularly in Arab-owned companies and enterprises (OECD, 2016h). Targeting training on poorly paid workers would help them to boost their chances of moving to higher-quality positions.

There are many programmes and schemes in OECD countries that incentivise work-based training for employees. One approach is to provide incentives in the form of subsidies or tax breaks for employers to provide training. This implies that the additional training is more likely to meet specific labour market needs, but it cannot target disadvantaged workers.

Therefore, a more viable approach in Israel’s case would be to focus the support on individuals, allowing the targeting of disadvantaged groups who are less likely to receive training. Measures increasing training incentives for individuals exist in many OECD countries and are referred to as “retention and advancement” services (OECD, 2017b). In Germany workers without qualifications and those who have worked in positions unrelated to their initial training for at least four years may receive grants to be retrained in areas with good labour market prospects. Israeli training voucher schemes should be expanded and their eligibility widened towards low skilled workers and disadvantaged groups in low paying jobs. In addition, support programmes for Israeli-Arab and Ultra-Orthodox entrepreneurs should be introduced (OECD, 2016h).

An important accompaniment to these measures targeted at individuals would be a personal account scheme allowing individuals to save up time for training purposes. Through such a mechanism individuals are credited with a certain amount of time per year worked, which they can use for training purposes. This can help overcome time constraints, which are one of the barriers to employees wishing to engage in training. For example, France has been using such accounts for a long time, so employees there can use training hours to acquire recognised qualifications or basic skills (OECD, 2017b).

Recommendations to improve the education and training system to boost productivity and equity

(Key recommendations included in the Executive Summary are in bold italics)

Reduce socio-economic effects on student outcomes

Increase funding for disadvantaged schools.
Increase salaries of young teachers, those teaching subjects where there are labour market shortages and those who teach in disadvantaged schools.

Moderate the differences between individual educational streams

Further expand Hebrew courses, especially teaching of “practical Hebrew”, in the Arab stream. Expand childcare and education for children under 3, and put it under the responsibility of the Ministry of Education.
Analyse the educational and equity outcomes of bilingual schools and should they be positive, expand funding for bilingual schools.
Make funding to the Haredi stream conditional on an increase in core subjects in the curriculum and strengthened monitoring and testing.
Expand post-religious courses leading to completion of formal upper-secondary education in Haredi streams.

Improve vocational education outcomes

Merge and integrate the two lower streams in the vocational education system.
Expand work-based learning in some vocational programmes.
Establish a National Vocational Education and Training Authority that would group and coordinate training activities.
Make the civilian service mandatory for those who do not serve in the military.

Widen access to tertiary education

Expand means-tested support for disadvantaged students, particularly for those with children.
Provide financial incentives to the take-up of bridge courses for disadvantaged groups.

Link tertiary education more closely with labour market needs

Introduce a graduate tracking system and publish high-quality data and analysis of graduate labour market outcomes.
Introduce a general system of careers guidance.
Shift funding towards tertiary institutions whose graduates have better labour market outcomes.

Strengthen lifelong learning

Evaluate systematically the effectiveness of existing active labour market policies, raising funding for effective programmes, above all for training. Extend the eligibility for training vouchers to workers, particularly to those in low paid jobs.
Introduce a personal account mechanism for employees to accumulate the rights to training.

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