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Economic expansion offers Israel opportunity to move toward a more inclusive society

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The Israeli economy continues to register remarkable performance, with strong growth, low and falling unemployment and sound public finances leading to the 15th consecutive year of economic expansion.  Further reforms will be needed to drive down inequality and raise living standards for all Israelis, according to a new report from the OECD.

The latest OECD Economic Survey of Israel says population growth, strong economic fundamentals and the dynamic high-tech sector are underpinning today’s robust expansion. With the continuation of accommodative monetary policy in a stronger external environment and planned investments in offshore gas fields expected to spur future growth, Israel can turn its focus toward new policies that will make its economy both more efficient and more inclusive, the Survey said.

The Survey, presented in Jerusalem by OECD Acting Chief Economist Alvaro Pereira, Shai Babad, Director General of the Ministry of Finance and Yoel Naveh, Chief Economist,  projects growth around 3 ½ % over the 2018-19 period. It identifies priorities for future public policy action, including further reforms to education, infrastructure and product markets that can enhance both inclusiveness and productivity.

“The Israeli economy has grown faster and more consistently than nearly any other in the OECD for the past 15 years,” Mr Pereira said. “Unemployment is at historically low levels, and the rise in people with jobs has had a significant impact on the continuing convergence of living standards in Israel with those in the most advanced economies.”

“Today’s excellent outlook offers Israel a unique opportunity to prepare for the challenges of the future, by taking steps to raise productivity, improve social cohesion and guarantee high quality of life for all Israelis,” Mr Pereira said.

Labour force participation rates, education and skill levels remain low for Israeli-Arabs and the ultra-Orthodox, or Haredim Jewish groups, contributing to Israel’s high poverty rates and low productivity, the Survey says.  Better social and labour market integration of these groups, which will represent half of the population by mid-century, is crucial.

Reforming product market regulations and improving infrastructure and education should be at the core of future structural reform plans to boost productivity and enhance inclusiveness.

Enhancing training and education for Israeli-Arabs and Haredim will be essential to improve their economic opportunities and make future growth more sustainable. Reforms and more public investment in education would develop their skills, allowing them to find well-paid jobs in high value-added sectors, the Survey said.
Addressing Israel’s large infrastructure deficit, especially in public transport, would reduce the country’s considerable road congestion and poor air quality while improving access to the labour market, particularly for disadvantaged groups living in peripheral zones.  Better infrastructure in disadvantaged areas, especially Arab cities, would improve job prospects and well-being.

Further strengthening product market competition will boost productivity in sheltered sectors.

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Navigating Sri Lanka’s Demographic Change

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The latest edition of the World Bank’s Sri Lanka Development Update (SLDU) finds the island in a challenging macroeconomic landscape. The post-conflict high growth momentum has decelerated. A volatile global environment and structurally weak competitiveness continue to weaken growth and external sector performance. High interest costs mask limited fiscal improvement.

The report’s special focus examines the challenges associated with a change in demographic composition and suggests that a multi-year program of policy reforms and institutional strengthening could help prepare Sri Lanka for the decades ahead.

The SLDU, which analyses key developments in Sri Lanka’s economy over the past six months, notes that while post-conflict growth has decelerated, the outlook remains stable, conditional on political stability and reform implementation.

Sri Lanka is stepping up to the plate at a time when the global environment remains turbulent. Key reforms, such as the implementation of the Inland Revenue Law, passing of the Active Liability Management Act, are helping to prepare for heightened external debt refinancing risks in 2019 and beyond.

It is important to consolidate on previous reforms to ensure maximum benefits,” says Fernando Im, an author of the SLDU and the senior country economist for Sri Lanka-Maldives. He explains that future reforms could yield high development impacts, such as further strengthening public finance management and supporting the implementation of a social registry to improve coverage and targeting of social safety nets.

Below are some of the recent developments highlighted in the report:

Sri Lanka’s debt portfolio carries significant risks

At an estimated 83 percent of its Gross Domestic Product, Sri Lanka’s central government debt level is high. As the country approached upper middle-income status, it has been borrowing on more commercial terms with increased cost and risk.

The majority of foreign currency denominated debt is now largely made up of market borrowings including International Sovereign Bonds (ISBs) and Sri Lanka Development Bonds (SLDBs), which in 2017 accounted for 53 percent, up from just 3 percent of total foreign currency denominated debt in 2000.

In total, maturities of bullet repayments on Eurobonds from 2019 to 2023 and from 2025 to 2028 alone amount to USD 12.15 billion. The SLDU notes that this is new territory for the country and could expose the island nation to refinancing risks.

In response, the government has adopted policies designed to address these risks, however, the slow progress of key structural reforms remains a cause for concern. It is hoped that improvements in debt management will help manage costs and risks of the portfolio, develop the domestic financial market and improve access to finance.

Despite the fast poverty reduction, there remain areas with significant poverty

Over the past two decades, Sri Lanka’s economy expanded at a rapid pace and the country has done much to address extreme poverty with a decline from 15.4 percent in 2013 to 9.7 percent in 2016, as measured against the World Bank’s international poverty line of $3.20 per day for lower middle-income countries.

Measures, such as the expansion of the Samurdhi programme in 2015, offered dividends although better targeting of social assistance would have resulted in larger gains. However, it is vital to note that a large number of people remain just a small shock away from falling back into poverty, says the report, noting that adverse weather conditions have become increasingly influential in recent years.

Critically, there is a disparity between various districts, with the highest poverty headcount being reported in the Northern and Eastern provinces, where regions like Ratnapura, Kandy and Badulla account for more than a quarter of the poor population combined. It is clear, Sri Lanka must design different strategies to address the varied issues around human capital, basic services, the availability of jobs and access to markets.

Sri Lanka is undergoing profound demographic change – the country needs to do more to prepare

Like many other countries in the world, Sri Lanka is staring down a dramatic demographic shift – Sri Lanka’s share of working-age population peaked in 2005 and it is expected to gradually decline over time. This has implications for labor supply, service delivery in sectors such as health and education, and of course for pensions, employment and public finances overall.

A particular concern are the limited savings and instructional support mechanisms in place to support this rapidly expanding elderly population. Increasing costs mean that programs such as the Public Servants Pension Scheme (PSPS) could struggle to deliver on their benefit promises over the long run, while the EPF – the employer-based defined contribution saving scheme for formal private sector workers – appears inadequate to meet the costs associated with over two decades of retirement.

As can be expected formidable challenges exist, but improving various aspects of delivery systems will prove critical to broadening worker coverage. By prioritising educational attainment, addressing the skills mismatch that hurts new graduates in the market, and nurturing entrepreneurship, younger people could be encouraged to participate in the workforce. Finally, improving female labour force participation could also help buffer the adverse impacts of demographic factors on growth.

World Bank

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Poor working conditions are main global employment challenge

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Poor quality employment is the main issue for global labour markets, with millions of people forced to accept inadequate working conditions, according to a new report from the International Labour Organization (ILO).

New data gathered for the World Employment and Social Outlook: Trends 2019  (WESO) show that a majority of the 3.3 billion people employed globally in 2018 had inadequate economic security, material well-being and equality of opportunity. What’s more, progress in reducing unemployment globally is not being reflected in improvements in the quality of work.

The report, published by the ILO, cites the persistence of a number of major deficits in decent work, warning that, at the current rate of progress, attaining the goal of decent work for all, as set out in the Sustainable Development Goals  (SDGs), particularly SDG 8 , seems unrealistic for many countries.

“SDG 8 is not just about full employment but the quality of that employment,” said Deborah Greenfield, ILO Deputy Director-General for Policy. “Equality and decent work are two of the pillars underpinning sustainable development.”

The report cautions that some new business models, including those enabled by new technologies, threaten to undermine existing labour market achievements – in areas such as improving employment formality and security, social protection and labour standards – unless policy-makers meet the challenge.

“Being in employment does not always guarantee a decent living,” said Damian Grimshaw, ILO Director of Research. “For instance, a full 700 million people are living in extreme or moderate poverty despite having employment.”

Among the issues highlighted is the lack of progress in closing the gender gap in labour force participation. Only 48 per cent of women are in the labour force, compared to 75 per cent of men. Women also make up far more of the potential, underutilized, labour force. Another issue is the persistence of informal employment, with a staggering 2 billion workers – 61 per cent of the world’s workforce – categorized as such. Also of concern is that more than one in five young people (under 25) are not in employment, education or training, compromising their future employment prospects.

The annual report also highlights some pockets of progress. Should the world economy manage to avoid a significant downturn, unemployment is projected to decline further in many countries. There has also been a great decrease in working poverty in the last 30 years, especially in middle-income countries, and a rise in the number of people in education or training.

Main regional findings

Africa

Only 4.5 per cent of the region’s working age population is unemployed, with 60 per cent employed. However, rather than indicating a well-functioning labour market, this is because many workers have no choice but to take poor quality work, lacking security, decent pay and social protection.

The labour force is projected to expand by more than 14 million per year. Economic growth rates until 2020 are expected to be too low to create enough quality jobs for this fast-growing labour force.

Northern America

Unemployment is expected to reach its lowest level, 4.1 per cent in 2019.

Both employment growth and economic activity are projected to begin declining in 2020.

People with basic education are more than twice as likely to be unemployed as those with advanced education.

The sub-region is a leader in digital labour platforms. Close monitoring of such work is a growing issue for policy-makers.

Latin America and the Caribbean

Despite rebounding economic growth, employment is expected to rise by only 1.4 per cent per year in 2019 and 2020.

The relatively slow fall in regional unemployment figures is a result of different labour market conditions in individual countries.

Informality and poor job quality remain pervasive in all types of employment.

Arab States

Regional unemployment is projected to remain stable at 7.3 per cent until 2020, with unemployment in non-Gulf Cooperation Council (GCC) countries reaching double that of the GCC.

Migrant workers account for 41 per cent of total regional employment, and in GCC countries more than half of all workers are migrants, on average.

The women’s unemployment rate, at 15.6 per cent, is three times that of men. Youth are also disproportionately affected and the youth unemployment rate is four times the adult rate.

Asia and the Pacific

Economic growth continues, albeit at a slower rate than in previous years.

The regional unemployment rate is projected to remain at around 3.6 per cent until 2020, below the global average.

Structural transformation has moved workers out of agriculture, but this has not created significant improvements in job quality; a large proportion of workers lack job security, written contracts and income stability.

While social protection has been significantly extended in some countries, it remains extremely low in those countries with the highest poverty rates.

Europe and Central Asia

In Northern, Southern and Western Europe, unemployment is at its lowest in a decade and is set to continue falling until 2020.

In Eastern Europe the number of people in employment is expected to shrink by 0.7 per cent in both 2019 and 2020, but a simultaneously shrinking labour force means the unemployment rate will fall.

Long-term unemployment is as high as 40 per cent in some countries.

Informality remains widespread, at 43 per cent, in Central and Western Asia.

Working poverty, poor job quality and persistent labour market inequalities remain concerns.

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Boosting adult learning essential to help people adapt to future of work

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Many OECD countries need to urgently scale-up and upgrade their adult learning systems to help people adapt to the future world of work, according to a new OECD report.

Getting Skills Right: Future-Ready Adult Learning Systems says that new technologies, globalisation and population ageing are changing the quantity and quality of jobs as well as the skills they require. Providing better skilling and re-skilling opportunities to workers affected by these changes is essential to make sure the future works for all.

Today only two in five adults participate in education and training in any given year. The most disadvantaged are least likely to train, with low-skilled adults three times less likely to undertake training than the high-skilled (20% vs 58%). Other groups falling behind include older people, low-wage and temporary workers, and the unemployed.

The most recent OECD analysis suggests that while only about one in seven jobs is at risk of full automation, another 30% will likely be overhauled. However, people in jobs most at risk also do less training (40%) than workers with jobs at low risk (59%). Part of the problem is the lack of motivation to participate in training: across the OECD, around half of adults do not want to train. A further 11% would like to but do not due to barriers such as lack of time, money or support by their employer.

The report underlines the importance of good quality training that leads to skills that respond to labour market needs. Compulsory training, such as on occupational health and safety, absorbs 20% of training hours on average in European countries. This training is necessary but should be complemented with learning opportunities that allow adults to develop skills that enable them to keep their job or seek new opportunities for career progressions.

A new dashboard in the report compares the situation across countries and highlights, for each country, the critical areas for reform. In particular, it summarises the future-readiness of each country’s adult learning systems to respond to the challenges of a rapidly changing world of work along six dimensions of: coverage, inclusiveness, flexibility and guidance, alignment with skill needs, impact, and financing.

Greece, Japan and the Slovak Republic perform poorly across most dimensions of future readiness. But there is room for improvement even in well-performing countries. In Norway, relatively few adults see a direct impact of the training they undertake on their job or career and Denmark lags behind the top performing countries in terms of coverage. Slovenia performs well in terms of inclusiveness and yet there is still a 10 percentage point gap in training participation between disadvantaged and more advantaged groups on average.

To tackle the issue, the report makes a series of recommendations, including that countries:

  • Improve coverage and inclusiveness by promoting the benefits of adult learning and providing targeted support for the low skilled, the unemployed, migrants and older people.
  • Align training more closely with labour market needs and design programmes targeting adults whose skills are likely to become obsolete in the future.
  • Improve the quality and effectiveness of training. This could include, for example, putting in place quality labels to help workers and firms make informed choices about training investments.
  • Ensure adequate public financing and incentivising employers to contribute through training levies and tax incentives, as well as encouraging individuals through subsidies and paid training leave.
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