Ultra-Orthodox Jews, unemployment rates, and the Israeli economy

Posted on September 13, 2012 by

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As Americans and inevitable participants in this country’s financial infrastructure, we are all acutely aware of the unforgiving crisis engulfing the economy of the United States and spreading to the rest of the world. In the wake of the ailing economy, “unemployment” is a term that has slithered its way out of economics textbooks and into our immediate consciousness. Historically, unemployment has served as a faithful barometer of economic health. On the most basic level, if consumer confidence is high, people’s willingness to borrow, invest, and spend grows, increasing the demand for production, and ultimately resulting in greater levels of employment as firms keep pace with the elevated demand for goods and services. However, if consumers lose faith in the well-being of the economy for any reason, the opposite happens — people’s willingness to borrow, invest, and spend falls, decreasing the demand for production and lowering the level of employment as firms slash expenditures to meet the dwindling demand for the goods and services they provide.

Of course, the relationship between unemployment and a country’s economic health is far more complex, but even from such a simple framework it is clear how unemployment can snowball into an economic catastrophe: if firms hire fewer people, it becomes more difficult to find work, and if people cannot find work, they have less money to spend, ultimately forcing firms to produce less and to reduce the number of workers they employ.

According to Haaretz, the distressed global economy has not had a similar effect on the Israeli workforce. On February 29th, 2012, the widely-read newspaper reported that “unemployment in Israel fell to a 32-year low in 2011 despite economic troubles shaking the world…the rate of unemployed among men plunged from 6.8 to 5.6 percent.” The article makes sure to avoid letting the reader escape with an entirely rosy outlook, noting that “underlying data forming the Composite Index of Indicators shows pressure building for unemployment to rise.” Despite the confidence-instilling report, the expected increase in the unemployment rate may not be the most pressing issue facing the Israeli economy — at least not in the way this article defines the term.

NOT SO ACCURATE: Israel’s official unemployment rate is simply a mirage of economic vitality.

Although there is not a singular, definitive, or universally-adopted measure of unemployment, it is characterized by jobless individuals who are actively searching and willing to work. Therefore, a person who does not seek employment for any reason (for example, someone disillusioned after a lengthy and fruitless job search) is not considered unemployed, sparking considerable debate about whether or not to incorporate such a person into the unemployment rate. If the number of people not seeking employment is particularly high, the unemployment rate publicized by the government may not reflect the true state of economic health.

In April of 2011, Reuters ran a story entitled “Jobless ultra-Orthodox weigh on Israel’s economy” which outlines the effects of a much more accurate measure of unemployment. The article explains that “Ultra-Orthodox Jews, or ‘Haredim,’ are a devout tight-knit community who make up 8 to 10 percent of Israel’s 7.7 million population, with eight children per family on average. Many are supported by the state and live well below the poverty line.” Furthermore, the Bank of Israel recently reported that nearly 55 percent of ultra-Orthodox men do not work, down from an even more alarming 62 percent in 2009.

Meir Gross, a Haredi Jew interviewed in the Reuters article, maintains that “Torah study demands utter and complete devotion. We’re not interested in making money or in material luxury. We are content with very little and our true joy, and highest duty, is learning.” In a nominal sense, then, Gross and other ultra-Orthodox Jews who choose to avoid seeking employment are not included in the optimistic unemployment rate reported by the government.

As is frequently the case, perhaps a more precise assessment of economic health can be obtained by analyzing a different parameter — the Labor Force Participation Rate (LFPR). As it is usually defined, the LFPR measures the percentage of the working-age population (commonly age 16 to retirement) who participate in the labor force (anyone who is either employed or actively seeking employment). In simpler terms, the LFPR provides a sense of how many people of working-age are actually employed or seeking employment.

Essentially, since Israeli ultra-Orthodox Jews represent 8 to 10 percent of Israel’s population and approximately half of them do not work, an additional 4 to 5 percent (a conservative estimate) can be tacked on to the official unemployment rate (5.6 percent), nearly doubling it and yielding a number much closer to 10 percent. Even though a double digit unemployment rate should set off all sorts of economic alarm bells, the real threat to Israel’s economy is one that may not even manifest itself immediately — since the ultra-Orthodox community does not use birth control, Haredim will make up 17 percent of the work force in 20 years (Reuters). If the Labor Force Participation Rate of this community is not significantly increased, Israel’s economy will inevitably experience perilous levels of strain.

A DOWNWARD TREND: The average quantity of weekly hours spent working by the minority of employed Haredi men declined sharply from 1998 to 2009.

In an interview with Reuters, Omer Moav, professor of economics at the University of London and the Hebrew University in Jerusalem, does not mince his words: “[The Haredim] are a real danger to Israel. If we go bankrupt it’s the end of the story for us. Our strong army rests on a strong economy.” Despite the uptick in employment rates among ultra-Orthodox men and especially among ultra-Orthodox women (who are not required to devote their lives to Torah study, as men are), a recent press release by the Bank of Israel notes that the current rate is still “significantly lower than the target rate for this population (63 percent) set by the government for 2020.”

Given the potential hazard to the economy, is such harsh criticism of the ultra-Orthodox entirely justifiable? Rabbi Jacob Rupp of the Jewish Awareness Movement (JAM) at UCLA believes that in Israel, the absence of stringent laws against slander (laws that are present in the United States) allows an unwarranted vilification of the Haredim by non-religious authorities, such as Omer Moav (quoted above). Rupp asserts that “the language that a lot of secular high-ranking government officials use [to describe the Haredim] would [undoubtedly] make them liable for lawsuits in the United States.” However, even if describing the Haredim as a “danger to Israel” is probably an objectionable exaggeration, the available economic data (operating beyond offensive philosophical discussion) and the financial vulnerability it predicts are very difficult to challenge.

The extraordinarily low level of labor force participation among the ultra-Orthodox Jews also draws the ire of working Israelis, who feel that it is unjust for the Haredim to avail themselves of state benefits in lieu of an earned paycheck. Professor and economist at Tel-Aviv University Dan Ben-David (interviewed in the Reuters article), when asked to comment on the amount of taxpayer money used to fund subsidies and child allowances for the Haredim, alleged that “the true amount is concealed, veiled in misleading budget definitions. We are shocked each time we get an inkling of its magnitude, but it has to be huge if it allows one of the highest unemployment rates in the Western world.”

Admittedly, a portion of the government expenditures allocated to the ultra-Orthodox is spent on programs that aim to encourage entry into the labor market. Ben-David adds that “success for such projects would have a great impact. If we were to increase employment to American rates, then we would add NIS 85 billion ($25 billion) to the economy.” However, many ultra-Orthodox Jews choose not to work for reasons other than market inaccessibility — Meir Gross explains that “my answer is not in facts and figures. We believe the world will end if it is left with no Torah study, even for a moment.”

A limited increase in labor market participation rates will not be enough to avoid great harm to the Israeli economy; taxpayers will feel their wallets thin as more and more support will be required to maintain adequate government assistance to the ultra-Orthodox community. On his blog, prominent journalist, editor, and blogger Amir Mizroch discusses findings from a report published by the Research & Economics Administration of the Industry, Trade and Labor Ministry, highlighting an astounding statistic: if the current trends continue, every working-age Israeli will be supporting a whole person (other than him or herself) within two decades. Needless to say, such a scenario involves a significant and decidedly frightening decline in quality of life.

Also unconvinced by the sluggish progress, Omer Moav adds that “as long as the government won’t make a dramatic change, things will get worse. One cannot reach an agreed upon solution, it has to be forced upon the Haredim,” he said. In his bluntness, Moav abruptly tears open an enormous can of worms, pitting practical economic concerns against profoundly philosophical ones. Can Israel, the world’s only immutable bastion of unconditional support for the Jewish people, enact legislation that would force Jews to sacrifice millennia-old traditions in the name of a secular pursuit?

The first and strongest argument against such legislation would contend that no amount of detriment to the economy could ever warrant compromising the “highest duty” of the Jewish people, as Meir Gross puts it. However, this begs the question: is the state of Israel primarily dedicated to the preservation of Judaism as a religion, or is its principal objective to protect its citizens? If the correct answer is that Israel should be equally concerned with both aims, this situation presents an unprecedented conflict of interests and existential crisis.

On a purely practical level, however, the red flags raised by Israeli economists cannot remain unheeded — Israel is a tiny country surrounded by wildly belligerent neighbors. Recently, Iranian President Mahmoud Ahmadinejad poetically reminded the world that to him, “Israel is nothing more than a mosquito which cannot see the broad horizon of the Iranian nation.” Major General Hassan Firouzabadi, Iran’s military chief of staff, delicately added that “the Iranian nation is standing for its cause and that is the full annihilation of Israel.”

The world’s intellectuals can endlessly debate the potency and imminence of these threats, but it is clear that national defense continues to be a top priority for Israel’s government. Therefore, while Israel has always been and should remain a safe haven to protect Jews’ right to be Jews, it is fundamentally misguided to passively allow substantial economic attrition and the accompanying deterioration in quality of life. In addition, allowing the economy to flounder on such a grand scale would compromise Israel’s security and thus directly increase the risk to the personal safety of Israel’s inhabitants — a flagrant breach of contract between the government and its people. Israel’s lawmakers must search for a balance between Omer Moav’s rash solution of “forcing” the Haredim into the labor force and an equally unacceptable course of inaction. As the highly combustible nature of the situation suggests, the route to an appropriate reconciliation is not easily accessible by any means. Nevertheless, the first step is to understand that no matter how big or small the chance that a hampered economy could adversely affect Israel’s security or worsen the lives of its people, it is a risk Israel simply cannot afford to take.

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Posted in: Israel, Opinion, Politics