The economic effects of the coalition budgets

A few days ago, the Budget Department of the Ministry of Finance published an opinion regarding the economic effects of coalition allocations, if they will be included in the emerging state budget.

I agree with the analysis presented in the opinion and with the gloomy predictions regarding the macroeconomic effects of this policy.

In the opinion itself there is a reference to an extensive policy paper and a position paper that we previously published in the Kohelet Economic Forum on these issues:

Education, employment and earnings of ultra-orthodox men in a long-term view: are the gaps narrowing?

https://bit.ly/2Pin9kI

Integration of minority groups in the labor market: findings from a graduate skills survey in Israel

https://bit.ly/2uQIKDl

In addition to this, in the last chart book we published (https://bit.ly/3zPMyYe, page 47) we wrote as follows:

It seems that the rumors about the unprecedented integration and “closing of gaps” of ultra-Orthodox men were exaggerated – a tiny percentage of ultra-Orthodox men have an education relevant to the modern labor market, and this is a deficiency that is difficult to fill at a more advanced age, even when large budgets are allocated for it. […] The income disparity between non-Orthodox and ultra-Orthodox Jews grew over time even after taking into account the background of the individuals, their family situation and their work experience. […] In order for a significant reduction in the income gap to occur, the educational characteristics of ultra-Orthodox men must converge with the educational characteristics of non-Orthodox Jews, among other things through the acquisition of basic skills required in the modern labor market already at a young age.

I believe that the coalition budgets discussed in the opinion of the Budget Department not only do not promote an improvement in these trends, but are expected – with a high probability – to exacerbate them. Moreover, it is very possible that the gloomy forecasts regarding the macroeconomic effects of this policy, as mentioned in the opinion of the Budget Department, are even too optimistic. After all, if the policy causes a significant worsening in the per capita income gap between Israel and other advanced countries, in the tax rates and tax burden imposed on the working public, and in the indices of inequality and poverty in Israeli society, then an acceleration in demographic changes may also occur in the coming decades, and the share of non-Orthodox Jews in the population can be expected to decrease rapidly – faster than what is predicted today – a change that will further exacerbate the predicted gloomy trends.

I believe in the value of individual freedom and the right of ultra-Orthodox families to live as they wish according to their preferences. My criticism is only about the policy of elected officials, which is both very expensive from the point of view of the public as a whole and also creates very wrong economic incentives for ultra-Orthodox families.

I recommend that the Government and Members of the Knesset carefully examine the opinion published by the Budget Department and change in the opposite way both the policy on the education of ultra-Orthodox men and the set of incentives in the subsidies for ultra-Orthodox families.