BOI Concerned by Widening Productivity Gap

YERUSHALAYIM -

The average Israeli worker is not as productive as his counterpart in most developed countries, according to a new study released by the Bank of Israel on Thursday, quoted by Haaretz.

“Productivity in Israel is 37 percent lower than that of the G7 countries, and 24 percent lower than that of all the OECD countries. Productivity in Israel more closely resembles that of countries like New Zealand, Greece and Portugal, and … a number of Eastern European countries,” the central bank said.

The OECD is the Organization for Economic Cooperation and Development, a group of the world’s most developed economies, including Israel. The G7 are the top industrialized countries.

The central bank researchers tracked productivity in Israel from 1995 through 2011. Its results are in line with the findings of a study commissioned by the Office of the Chief Scientist in the Ministry of Industry, Trade and Labor that said productivity in the industrial sector in Israel compares unfavorably with that of the United States.

The BOI noted that the productivity gap was widening as the pace of improvement in productivity has been slower in Israel than in other countries.

The central bank suggested several explanations for the problem. The average Israeli works longer hours than workers in other developed countries — 37.1 hours a week compared to 33.6 on average in the OECD countries as a whole, meaning that the Israeli’s marginal output per hour is less.

The Bank of Israel put a large portion of the blame on lack of competition, which forces businesses to operate more efficiently and acquire advanced technology.

“Labor productivity is defined as total output per actual work hour,” the central bank explained in a statement about the study. “From a long-term viewpoint, the level of productivity and the changes in it depend on a number of factors, such as the human capital in the economy, the stock of physical capital, the level of technology, and structural factors that affect the efficiency.”

The BOI also suggested that a lower rate of investment than among other OECD countries has affected productivity. The rate of annual investment in relation to Israel’s gross domestic product over the past decade was 17 percent, compared to an OECD average of 22 percent.

The lower rate of investment was attributed to Israel’s geopolitical situation, which discourages investment.