Working More, Producing Less

Moreover, a labor productivity gap between G7 countries and Israel has been steadily growing since the 1970s.

“Israelis work more hours than workers in the G7 countries since the mid-1970s, and the gaps in work hours have only grown: The number of hours worked in the G7 has fallen steadily for four straight decades, while the number of annual hours worked by the average Israeli in 2012 — which fluctuated broadly in recent decades and has been falling since the late 1990s — roughly equaled the number of hours worked over three decades earlier,” noted Taub Center Executive Director Prof. Dan Ben-David.

“Though Israelis who participate in the labor force work more hours than in the leading western countries, their productivity per hour worked is considerably less, and falling further and further behind (in relative terms) the G7 labor productivity.”

Ben-David pointed to several causes for the disparity: the relatively low level of the country’s human capital infrastructure and long years of neglect of its transportation infrastructure has put Israel’s capital formation at the low end of the OECD.

In addition, Israel’s notorious bureaucracy acts as a major hindrance to productivity. For example, the number of days needed to start a business in Israel (34 days) is the second highest in the OECD — two and a half times the OECD average of 13 days.

The high bureaucratic costs incurred by both Israeli and foreign firms doing business in Israel reduce the competition essential for creating the pressure to invest, innovate, and produce better goods and services at lower cost.

This article appeared in print on page 24 of the September 11th, 2013 edition of Hamodia.