The Productivity Gap

 

Israelis are many things, but they are not productive. A friend of mine who managed a restaurant used to admire the guts of his workers who, in front of their manager, would punch in at the beginning of the day and then immediately sit for a nice long cup of coffee. Unfortunately, the lack of production is not just anecdotal (leave your anecdotes below!).

Production within a country can be measured by dividing the Gross Domestic Product by the total number of hours worked. High production tends to indicate a high standard of living and in our lovely country production is down. Thankfully for the Jewish masochists among us, economists can quantify just how inefficient we are. Per hour worked, Israelis add 10 dollars less to their GDP compared to their OECD counterparts (The OECD is a clique of the world’s most functional countries. They periodically gather to eat scones and make fun of Russia).

productivity-numbers-pic

Taub Center research offers two reasons to explain the low level of productivity. One of the biggest issues is a poor distribution of Israelis within the various professions. Israel, being a Jewish state, is overflowing with accountants, economists, lawyers and overbearing mothers. However, the economy needs more techies. The number of people entering those professions has far outpaced the need for those jobs. In the last 20 years, wages have stagnated while tech wages are inflated due to the lack of humanpower.

Another issue is the lack of competition in Israel. Israeli industries that must export products to survive and face competition from foreign imports tend to be more productive. Increased competition forces industries to work harder to be productive. August bring your kids to work month becomes less palatable if a Chinese company is threatening to move in on business.

competition-productivity

How can Israel fix this? For one, kids in high school and university can be incentivized to study technical subjects. Publicizing the fact that the glut of lawyers (also a terrible band name) is keeping down salaries while high tech salaries are very high may help. To his credit, Minister of Education and former Minister of Economics Naftali Bennett seems to be sensitive to this need and has nothing to apologize for here. In addition to education, opening industries to global competition will likely make them operate more efficiently, though it could also cause short term unemployment problems if not done carefully.

(Check out the Taub Center report here. I don’t work for them and they didn’t pay me to post this though that’d be nice.)

8 thoughts on “The Productivity Gap”

  1. Education is a good place to start with getting people into tech, but it’s not such an appealing industry. Most tech jobs expect 10 hour work days, which is really hard for people who want to have lives/friends/families. It also lacks stability, has little opportunity for mobility, and from what I understand the tech industry is a little bit ageist.

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    1. I hear that. However, not all tech is start-ups. There are major companies here with more normative work hours. In addition, its likely that the more tech people there are the more likely it is for the market to normalize. I would also point out that the over-saturated jobs are no walk in the park, especially lawyer. I assume that someone who is willing to become a lawyer is alright with long hours.

      One thing that I did not bring up because I didn’t have the time to do the research is that construction is another field which tends to have a lack of people. I expect that there will one day be a new deal type movement here for infrastructure…

      Thanks for your comment!

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  2. I wonder how oversupply and competition interact here. If there are lots of lawyers, doesn’t that mean that there should be lots of competition in the market for legal services, which should lead to higher productivity in that market?
    Might the oversupply of labor in a few fields be more of a reaction to the fact that those fields are still better paying and more productive than other fields that are less appealing because of a lack of competition and barriers to entry? (For example, if there were fewer barriers to opening a TV station that shows news, more TV stations would open, making the TV news market more competitive and productive, and many social-science-oriented peopl would leave the lawyers’ labor market and work as TV news journalists.)

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    1. Thanks for your comment! Don’t forget to share the blog around!

      More lawyers doesn’t mean more legal services, which are frequently offered through firms. Out of work lawyers don’t always start their own companies. You’d have to ask them as to why, but I imagine that covering the expenses of lawyering is probably difficult. Furthermore, someone trained in corporate law won’t be able to access the market on their own.

      Really good evidence of the oversupply is in the study. From 1995 to 2008 the real hourly wage in the market rose 19%. However, the wages of economists, psychologists and accountants stayed the same. People’s individual choices are not often based on market needs leading to the inefficiency.

      If you’re more interested in this topic I suggest you read the study which is awesome!

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