Accessibility menu
During the decade between 2012 and 2022, there has been a rapid growth in the labor income per individual among Arab men and women, and the gaps between Arabs and non-Haredi Jews have decreased. The narrowing of this gap, alongside the growing size of the Arab society as a share of the overall Israeli population, have led to an increase in the share of the Arab society out of the total labor income, which serves as an indication of its contribution to the GDP. This positive trend of Arab men and women integrating into high-quality employment has taken place against the backdrop of a government policy aiming to develop the Arab society, boost incentives for work, and promote education. Analyzing the changes in education, employment and income of individuals aged 25-44 during this decade shows that around two thirds of the increase in labor income per individual (an annual increase of 4.2% between 2012 and 2022) have stemmed from an increase in the wages of employed Arab men. The remaining third has stemmed from shifts among Arab women, in particular an increase in their education level.
Despite the positive trends in education, employment (of Arab women) and wages, labor income per individual among Arab men and women still stands at around a half of that of non-Haredi Jews. Large gaps persist between the two groups in the labor market: a low rate of tertiary education, lower employment rates and particularly an employment gap between Arab women without tertiary education and non-Haredi Jewish women with similar education level, as well as wage gaps across all education levels between Arab men and women on the one hand, and non-Haredi Jewish men and women on the other.
A further reduction of the gaps between Arabs and non-Haredi Jews is critical to the growth of the Israeli economy in the medium and long term. Without any changes in the education, employment and wages of either population groups, the expected demographic shifts – in particular the growing share of Haredi society – may bring about a negative annual growth of 0.4% in labor income per individual of the 25-44 age group by the year 2035. Conversely, closing the gaps between Arabs and non-Haredi Jews holds a potential to alter the trajectory of the economy from negative to positive growth – fully closing the gaps in education, employment rates and wages of Arab men and women (combined with the demographic shift) will lead to an annual growth of 0.8% in labor income per individual (even if the situation in Haredi society remains unchanged).
While fully closing all gaps within a decade is not likely, we show that under two ambitious but realistic scenarios it would be possible to maintain the growth rate in labor income per individual obtained in Arab society between 2012 and 2022. First, in a scenario of closing employment gaps between Arabs and non-Haredi Jews within each education level, labor income per individual of Arab men and women will increase by 1.6% annually until 2035, and that annual rate will reach 4.7% if the current rate of wage growth within each education level is also maintained. In the second scenario, which sees the entire Arab society reaching by 2035 the same education levels and within-education level employment rates that currently exist in the Arab populations of mixed cities, the labor income per individual of Arab men and women is expected to increase by 1.6% annually, or 4.4% if the current rate of wage growth is also maintained.
For Israel’s Arab society to remain a major growth engine for the national economy, ambitious targets should be set for 2035 in regard to the education, employment rates and wages of Arabs aged 25-44, representing a significant reduction in the gaps between Arabs and non-Haredi Jews. It would also be necessary to continue adopting and enacting the recommendations presented in our previous papers for boosting education and employment, as well as improving the quality of employment in the Arab society, in order to support the realization of these targets. In addition, it is necessary to proceed with the full implementation of economic development plans for the Arab society formulated in previous years, and to reinstate previously cut budgets in order to fund the relevant government resolutions, in particular Resolution no. 550. Full implementation of these recommendations will help maintaining the positive trends in the Arab society and the reduction of gaps in the labor market, while sustaining the impressive growth rate in labor income per individual among Arab men and women and across the economy as a whole. Thus, it will promote the social and economic integration of Israel’s Arab society and the realization of its untapped potential, enabling it to continue acting as a major growth engine for the Israeli economy in the years to come.