The Development Of Education In Israel And Its Contribution To Long-Term Growth

This study discusses the contribution of human capital to Israel’s economic output and long-term growth. For this we built historical time series for Israel’s average years of schooling, while correcting individual data in order to account only for effective years of schooling, i.e. those that contribute to labor productivity. We find that in 2011 the average years of schooling among the prime working age (25–64) population was 13.5 years—in the center of the OECD distribution. Combining these data with estimates for the macroeconomic return on schooling allowed us to use Growth Accounting methods in order to estimate how increases in schooling contributed to growth. We found that the increase in schooling since the mid-1970s contributed 0.6–0.8 percentage points to the average annual growth rate, which is equivalent to 48–58 percent and 35–45 percent of the labor productivity and total per-capita GDP growth rates, respectively, during the period. However, the contribution of schooling to growth began to abate in the last decade, and it is expected to continue fading out: We conducted forecasts for the average years of schooling in the next 50 years, which point to the contribution to growth further declining, to 0.1–0.3 percentage points. The range partly reflects uncertainty regarding the Ultra-Orthodox population’s degree of integration in the effective education systems