Education and Unemployment in Israel, 1976-1994: Reducing the Anomaly

In industrialized economies, unemployment rates are inversely related to education levels. Data from 1963 to 1994 show that Israel is an anomaly exhibiting an inverted U-shaped relationship. Workers with 9-12 years of schooling experienced the highest level of unemployment, in contrast to the 0-8 and 13 years of schooling groups that consistently had lower rates. Multivariate regression analysis of data for Israel, from 1976-1994, indicates that the inverted U-shaped relationship is moderating. The national unemployment rate and a time trend variable had positive and significant effects tending to strengthen the inverted U-shape relationship. However, an increase in the unemployment rate within the 0-8-education group relative to the 9-12 group and a decline in the labour force participation rate of the 0-8 group, overrode these factors, producing a move toward flattening the inverse relationship. The major factor responsible for the anomaly in the education-unemployment relationship in Israel appears to be the result of government policies intended to protect low-educated immigrants with large families. In recent years there has been a reduction in government support. This development seems to have reduced the extent of the inverted U-shaped relation, by gradually increasing the exposure of the least educated to labour market forces.