Why Is Labor Productivity in Israel So Low?

doi:10.1017/9781108907620.012

11 - Why Is Labor Productivity in Israel So Low?

from Part III - Investment in Human Capital, Productivity, and Inequality

Published online by Cambridge University Press: 04 February 2021

Moshe Hazan and

Edited by

Reuben Gronau and

Avi Ben-Bassat: Affiliation:
Hebrew University of Jerusalem
Reuben Gronau: Affiliation:
Hebrew University of Jerusalem
Asaf Zussman: Affiliation:
Hebrew University of Jerusalem

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Summary

We analyze differences in labor productivity between Israel and a group of small OECD countries. We assume a more general human capital production function and calibrate it using PIAAC surveys, which examine the literacy and numeracy skills of the adult population in the OECD countries. Whereas Israel has more years of schooling, its population has lower measured skills. Using development accounting exercise, we show that once years of schooling and numeracy skills are taken into account, differences in accumulated factors explain more than three-quarters of the gap. This is against a split of 60–40 between accumulated factors and total factor productivity, when these skills are ignored. Additionally, using panel data on 13 OECD countries, we show strong positive correlation between physical and human capital per worker. A causal interpretation of our estimates implies that closing the gap in skills will indirectly close 18 percent of the gap in physical capital.

Keywords

Development accounting labor productivity PIAAC human capital physical capital

Type: Chapter
Information: The Israeli Economy, 1995–2017
Light and Shadow in a Market Economy
, pp. 329 - 361

DOI: https://doi.org/10.1017/9781108907620.012 [Opens in a new window]

Publisher: Cambridge University Press

Print publication year: 2021

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