In my tradition of rescuing sufficiently fine comments from the relative oblivion that are long comments sections, I am reprinting Thulean Friend‘s detailed comment on Israel’s prospects in the last Open Thread.
I got into a discussion with Dmitry some time ago about emigration patterns from Israel. His postion was that it was an increasing problem. I was skeptical. Israel has seen rising economic success in recent years, it is far more peaceful than even a few decades ago and pro-Palestinian sentiment appears to be on an ebb, meaning any cultural/social factors (i.e. international shaming that was done in the 1980s against Apartheid South Africa) are also absent. On top of that, the media has been sounding the alarm of rising ‘anti-Semitism’ in the West, which presumably should strengthen the hand of those wanting to stay in Israel.
So I went about researching the issue, purely out of curiosity.
Well, in terms of direction, at least, Dmitry’s instincts were right. The Shoresh Institute, headed up by the former director of the Taub Center (a premier Israeli think-tank), has published a paper on this very topic just a few months ago. The entire paper is great and should be read, but here’s an (inadequate) summary:
What matters in this debate is not the quantity of the emigration per se but the quality of the emigrants and the rate of growth of the latter’s flight from Israel. While Israel has low overall levels of emigration, at 1.1% of the population over two decades, it has a surprisingly high – and rising – rate of emigration of its cognitive class.
Israel is more dependent on the highly skilled than most countries, due to a lower average level of the general population.
Despite the high-tech sector’s success, Israel has in fact falling behind the frontier in productivity. Why?
Turns out that a large part of their success comes from a tiny population. This would support the ‘smart fraction theory’.It is this group, together with academic researchers and physicians, who are emigrating in increasing quantities.
The share of emigrants to the US (the country he focuses on) has been rising. From 1995-2005, the number was 66,000. From 2006-2016, the number jumped to 87,000. Population growth in Israel has been rapid, but he controlled for that.
This means that without continued aliyah in large numbers (and preferably young jews), there is an increasing net brain drain from Israel.
Note that Dmitry talked about not just the US but also the EU. How does it look for the overall share of academic researchers? Just in the recent years, there has been a notable uptick.
A reasonable objection at this stage would be, well, what about returnees? Maybe a lot of them go abroad but a lot come back. Nope:
What about the type of academic emigrant? Turns out that those most critical for Israel’s R&D research in high-tech are also those most likely to leave:
Note the text in the image. It says “graduating from 1980 to 2010”, so this is a long-run stock measurement. It says nothing about the flow, which have gotten worse in recent decades with an acceleration in recent years.
Physicians are also increasingly leaving.
I could go on, but I think you get the picture. Coming back to my initial observations about Israel not being the conventional success story as often portrayed (outside a high-performing elite doing truly magnificent work in high-tech, academia and R&D) is the issue of wages.
As Ben-David points out, Israel’s low GDP per hour worked (PPP) – a measure of productivity – means that it cannot pay high (PPP-adjusted) wages. This is a primary reason why people are leaving. It seems nationalism is decreasingly important for many young highly educated Israelis, the most critical part of its country’s future economic success.
What does the future hold? This is how Israel did on the 2015 PISA exam.
Note that Haredi boys don’t even take the PISA exams, so we don’t know what their scores are. But it is highly likely that the scores are terrible, given that they quit after 8th grade. They are not going to be equipped to sustain Israeli’s high-tech success. The less said about the arabs, the better. Even Hebrew, non-Haredi speakers’s score, while certainly respectable, is not amazing.
But here’s what worrying if you’re an Israeli policymaker:
This means that the burden to keep up the economy is falling on fewer and fewer shoulders who are actually capable of it.
To add to that, Israel has some of the highest real estate costs:
… and some of the highest prices. That is why it’s PPP-adjusted per capita GDP is lower than its nominal income.
You go forward 2-3 decades and it is not hard seeing an even greater intensification of these trends.
Long story short, Dmitry is correct about these trends and I had underestimated them, because I looked at overall levels of emigration (by which Israeli emigration is low) rather than at the very high-end, where Israeli emigration is substantial. Israel is also a very top-heavy society perhaps more dependent on its smart fraction than most, if not all, other OECD economies as shown by the higher share of tax income coming from the top two declines earlier. So this hits them much harder.
What’s remarkable is the rapidly rising share of populations with essentially low productivity and third-world achievement levels (haredim + arabs) compared to the current prime-age working population. This means that the yawning gap between the G7 and Israel in productivity is unlikely to close and may in fact widen even further going forward.All of this would put further pressure on educated Israelis to contribute even more, leading many to simply pack their bags. And increasingly, many indeed do that.
I’d be happy for anyone to come with additional evidence on this topic.