Composition of the increasein the labor force participation rate during the first decades of the century (Hebrew)​​

Excerpt
from the Fiscal Survey and collection of research issues:

·       The labor force
participation rate among those aged 25–64 (the primary working ages) increased
by about 4.5 

         percentage points since 2003, reaching 80.7 percent in 2016—higher
than the OECD average.

·     The most significant
increase in the past decade took place among the higher ages, mainly among
Jewish men aged 60–69, among non-Jewish men aged 55–59, and among women aged
55–64.

·     Since participation
rates decline with age, they have declined as a result of the aging of the
working-age population.  However, older
adults have increased their participation rates to a larger extent, so the
over-all participation rate has actually increased.

·    Until the beginning of this
century, the participation rate among men declined over a number of
decades.  The increase in the past decade
is mainly a result of the increase among older adults.  The participation rate among women has
increased constantly, in accordance with the global trend, but since 2003, a
large part of the increase is a result of the increase in the participation of
older women.

·      The analysis shows that
the participation rate among older adults increased in the past decade, largely
a result of the fact that the retirement age was increased gradually since
2004, since this encourages older population groups to participate in the labor
market.  Increasing the retirement age
therefore contributed to the income of the elderly population and to their
pensions.  It has apparently also made a
considerable contribution to economic growth in the past decade.

 

The labor force participation rate in Israel among the
primary working ages (25–64) has been in an upward trend in recent decades, and
today stands at 80.7 percent—higher than the OECD average.  According to an analysis by Aviad Schwartz of
the Bank of Israel Research Department, the increase this century has been a
result of different factors than those that led to increases in the past.

 

Over the years, the participation rate among women at any
given age has increased together with their year of birth—meaning women from
later cohorts have a higher participation rate. 
But this increase has narrowed over the years, and there is currently no
large difference between cohorts in the younger age range.  Conversely, the participation rate among men
declined in the later decades of the 20th century, but starting in
2005 there was a turnaround, and it is currently in an upward trend.  As a result, the Bank of Israel conducted an
analysis intended to clarify what is currently leading to the increase among
women, what is leading to the change in trend among men, and how those changes
are affected by changes in policy.

 

One of the most significant policy changes concerns the
fact that since 2004, the retirement age has increased gradually, from 60 to 62
for women and from 65 to 67 for men. 
When the participation rate is broken down by age (see the figure), the
sharpest increase is found among older workers. 
The increase is most prominent in the age groups that were directly
affected by the increase in the retirement age, but there is also a marked
increase among those nearing retirement age, meaning those at ages where the
participation rate begins to decline. 
Previous studies and the current analysis show that the increase in the
participation rates of older adults is not a result of changes in their
characteristics over the years, but rather of the increase in the retirement
age.

Composition of the increase in the labor force participation rate during the first decades of the century

The increase in the participation rates of older adults had
a significant effect on the overall participation rate in the economy.  A basic estimation shows that older adults
contributed about half of the increase in the participation rate of women, and
almost all of the increase in the participation rate among men, despite the
fact that the older adult population accounts for about 10 percent of the
primary working age population.  As such,
not only did the increase in the retirement age increase the income of the
older adults themselves, but it also contributed significantly to economic
growth in the past decade.

Composition of the increase in the labor force participation rate during the first decades of the century