Israel’s Higher Education Bubble

Israel already has more academics than it knows what to do with. Time to fix the real problem: the bottle-necked economy.

Academic inflation: the Labor Party demands an increase in the higher education budget · Meretz demands the expansion of academic circles for social reasons · But the truth is that Israel ranks second in number of academic degrees among OECD countries · Somehow, this doesn’t really help in the real world

רק בגלל הרוח; טקס הענקת תארים. צילום: Derek K. Miller CC BY-NC 2.0 דרך FLICKR
Going with the wind; graduation ceremony. Photo: Derek K. Miller CC BY-NC 2.0 via FLICKR

If Israeli politicians agree on anything, it is this: to increase economic productivity and reduce poverty, Israel must act to increase the number of degree holders in the country. Thus, the Labor Party’s platform calls for increasing the budget to institutions of higher education as a “step which is required by the increase in demand for higher education services”; the Meretz platform writes that “expanding the academic circle is both a socio-national and personal requirement.”

Other parties, both left and right, have made similar statements. Perhaps the most prominent recent case of this is the “Alternative Poverty Report” of the Latet organization, which defined anyone without a high school matriculation degree as “poor” (even if he’s a millionaire like Yair Lapid), as well as people who have the degree but claim external factors prevent them from doing a BA. With this logic, it’s no wonder that fully 37% of Israelis were classified as ‘poor’ – and this without referring to essentials such as food, housing and healthcare.

The importance of higher education can obviously not be gainsaid, but the Israeli approach which sees it as a magic bullet against poverty is deeply misguided, based on past assumptions which no longer hold up to scrutiny. People who read party platforms or listen to public discourse in Israel might conclude that the number of academics in Israel is far too low.

The truth is precisely the opposite: an OECD report published two years ago showed Israel as ranked 2nd (!) in percentage of degree possession among OECD countries. Fully 46% of Israelis have a degree, only Canada surpasses us. By comparison, the OECD average for degree possession is 31%; for the EU, it’s 28%. In Germany, a financially successful country by any standard, only 27% have degrees, Austria 19% and Italy – just 15%. The rate of graduation from high school in these countries is also correspondingly relatively low. By Latet’s logic, these countries are poorer than ours.

A study published a year ago by Milken Institute economist Gilad Brand found that while the number of people going to college has doubled since the 1990s, work productivity has remained stagnant for four decades. According to the Bank of Israel, “Israeli work productivity is 24% lower than OECD countries as a whole. In addition, its growth rate in the years 1995-2011 was slower than the OECD average.” It turns out that in those countries we mentioned where there are fewer academics, life isn’t so bad. A recent OECD study showed that, contrary to conventional wisdom, the effect of years of education on economic growth was very small. According to the study, the contribution of the expansion of higher education to economic growth and improvement in quality of life has pretty much peaked out.

Brand divided Israeli economic branches between those that are exposed to international competition and those that operate on the international market. He concluded that in branches exposed to international competition like the hi-tech sector, education does contribute to growth – but that education has no effect on productivity in the local economy. According to Brand, “the problem is that there is not enough competition in the local economy, and when there’s an oversupply of low-wage workers including educated workers who can’t capitalize on their education, firms have no incentive to become more efficient, and you can see this in the wage numbers: real average income has not changed in real terms since the 2000s.”

So what we need isn’t more degrees, but a freer internal market.

צריכים יותר מכללות מקצועיות; קמפוס הר הצופים. צילום: מיכל פתאל, פלאש90
We need more professional colleges. Photo: Michal Fatal, Flash90

We need professions, not slogans

Despite of all this evidence, the Israeli march of folly toward to inflate the number of degree holders even further continues. And then papers like Calcalist have the nerve to tell us that the cause of the 2011 social protest is an erosion in the already far too numerous academics’ salaries.

Beyond the need to increase competitiveness in the Israeli labor market, the solution to further Israeli economic advance lies in increasing professional training, at the level of high school and beyond. Even academic institutions are beginning to understand this, as Prof. Peretz Lavi, President of the Technion, explained in an interview he gave a year ago:

I don’t understand for instance why we don’t set up more professional colleges. I’m not talking about the chiefs but the rank of engineers. We’re creating more and more degree holders and its inflating the system. It’s not at all certain that you need an academic degree for everything and every profession.

Israel does not suffer from too few degree holders. It has far too many, certainly in the present bottle-necked and centralistic economy. Rather than create more pressure in the system, we need to release the bottleneck.

English translation by Avi Woolf.

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