18th Caesarea Economic Policy Planning Forum - Employment of Foreign Workers

This document presents the socio-economic effects of employing temporary foreign workers on employment, wages, and poverty among residents. The document also describes the present situation in Israel as regards the employment of foreigners, comparing it with the situation in selected developed countries. It concludes with recommendations and points for consideration regarding policy in areas that have not yet been fully addressed.

Wages and the standards of living in developing countries are significantly lower than those in developed countries; consequently, the latter attract the inhabitants of the former in search of work, even if only temporary. The minimum wage in the developed countries is far higher than the accepted wage in many industries (construction, agriculture, and nursing care) in the migrants’ countries of origin. The large supply of these workers in their home countries makes it possible to choose workers whose skills surpass those of unskilled local workers.

Increasing the supply of low-skilled workers, whose reservation wage is particularly low, creates immediate pressure to lower the wages of workers with similar skills, as well as those of workers whose skills are even lower. The greater ability of the migrants coupled with their lack of access to welfare services compels local workers across the board and in similar industries to work for low wages, which in turn leads many of the local workers to leave the labor market entirely. As a result, both the poverty and the inequality of income of local workers are heightened.

For a long time, Israel’s labor market has been characterized by low employment rates among unskilled workers and by low wages for those with a low level of education. As a result of these and other factors, such as the mass employment of foreign workers, levels of poverty and income inequality in Israel are higher than in all the OECD countries.

The employment of Palestinians in Israel began immediately following the Six Day War (1967). In the wake of security incidents during the first half of the 1990s, they began to be replaced by foreign workers. Some 77,000 legal foreign workers (i.e., with permits) and as many as 125,000 illegal foreign workers (without permits) are currently employed in Israel, and many more would like to work in Israel. The number of permits issued to Palestinian workers within the 1967 borders (the “Green Line”) is estimated at 28,600, and according to the Central Bureau of Statistics (CBS), another 25,000 illegal Palestinian workers are employed. The employment of legal foreign workers is particularly widespread in agriculture, construction, and nursing care.

The extent of the employment of foreign workers in Israel’s labor market is high by international standards. International comparisons are problematic, due to the fact that the way foreign workers are defined varies greatly. However, when the field is narrowed to temporary foreign workers only, their rate in Israel is twice the acceptable rates in the western world, and even higher still if the comparison is restricted solely to unskilled workers (see the report of the Eckstein Committee, 2008). The extensive employment of foreign workers does not support Israel’s comparative advantage – knowhow and innovation. It leads to cheap, labor-intensive production in which labor productivity is low, as well as to the continued existence of occupations and industries that otherwise could not survive in Israel’s economy. Since the principal victims of the employment of foreigners are low-skilled workers, and the principal beneficiaries are employers and skilled workers who belong to the better-off strata, the employment of non-Israelis widens the income distribution gaps in Israel.

The extensive employment of foreigners also has long-term social implications. This process raises social, moral, and legal issues in the sphere of migration, which affect the formulation of policy toward foreign workers. This has special significance in a country where immigration by persons who are not Jewish, or who are not close relatives of a local resident, is not permitted by law.

Israel’s government has been contending intensively with the economic and social repercussions of employing non-Israelis since the beginning of the decade. This has included altering the number of permits, employment methods, taxation, and levies; establishing a migration police force (2003); and setting up a Migration and Population Authority (2009). However, policy in the area of the employment and residence of foreign workers has failed to:

1. Prevent the adverse effect on the wages and employment of residents with skills similar to those of the temporary legal foreign workers;
   
2. Implement adequate employment and residence arrangements for persons holding temporary work permits;
   
3. Prevent the entry and employment of illegal foreign workers.

There are currently several committees that deal with various aspects of the issue of foreign workers: the matter of the children of these workers is dealt with by an inter-ministerial committee, headed by Yossi Edelstein of the Migration Authority; an inter-ministerial committee, headed by the Ministry of Finance, deals with arranging the employment of foreign workers in the nursing care industry; the Eckstein Committee deals with Palestinian workers; a ministerial committee headed by the Minister of Justice deals with the various aspects of Israel’s Migration Law.
In May 2009, an agreement was signed by the government and the farmers based on the conclusions and recommendations of the Eckstein Committee (2008) regarding foreign workers in agriculture, and sub-committees were set up to deal with this matter. The document sets out recommendations and ideas with the aim of formulating an ideological basis and providing possible solutions to the problems addressed by each sub-committee.

The state of affairs concerning the employment of foreigners, by industry:

• Construction: In recent years, the number of permits for foreign workers in construction has contracted substantially. In accordance with the government’s decision, this number will fall to zero in 2012 (the current number of permits is 8,000, and in July 2010, it will drop to 5,000). As of 2009, 25,000 permits have been issued to Palestinians, and in the framework of the committee set up to examine the employment of Palestinians, the extent of employment of non-Israelis in the industry will also be reviewed. It appears that there is extensive employment of illegal workers in this industry.
  
  
• Agriculture: On 12 May 2009, an agreement was signed by the government and the farmers to reduce the number of permits for foreign workers from the current number of 26,000 to 18,500 per year by 2015, and to concurrently subsidize mechanization and agricultural technology, as well as partially subsidize the wages of Israeli workers in the industry. According to the agreement, a pilot scheme is currently being launched to employ seasonal foreign workers. There does not seem to be extensive employment of persons without permits in agriculture.
  
  
• Nursing care: According to official figures, as of February 2010, there are over 44,000 foreign workers in this field, and the number of persons eligible for permits is even higher – over 100,000 by the end of 2008. The system of employment does not impose any upper limit on the quantity; this is determined according to the number of individuals who are entitled to nursing care. Nursing care workers are subject to many restrictions, such as the ban on establishing a family or having children. This matter is currently being addressed by an inter-ministerial team, which aims to settle it in accordance with what is accepted in other developed countries. While there are illegal foreign workers in this industry, albeit to a limited extent, many workers shift to illegal domestic work, such as housekeeping, child care, etc.
  
  
• Catering and hospitality services, manufacturing, business services, etc.: Only a small number of permits are issued in this area. There appears to be extensive employment of illegal workers in the hotel, restaurant, and cleaning services industries, particularly through manpower agencies.
  
  
• Illegal non-Israeli workers (without permits): There are currently 150,000 illegal foreign workers in Israel, of whom 25,000 are Palestinians. In addition, there are 24,000 persons who have infiltrated into Israel from Africa through the border with Egypt. The vast majority of these are in Israel as asylum seekers or persons who have entered the country illegally – but only a small fraction of them received refugee status, as almost all are migrant workers. They are employed primarily in the services and hotel industries. In January 2010, the government decided to increase fines and intensify legal action against employers of illegal foreign workers or employers who do not respect the terms of the work permits. Instructions were also issued to the Migration and Population Authority and the Tax Authority to coordinate data in order to prevent tax credits from being received while employing illegal workers.

Against this backdrop, we have formulated recommendations in areas that require reform or reassessment. Since some of them are already being dealt with by the government and by various committees, we have decided to divide our recommendations according to the issues being addressed by the committees.

 Read the full report on Employment of Foreign Workers (Hebrew)

 See the PowerPoint presentation that accompanied this session (Hebrew)

 Read the Hebrew summary of the session on Employment of Foreign Workers (Hebrew) 

 Read all the English summaries of the recommendations of the working groups (English)

View all the proceedings of the 18th Caesarea Forum (with simultaneous English translation)

See the interview with research team leader Prof. Zvi Eckstein (Hebrew)

 Go to the main page of the 18th Caesarea Forum (English)