As the government cuts funding for the integration of Arab Israelis, a study finds signs that the contribution of Arab society to economic growth has grown over the past decade.
Over the past decade, the increased, albeit slow, integration of the Arab population into the Israeli work force has been one of the growth engines of the local economy, according to a research study by the Aaron Institute for Economic Policy at Reichman University.
The study led by Marian Tehawkho, director of the Center for Economic Policy of the Arab Society shows that the average annual income from labor among Israeli Arabs has grown at a faster pace than among Haredi and non-religious populations in Israel, suggesting that socio-economic income gaps are narrowing.
Work income per capita among Arab women and men of working age of between 25 and 64 jumped by an annual 4 percent on average between 2012 and 2022, compared with a rate of 2.6% among ultra-Orthodox Jews and 2.9% among secular Jews during the same period, according to the research.
“An increase in income from labor among Arab society translates into an increase in income from taxes for the government, and a decline in the dependence of the Arab population on welfare services and social benefits,” Tehawkho told The Times of Israel. “As Arab society enters the workforce and pays more taxes, the government needs to pay less welfare and deal with poverty, and in turn has more funds to finance expenditure, which has become critical during the ongoing war.”
Tehawkho attributed the growth to an increase in both the employment rate of Arab women and the wages of Arab women and men, as the level of education improved over the past decade. Average real wages among Arab men have grown from NIS 7,910 in 2012 to NIS 11,000 in 2022 and among Arab women from NIS 5,555 to NIS 6,669 during the same period, according to Tehawkho.
“The positive trends in Arab society, in education, employment, and income are the result of the government’s policy to advance incentives for Israeli Arabs to enter the workforce, support education programs, and encourage plans for economic development,” Tehawkho said.
As a result, the share of Arab households living under the poverty line declined from 54% in 2012 to 42% in 2022, according to the study.
The Israeli government has in recent years invested in programs to educate, train, and integrate Arab Israeli women and men into the local labor force, with many focused on the high-tech industry, as part of a continued effort to narrow the employment and income gaps between Jewish and Arab Israelis.
Still, participation rates of the Arab population in the tech employment market remain low despite numerous government initiatives. Arab Israelis make up some 20% of the population, but just 2% of Arab men and 1% of Arab women work in the tech industry, according to government data.
Tehawkho explained that the research was conducted to find out how much Arab society contributes to GDP in Israel, as the government is faced with the challenge of increased expenditure due to rising war costs and needs to invest in growth engines to catalyze the war-battered economy.
“If the trend of the past decade continues at the same rate until 2030, we could see an increase in the labor income growth rate to 5%, which serves as an indicator of how much Arab society could contribute to GDP,” said Tehawkho.
The study found that income from employment generated by Arab society in 2022 accounted for 10.3% of the total in Israel, up from 8.2% in 2012, as labor income gaps narrowed and the share of the Arab population increased.
Economic plans to mend persistent socio-economic gaps between Arab and Jewish Israelis have been proposed and implemented over the past few decades. The latest is a five-year, NIS 30 billion plan intended to advance the social and economic integration of Arab Israelis.
In March though, the government passed an amended 2024 budget to finance war costs and slashed about 15% of funding for the five-year plan.
Commenting on the government’s action, the Bank of Israel stated that “although adjustments in the government budget are required, a notable budget cut of the 5-year plan can negatively impact the future growth of the Israeli economy, as the program makes a marked contribution to the integration of Israeli Arabs into society and the economy and to reducing underinvestment in this society.”
“The continued integration of Arab society in Israel is essential to promoting the welfare of the Arab residents and to exhausting the potential growth of the Israeli economy in the long term,” the central bank said.
As the government is now faced with the task of drafting the 2025 budget and will need to make painful cuts in order to redirect funds for the war effort and the rehabilitation of displaced residents of the north and south, Tehawkho raised concern that programs to encourage the employment of Arab society will be slashed.
“None of the ministers in the government care about the advancement of the Arab population during this period,” Tehawkho lamented. “A large part of the already allocated budgets will likely not be utilized and planned projects will slowly be implemented.”
