Growth, Economic Policies and Employment Linkages: Israel

Employment Working Paper No. 83

During the turn of the century, Israel economy has been in a period of significant economic growth. The economic climate changed abruptly though in late 2000 due to the burst of the dot-com bubble and the commencement of the second Intifada (Palestinian uprising). These events generated a severe recession, which had severe effects on the labour market. The unemployment rate increased to 10.7% in 2003 and government deficit climbed. Measures were taken to accelerate Israel economy; introducing major cuts in social benefits and in government spending, as well as reforming capital and pensions markets and the tax system. These economic policies had a positive impact on economic growth during 2003-2004, leading to 1.4-1.5% Purchasing Power Parity (“PPP”) GDP per capita growth in 2004 and in 2005. Later on, together with the improvement in the security situation and the recuperating global high tech industry, Israel economy reached record levels.