Bank of Israel Annual Report April 2006

2005 was a good year for Israel's economy: The economy grew rapidly, with growth led by the business sector ; Employment rose, labor force participation rose, and unemployment went down; the real wage rose moderately The current account surplus increased, as did capital flows into and out of Israel; The financial markets remained stable, with a rise in share prices, and structural changes were implemented in line with the reforms introduced in the last few years; The stability of the financial system was accompanied by continued positive trends; Macroeconomic policy achieved its numerical objectives––price stability, restraint in budget expenditure, and a reduction of the deficit, with a decline also in the public-debt/GDP ratio

GDP Growth ( ) SOURCE: Based on Central Bureau of Statistics data.

GDP and Business-Sector Product ( ) SOURCE: Central Bureau of Statistics.

Rate of Growth of Product of Principal Industries (2005) *The numbers in parentheses are the average shares in GDP in 2004–05. The industries shown comprise the business sector. SOURCE: Based on Central Bureau of Statistics data. %

The Share of Selected Industries in Business-Sector Product ( ) SOURCE: Based on Central Bureau of Statistics data

How Growth was Reflected in the Labor Market: The economy's rapid growth raised the number of employees, reduced unemployment, and increased the real wage. The rise in the wage was again accompanied by a rise in labor productivity in 2005, and a reduction in unit labor cost. About 60 percent of newly employed workers worked in the services and commerce industries; less than 10 percent in manufacturing. Unemployment among the more highly educated declined and almost reached its natural level; this was reflected in a rise in the wage of Human-Cpital intensive industries. Among the low educational level population unemployment went down, and the downward trend in the rate of participation in the labor force halted, but there was only a moderate rise in real wages in the unskilled-labor industries.

% *The numbers in parentheses are the average shares in the total in 2004–05. The industries shown comprise the business sector. SOURCE: Based on Central Bureau of Statistics Labour Force Survey. The Rate of Increase in the Number of Israelis Employed in Selected Industries (2005)

Rate of Employment, rate of Unemployment, and Rate of Participation % SOURCE: Based on Central Bureau of Statistics Labour Force Survey

Rate of Participation in the Labor Force by Educational Level

Rates of Employment and Unemployment by Educational Level % Rate of employmentRate of unemployment SOURCE: Based on Central Bureau of Statistics Labour Force Survey.

Poverty Indices Commonly used relative index: the poverty line is defined as half the level of the median disposable income adjusted for the number of persons. Updated yearly according to the median disposable income. Absolute poverty index: the poverty line is defined as the income sufficient to consume a fixed basket of goods and services at a level determined for a base period (say 1997). The line is updated according to the Consumers Price Index. Basic needs index: the poverty line is defined as the income sufficient to consume a basket of goods determined as being basic (food, shelter, education, transport, and personal items) according to the principles of proper nutrition and the consumption of those goods in predetermined percentiles.

Alternative Poverty Measures * SOURCE: Central Bureau of Statistics Income and Expenditure Surveys.

Sources and Uses (annual rates of change, percent) * SOURCE: Based on Central Bureau of statistics data.