1. Introduction Characteristics of the Israeli labor market –Low participation rate in the labor force compared to OECD countries –High rate of foreign workers –Growth in the number of dependents on benefits Growth in the burden of transfer payments

2. Labor Market Figures

3. Participation Rate of Men in the Labor force Ages 25-54 OECD Average: 92.7 Israeli Average: 84

4. Participation Rate of Women in the Labor force Ages 25-54 OECD Average: 71.8 Israeli Average: 68

5. Foreign Workers (thousands) and Rate (%) of Total Labor Market Source: CBS

6. Rate (%) of Foreign Workers in the Labor Force OECD 2000

7. Israeli and non-Israeli Employees in the Construction Industry (thousand) Source: CBS

8. Recent Changes Reduction in the number of work permits to foreign workers Strict enforcement of employment laws “ Closed Sky ” policy Increase in cost of employing foreign workers

9. Trends in Number of Welfare Recipients

10. Growth in Income Support Recipients 1985 -2002 Source: CBS

11. Increase in Income Support Recipients Vs. Increase in General Population & Number of Unemployed (1985 Index=100) Source: CBS

12. Recent Changes Reduction in payment levels for income assurance Reduction in rate of taxation on employment income Reduction of ancillary benefits Comprehensive employment test – “ No Exemptions ”

13. Financial Aspects

14. Transfer Payments as Rate of GDP 1980 - 2003 Source: CBS estimate 2003

15. The Financial Burden Comparison of Various Budgets: Welfare payments: 8.5% Defense: 9.1% Education 8.5% 2002

16. Conclusion of Current Situation Reduction of participation rate in labor force. Increase of foreign, (mostly illegal) workers Growing inequality and a widening of the income gap Increase of public expenditure on welfare payments Drastic failure of the system in implementing a policy of remunerating those earning their wages in the labor force and assisting those who are unemployed to return to the labor force

17. Consequences Long term effects on the labor force, the GDP and the national Budget Social Impact – Creation of a culture of unemployment and dependency