Long-term population projections anticipate that the demographic composition of Israeli society will change substantially over the next 50 years, which will have an impact on the Israeli economy. Based on current fertility rates, Israel’s Central Bureau of Statistics (CBS) estimates that Haredim (ultra-Orthodox Jews) and Arab Israelis — who make up approximately one-third of the total Israeli population today — will comprise about 50% of the population in 2059.
This shift could affect Israel’s economy as a whole because the Haredi and Arab Israeli population groups are characterized by relatively low levels of human capital, and both Arab Israeli women and Haredi men have notably low employment rates. However, there are important demographic shifts, as pointed out by new Taub Center research, that are not taken into account in the projections and could alter these figures substantially, quantitatively if not qualitatively.
The CBS projections are based on fertility rates. Both Haredim and Arab Israelis are indeed having more children, on average, than non-Haredi Jews. However, since the 1960s, fertility rates have fallen drastically among all groups of Arab Israelis: Muslims, Christians and Druze. This is not so surprising given increases in income, and, more recently, the increase in the share of Arab Israeli women who receive a higher education and work, both of which tend to be accompanied by a drop in fertility rates. At the same time, Jewish fertility has been increasing — not only among the Haredim, but among secular and traditional Jews as well.
Beyond fertility rates, there have been some surprising demographic changes in first-grade enrollment in schools, and in the movement of students between religious streams in the education system between first and eighth grades. Israel’s education system is made up of four independently operating public education systems: Haredi, state (religious), state (secular) and Arab. In the early 2000s, first-grade enrollment in the various education streams reflected the fertility rates in each sector. However, during the current decade, growth in enrollment in the Haredi system has been smaller than expected given fertility rates, while growth has been larger than expected in the state system. Between first and eighth grades, there is also evidence of students transferring from more religious to less religious educational frameworks.
To the extent that these trends reflect the secularization of students and their families, and to the extent that these trends continue, they could have very significant effects on the future composition of the Israeli population.
In the meantime, there are additional changes taking place within the Arab Israeli and Haredi population groups that have implications for Israel’s future economy.
Starting with Arab Israelis, recent years have witnessed improvement among Arab Israelis on indicators like international test scores, matriculation rates and participation in the labor market. Particularly notable are the changes among Arab Israeli women, who are pursuing academic degrees at much higher rates. Though people with academic degrees tend to be employed at higher rates in general, the phenomenon is extremely prominent among Arab Israeli women.
For Haredim, both women and men are working more — not just overall, but also within Haredi sub-streams. More Haredi men are studying in academia as well, and, despite the fact that dropout rates are higher for them than for other population groups, Haredi men who pursue academic studies are more likely to work — even if they don’t complete their studies — than are men who do not pursue an academic degree.
It is important to note that there is still a long way to go in narrowing the gaps in education and employment between non-Haredi Jews and both Arab Israelis and Haredim. However, the above trends are already bringing changes to the Haredi and Arab Israeli population groups. In addition, both the Haredi and Arab Israeli populations are overall younger than the non-Haredi Jewish population, meaning that the changes currently taking place in the younger segments of these population groups (in education and higher education, for example) will likely have an even larger effect on the working-age population in the coming years.
Looking forward, the best way to prepare for whatever demographic changes the future will bring is to further invest in the education and skills of these particular population groups in order to improve their level of human capital and their integration into the Israeli labor force.