Monday, February 20, 2017

The True Stats of Doing Business

Alon Kupererd
Jerusalem Institute for Policy Research,

If one examines the available data on openings and closings of businesses, while ignoring the net change in the number of businesses, one might conclude that the business sector is constantly in flux – given the large numbers of openings and closings.

Indeed, the data on business registrations, as provided by the Central Bureau of Statistics and presented in the 2017 Statistical Yearbook on Jerusalem (forthcoming), indicate that in all economic sectors, with the sole exception of the manufacturing, mining, and quarrying sector, there has been a gradual increase in the number of active businesses during 2015. For example, during this year Jerusalem saw the opening of 242 new businesses in the real estate sector while 137 were shut down, indicating a positive net change of 105 businesses for this sector. This is smaller than the figure for Tel Aviv-Yafo, which saw an increase of 212 businesses in the real estate sector during the same year. In Haifa there were 146 business openings and 88 closings, yielding a net change of 58 new businesses – well below the figures for Jerusalem or Tel Aviv.

The important question, however, is whether this net change is a true reflection of activity trends in the business sector. Not necessarily, as it turns out, given that the absolute numbers do not accurately represent the proportionate change in the number of businesses in a city, and given that the economy of a city varies with the size of the city. As such, any comparison across cities requires an index of measurement that neutralizes variance in the number of active businesses per city. So let us compare business activity across cities using ratios per 1,000 businesses.

When we examine the above data using this method, we find that Jerusalem saw an increase of 44 businesses for every 1,000 active businesses, while Tel Aviv had an increase of 33 businesses per 1,000. In Haifa the proportion was 40 businesses per 1,000. Thus we see that even though Tel Aviv saw the greatest increase in this sector in absolute numbers, its rate of growth was the lowest among the three major cities, including Haifa, which had the lowest figure in absolute numbers.

In addition to the rate of growth, we can also examine stability. To see which sectors maintained relative stability and which underwent high turnover, let us calculate the rate of change among businesses (sum of business openings and closings) per 1,000 active businesses.

When we compare across sectors, we find that among the three major cities and Israel as a whole, the sector with the highest rate of business openings and closings was that of accommodation services and restaurants (287 openings and closings per 1,000 active businesses in Jerusalem, 260 in Tel Aviv, and 315 in Haifa).

The sectors with the next highest rates of openings and closings were the hi-tech industry (257 in Tel Aviv, 229 in Israel, 220 in Jerusalem, and 212 in Haifa) and information and communications (232 in Tel Aviv, 228 in Israel, 226 in Jerusalem, and 225 in Haifa).

It should be noted that those sectors that showed high rates of business openings and closings also had relatively high rates of growth in terms of the number of businesses per 1,000 active businesses: in Jerusalem the hi-tech industry ranked second and the information and communications sector ranked fourth; in Tel Aviv the hi-tech industry ranked first and the information and communications sector ranked second.

Translation: Merav Datan

Monday, February 6, 2017

What Would You Like to Buy?

Lior Regev
Jerusalem Institute for Policy Research

One of the indices of a country’s economic status is the rate of ownership of durable goods. Durable goods are purchased once every few years and include, for example, furniture, cars, or electric appliances such as a refrigerator, stove, or washing machine. In the modern capitalist economy, which relies on the market system and private property, ownership of durable goods serves as an indicator of a household’s economic welfare and standard of living.

The Central Bureau of Statistics (CBS) conducts an annual survey that examines ownership of various goods and services, among other factors (Survey of Household Expenditures). The list of goods whose ownership the CBS examines is updated annually, in accordance with economic development and technological preferences. A review of previous surveys finds that in the past it examined ownership of video players, which was later updated to DVD players. Perhaps future surveys will examine ownership of wrist-band microchips that project movies onto walls….

For some goods, increasing ownership rates corresponded with a rising standard of living, but the increase over the years was gradual. For example, the percentage of Israeli households that owned at least one vehicle was 55% in 1999, 58% in 2005, 62% in 2009, and 65% in 2014.

A comparison across cities finds that differences in vehicle ownership rates are relatively small. In 2005, 50% of Jerusalem households owned a vehicle – very comparable to rate for Tel Aviv (50%) and slightly lower than the rate for Haifa (53%). A decade later, in 2014, 60% of Tel Aviv households owned a vehicle – comparable to the rate for Haifa (61%) and higher than the rate for Jerusalem, at only 56%. The relative consistency of vehicle ownership rates reflects the high cost of owning this means of transportation and the economic stratification of households in Israel.

For other goods, ownership rates saw a dramatic increase over the years, as well as differences across various cities. The most salient example is air conditioners, which were seen historically as less necessary in Jerusalem given its comfortable climate relative to cities in central Israel. In 1999, for example, only 12% of Jerusalem households reported owning an air conditioner, compared with 42% in Tel Aviv and 39% in Haifa.

The rising standard of living alongside global warming has transformed air conditioners from a luxury item into a good that is essential for surviving the interminable Israeli summer. In 2014, a decisive majority (94%) of Tel Aviv households reported that they own an air conditioner. In Haifa the rate was 84%, comparable to the figure for Israel (82%). Jerusalem, too, has shown a significant increase in recent years, from 41% in 2009 to 60% in 2014, but it still has a long way to go to catch up with the coastal cities.

Translation: Merav Datan

Monday, January 30, 2017

Suburban Lawn or Penthouse Garden?

Yair Assaf-Shapira
Jerusalem Institute for Policy Research

According to World Bank statistics, Israel’s population density is among the highest in the world (387 residents per square kilometer on average). We also live in one of the most urbanized countries in the world, with 91% of the population residing in urban areas.

One might expect, therefore, that construction in Israel would be characterized by high density and high-rise buildings, so as to conserve space. But the Central Bureau of Statistics’ data on construction starts indicate that this is not necessarily the case. Until 2009-2010, most of the housing units being built in Israel formed part of low-rise buildings with 1-4 stories (52% in 2009-2010). Of this low-rise construction, a large majority were not buildings of 3-4 stories but, rather, 1-2 stories – that is, detached or semi-detached ground-level homes, which constitute 80% of the low-rise construction in Israel.

The good news is that the scope of low-rise construction (1-4 stories) is declining. During the years 2014-2015 such construciton accounted for only 38% of Israel’s housing units, compared with a figure of 20% for buildings containing 5-8 stories and 42% for buildings with 9 or more stories. In 2014-2015, high-rise construction (9 or more stories) surpassed low-rise construction (1-4 stories) for the first time. Yet as noted, the vast majority (80%) of low-rise construction still comprises detached and semi-detached ground-level homes (1-2 stories), and this figure remains constant. Of the housing units constructed in Israel during 2014-2015, 31% were such ground-level dwellings.

And what about metropolitan centers? Evidently there is a similar trend – construction rates for housing units in high-rise buildings are increasing while the rates for low-rise construction are decreasing. In Jerusalem the proportion of low-rise construction (1-4 stories) for 2014-2015 was 26%, and for high-rise construction (9 or more stories) the figure was 47%. In Jerusalem high-rise construction surpassed low-rise construction for the first time in 2008-2009 – that is, Jerusalem was 6 years ahead of Israel as a whole. But Tel Aviv outpaced Jerusalem. In the core areas of metropolitan Tel Aviv (Tel Aviv – Yafo itself and adjacent cities) high-rise construction surpassed low-rise construction as early as 2003-2004, that is, 5 years before Jerusalem and 11 years before Israel.

Even in the metropolitan cities – Jerusalem and the metropolitan core of Tel Aviv – a high percentage of low-rise construction comprises detached and semi-detached ground-level homes. In Jerusalem such dwellings constituted 40% of all low-rise construction during 2014-2015 (and 11% of all construction), and in the core of metropolitan Tel Aviv they accounted for 54% of all low-rise construction (and 7% of all construction). Presumably there is a demand for suburban-style ground-level homes in cities as well, and perhaps the thinking is that building such units will attract a “high-quality” populace. But this type of construction might not be suitable for a country as densely populated as ours.

Translation: Merav Datan