The Economics of JerusalemThe Economics of Jerusalem

Leila FarsakhLeila FarsakhUniversity of Massachusetts BostonUniversity of Massachusetts Boston

CIS- MITCIS- MIT

New York, June 12 2006New York, June 12 2006

The Economics of JerusalemThe Economics of Jerusalem

What are the economic realities of Jerusalem today What are the economic realities of Jerusalem today and how can they impact the future?and how can they impact the future?

Economic growth in Jerusalem has relied on 3 main Economic growth in Jerusalem has relied on 3 main factors:factors: Its religious dimension: a double edged swordIts religious dimension: a double edged sword Population growthPopulation growth State interventionState intervention

Can it be any different in the future: markets versus states, Can it be any different in the future: markets versus states, globalization versus nationsglobalization versus nations

East and West

Municipal Jerusalem

Greater Jerusalem

Metropolitan Jerusalem

The Wall: Israel and the West Bank

Which Which Jerusalem?Jerusalem?

Religion and JerusalemReligion and Jerusalem

Its raison d’etre, but is it also its source of growth?Its raison d’etre, but is it also its source of growth? Potentially a means to generate growth via its effect on Potentially a means to generate growth via its effect on

Tourism: Tourism: Tourism generates $2.4-4.5 billion, roughly 4% of Israel’s GNPTourism generates $2.4-4.5 billion, roughly 4% of Israel’s GNP Jerusalem accounts for 31% of all overnight staying tourists 2004, Jerusalem accounts for 31% of all overnight staying tourists 2004,

higher than Tel Aviv higher than Tel Aviv Yet it accounts for 20% of total income from tourismYet it accounts for 20% of total income from tourism Income from accounts for 20% of the Jerusalem city’s incomeIncome from accounts for 20% of the Jerusalem city’s income

Historically an obstacle to economic activityHistorically an obstacle to economic activity

Source: Israeli Central Bureau of StatisticsSource: Israeli Central Bureau of Statistics

The population of Municipal Jerusalem, 2005: The population of Municipal Jerusalem, 2005: Consumers or Producers?Consumers or Producers?

67% of the population is Jewish67% of the population is Jewish 30% of which are Haredi, or ultra-orthodox, Jews30% of which are Haredi, or ultra-orthodox, Jews 31% of the population under the age of 1531% of the population under the age of 15 22% of households live under the poverty line22% of households live under the poverty line

33% of the population are Palestinian 33% of the population are Palestinian - 41% of the population under the age of 1541% of the population under the age of 15- 42% of live under the poverty line42% of live under the poverty line

Jerusalem is considered one of the poorest cities in Israel, per Jerusalem is considered one of the poorest cities in Israel, per capita income is 1/3 the Israeli national averagecapita income is 1/3 the Israeli national average

Migration: More people leaving Jerusalem than entering it: Migration: More people leaving Jerusalem than entering it: Net loss of 81,700 residents between 1990 and 2002, 50% of which moved to Net loss of 81,700 residents between 1990 and 2002, 50% of which moved to

metropolitan Jerusalemmetropolitan Jerusalem Source: ICBS, Statistical Abstract of JerusalemSource: ICBS, Statistical Abstract of Jerusalem

The Labor Force in JerusalemThe Labor Force in Jerusalem

Less than 32% of the population is economically Less than 32% of the population is economically active compared with 40% in Tel Avivactive compared with 40% in Tel Aviv

Increasing number of foreign workers: Increasing number of foreign workers: estimated 20% of the estimated 250,000-350,000 foreign estimated 20% of the estimated 250,000-350,000 foreign

workers live in Israel, mainly in low skilled jobsworkers live in Israel, mainly in low skilled jobs

Different economic structure between Israelis and Different economic structure between Israelis and PalestiniansPalestinians

The Economically Active Jerusalemites:The Economically Active Jerusalemites:

IsraelisIsraelis 49% of all employment in the public sector49% of all employment in the public sector

26% in tourism industry26% in tourism industry 10% in high tech, a particularly growing and promising sector10% in high tech, a particularly growing and promising sector

49% work in East Jerusalem 49% work in East Jerusalem 51% in work West Jerusalem51% in work West Jerusalem 59% of the population living in Metropolitan Jerusalem work in 59% of the population living in Metropolitan Jerusalem work in

Municipal Jerusalem, Municipal Jerusalem,

Jewish Sector of the city growing between 2-4% per annum Jewish Sector of the city growing between 2-4% per annum since 1996since 1996

Source: ICBS: Statistical Yearbook of JerusalemSource: ICBS: Statistical Yearbook of Jerusalem

Employment Distribution in Employment Distribution in Jerusalem and Tel-Aviv, 2005Jerusalem and Tel-Aviv, 2005

0%

10%

20%

30%

40%

50%

60%

Jerusalem

Tel-Aviv

Source: Israeli Central Bureau of Statistics

The Economically Active Jerusalemites:The Economically Active Jerusalemites:

PalestiniansPalestinians 85% of total employment in the private sector85% of total employment in the private sector

20% in construction, mainly in the Israeli sector20% in construction, mainly in the Israeli sector 27% in commerce and tourism27% in commerce and tourism 5% in public services5% in public services

55% work in West Jerusalem55% work in West Jerusalem 44% work in East Jerusalem44% work in East Jerusalem

Economic activity in East Jerusalem has been falling Economic activity in East Jerusalem has been falling by 10% since 2000by 10% since 2000

Implications for the FutureImplications for the Future

Changing demographics: Changing demographics:

More people leaving Jerusalem than those living in itMore people leaving Jerusalem than those living in it Jerusalem more a dormitory than an economic hub? Jerusalem more a dormitory than an economic hub?

How can the future change this tendencyHow can the future change this tendency The doubling of the Palestinian population by 2050: The doubling of the Palestinian population by 2050:

how to deal with them:how to deal with them:

Population in Municipal Jerusalem, 1995-2050Population in Municipal Jerusalem, 1995-2050

0%

10%

20%

30%

40%

50%

60%

70%

80%

1995 2005 2015 2020 2050

Jewish population Arab population

Source: ICBS: Source: ICBS: Statistical Yearbook of Statistical Yearbook of JerusalemJerusalem

Sources of Growth for the FutureSources of Growth for the Future

Religion: Religion: Population growth: Population growth: State versus market:State versus market:

Globalization: of industries and peopleGlobalization: of industries and people Investment in technologyInvestment in technology Open bordersOpen borders