AllaG

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Biography

My background is math, but I have always enjoyed to write. I've taken many college level writing and literature classes in which I have excelled in.

EDUCATION:  B.S. Economics, M.S. Applied Math from University of Minnesota, Stony Brook University BLOG:  None provided
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Writing Sample

The country of Israel is very unique in the economic world.  It is an industrialized Capitalist nation which has a strong political system, but at the same time, it is mandatory that everyone (whether female or male) commit at least two years to the military upon graduation of high school.  I would like to examine the effect this mandatory military enlistment, also called conscription, has on growth in Israel.  I believe that conscription of all Israeli citizens puts the already small country of Israel at a disadvantage because people are losing time that they could be using to accumulate human capital and contribute to the growth of the nation.  In the long run, it also affects the workforce by decreasing the wage rate and increasing the retirement rate.  The time period I will examine is 1958 through the early 2000s, after the mandatory military enlistment was put into place.

Background Information

The state of Israel was established and gained its independence in 1948.  It is a democracy which gives all people the same rights, regardless of sex, religion, ethnic background, etc.  The majority of the population is Jewish, but it also contains a fairly large minority population of Palestinians.  These two groups of people have been clashing constantly and at war to gain more land.  It is surrounded by Middle Eastern countries that have much different laws and economic systems.  Over the years, there has also been a lot of fighting back and forth regarding the land that Israel occupies, so Israel is not on good terms with its Arab neighbors.  Because of this, they had to create the Israeli Defense Forces (IDF) in 1958 in order to better protect the nation from opposition. 

In the country, national military service is mandatory for any non-Arab Israeli citizen over 18.  This means that whether male or female, when an Israeli citizen graduates from secondary school, they are forced to enlist in the military.  The length of service may vary amongst people and different circumstances, but it is usually 2 years for women and 3 years for men.  Some people decide to remain in the service for a longer period of time.  People with disabilities are exempt from this law and extremely religious Jews such as Orthodox Jews, are also exempt from enlistment.  Some people are able to get an extension to the conscription and complete their service after going to college and getting a degree, but this happens very rarely.  Israel is also always looking to expand their defense forces.  When I had gone on a religious trip to Israel, I found myself bombarded with notions of Zionism and encouragement to move to Israel since they claim it is every Jew’s duty to help the country by participating in the IDF for at least a few years.

The military in Israel is seen as a very important (if not the most important) part of the nation.  According to Uri Ben-Eliezer, “The army was said to contribute to immigrant absorption, act as a melting pot for Jewish ethnic groups, help in conquering the wilder-ness and in further settlement, educate for good citizenship and for love of country, and foster culture. Virtually no area of life seems to have escaped the eyes of the scholars who probed ‘the non-military use of the military’” (Tel-Aviv University, 1995).  In this quote, it seems that the military has a lot of duties to fulfill in the nation, in addition to protecting the nation and its citizens.  This essay also discusses how the IDF was able to better connect the military and civilian population.  By putting all of their energy and focus into the military, Israel loses other opportunities and chances for improvement.  This paper explains that since Israel is almost at a constant state of war, they have blurred the boundary between civilian and military.  The military is almost like the main central government in Israel since they have more responsibilities than other national armies, and they are in charge of many things including staying a step ahead of possible national threats and protecting the safety and wellbeing of the people that inhabit the country.

Benefits of IDF

Some of the benefits of the mandatory enlistment in Israel are Israel is more prepared for any possible attacks, and they are more equipped to protect the country during war time.  Some people who show a lot of potential also get some minimal skill training and education in different areas such as computers.  The IDF is considered one of the world's most professional, elite, and effective fighting forces.  It is also very technologically advanced and has research teams developing state of the art weapons. 

Israeli citizens do learn a lot of positive things in the military including discipline, teamwork, leadership, planning, etc, and the they build life long relationships with people.  The military in Israel is seen as a rigorous physical and social right of passage for citizens.  The IDF prides itself on having a strong moral and ethical code based on the laws of the state of Israel and the traditions of the Jewish people.  This means trying to avoid damage to human life, dignity, and property at all cost.  Another obvious benefit of the IDF is it protects civilians and Israeli citizens from terrorist attack and in a way regulates and enforces the law in order to ensure peace (IDF Mahal).  Also, after completing their IDF service, people get a stipend of money in exchange for their time and hard work that can be used to aid in the transition back to civilian life.

Effect of Conscription on Economy

I would first like to examine the effect this mandatory service has on the economy.  The types of factors I will consider in analyzing the effect mandatory military service has on the growth of the country are the workforce, academic performance, and a person’s career later in life.  Due to this mandatory military service, Israelis lose two or more years that they could have used to work and contribute more to growth.  Those years could also be spent on increasing their education, knowledge, and skills by going to college which would in turn improve the nation’s human capital as a whole.  The military does provide some basic education and skills along with military training.  This extra education can be in computers or mechanical engineering, but it is nowhere near the amount of education a degree in this specified field would provide and cannot be used as a substitute for that.  It provides minimal benefit in the workforce after the military.

Another issue of the draft is the economic effect it has on Israel.  Israel went from spending 9% of their GDP on defense in the 1950’s to 24% in the 1980’s.  Currently, about 8% of Israel’s GDP is going towards defense which in 2008 amounted to $16.2 billion, making Israel the country that spends the largest portion of their GDP on defense in the world.  Figure 7 shows the percentage of GDP Israel has put towards the military over a 20 year period.  The amount has gone down over time from what it was in the 1980's, but 7-9% of GDP spent on military expenditures is still a lot in comparison with other countries. 

This obviously has a large impact on growth and the capital stock of the country.  The possibility of war also plays a large part in affecting the economy.  It is hard to definitively identify periods of war and peace in Israel because since the creation of the state, it has been under a constant state of fear of attack, so they have had to take the necessary actions in protecting the people by pouring all of this money into the IDF.  Keeping the country out of war does have benefits because GDP goes down during war periods, but since there has not been a definitive period of war in the past few decades (or since Israel became an independent state 62 years ago), this argument can't really be used.  In other words, Israel is losing more human and physical capital by having conscription than they are gaining by staying out of 'possible' war.

While putting so much money and effort into the defense forces in Israel, it seems that it has caused the educational system to suffer.  Figure 1 shows that Israel is putting money into education, similar to the amount of other growing nations, but figure 2 shows that it is not paying off nearly as much as it is in other nations, in the aspect of students’ achievements.  Israel shows negative percentage in achievements for basic subjects in school.  A very likely reason for this is the mandatory 2-3 year draft that interrupts education.  Studies show that students are more successful in school if they continue straight through instead of being interrupted by the conscription.  Students are less likely to continue furthering their education after a few years of interruption than if they entered college directly after graduating from high school.  To combat this problem, more money needs to be put into the educational system to somehow encourage students to work harder and get a better and more useful education that will increase the standards of the country.

It is understandable why Israel participates in military conscription and puts so much money into the IDF.  Israel is surrounded by conflict and under constant threats.  On the other hand, it seems this has a negative impact on human capital.  It seems to be the case that the long-term effect of the military service is a decrease in human capital.  College enrollment has decreased since the 1960s and the government has been investing less money in education.  Today, about 52% of the Israeli population enroll in tertiary education (some form of technical college or University) compared to 72.6% in the United States (UNESCO 2008).  Figure 5 shows that in 2007, the growth rate of college enrollment in Israel is at about .5% while in the United States it was 1.5%.  It also seems that enrollment in the United States recently decreased a little, while Israel shows a general decreasing trend of college enrollment over time.  Figure 6 shows that per 100,000 inhabitants in the country, generally about 5-6 thousand are enrolled in college over time, compared to about 2-3 thousand in Israel  This decrease in human capital growth, in turn causes the wage rate to go down in the Mincerian wage equation which decreases per capita GDP and the country’s output.

Ḣ=sHY-δH :the law of motion for human capital [1]

→ This equation clearly shows that the growth of Human Capital in a country can depreciate and decrease if efforts are not being made to improve the quality of education and skills in a country.

Y=KαHβ(AL)1-α-β:Aggregate GDP [2]

→ Here, a decrease in human capital growth in the first equation (Ḣ), will cause a decrease in aggregate GDP (Y) in the second equation.

The mincerian equation is Wt = PtHt where H is human capital/skills, P is price of a unit of skills, and W is market wage rate.  The growth is wage rate is characterized by logWt =logPt+logHt

When skills and human capital go down (H), the value of the skills goes down (P) causing the wage rate of a country to decrease.  This then creates a decrease in GDP per capita and the country’s total output.  As one can see in Figure 9, the average wage rate in Israel has been very sporadic from the early 1990s through 2000s.  It does not seem to be growing at a constant rate which the mincerian wage rate equation suggests to be the case because human capital is not increasing.

            In comparison with the U.S. which discontinued their military draft in 1973, the data shows that college enrollment increased greatly after this period.  Enrollment went from 4,145 in 1960 to 12,096 in 1980, tripling which was the greatest increase in a 20 year period that ever occurred (Social trends in America, Vol. 2).

Another effect of the conscription and losing 2 or 3 years of life is the retirement age is much older in Israel.  The average retirement age in the United States is 55-59 years old, and in Europe it is 50-54 years old.  Compared to Israel where the average retirement age is 67 years old. Being forced to work a few years for the military obviously puts a large delay on the retirement age and requires people to work longer (Average Retirement ages, Feedrer).

The paper from the Helsinki Center of Economic Research (HECER) analyzed the effect a mandatory draft has on the enrollment in higher education in OCED countries from the time period of 1965 to 2000, and their conclusion was that it significantly reduces the enrollment rate.  Their reasoning for this is that military service interrupts studies which therefore increases the amount of time it will take to complete higher education.  Also, since there is a period of a few years while the person is in the military, prior skills and knowledge the person had before enlistment will depreciate, and it will be more difficult and take longer to regain that knowledge and move up to a higher level. Table 3 shows that the enrollment in higher education (college) is significantly less in countries with conscription compared to countries that have no conscription.  The growth of college enrollment is also smaller in countries that participate in conscription.             This paper also discusses the impact of conscription on the stock of human capital in a country in general.  People are drafted right out of college (generally age 18) for about 2-3 years.  This is the time period when most human capital accumulation occurs because students are able to learn quicker and retain the most amount of information during this age.  Also, human capital that was accumulated before the draft in high school depreciates during the time when the young adults are in the military.  This paper also claims that since the stock of human and physical capital is decreased in countries with conscription, the growth rate of GDP tends to be much lower than in countries that have a volunteer force (HECER, No. 271).

A study by Lau et al (2004) simulated a general equilibrium economy that required conscription and contrasted it with one that did not.  The results showed that if every person in the economy entered the military for one year at age 18, it would decrease the country's long run GDP by 1% compared to the country with no conscription, keeping all other variable constant.  In the case of Israel, the impact of the conscription on long run GDP would be even greater since men are required to serve 3 years in the military and women 2 years.

In the Israeli economy, since most of the labor force is the military, there are less people contributing to the stock of knowledge and research in the country.  According to the Romer Model, the standard of living (income/GDP per capita) depends on the number of researchers in the country.  Because the number of researchers in Israel is decreased due to the mandatory draft, the standard of living and GDP is diminished in the country.

Of course putting money and capital stock into the military increases GDP temporarily, but forcing people to enter the military and lose years they could have spent on education or in the work force impacts GDP significantly by inhibiting growth in the long run.  Generally 9% of GDP in Israel is spent on the military, while the United States, which has a much larger economy, spent 4.06% of their GDP on military expenditures in 2005 (Nation Master).  These percentages tend to fluctuate at different times in history.  But, amidst the war with the Middle East, the US was still spending a smaller percentage of their GDP on the military. 

Due to the amount spent on the IDF, Israel spends less money on public education than they probably need to, and the country suffers from over-crowded classrooms and low teacher salaries.  In general, much less percent of GDP is spent on primary and secondary education combined compared to other industrialized nations.  Since less effort is going into educating kids from a young age, they are probably less likely to continue on with schooling after they finish their military service. 

Less money is also being spent in Israel on improving Universities and the quality of education.  According to Barro, schooling contributes .7% to Israel’s GDP while in the U.S., it’s 3.4%.  This is a very large difference which shows Israel is not putting as much effort into education, which would greatly pay off in the long run.  If they focused on increasing education, it would ultimately increase their human capital and contribute to growth in the long run (Human Capital and Growth in Cross-Country Regressions, 1998).

According to the Census Bureau, College graduates with a Bachelor’s degree earn on average 30% more than people who only completed high school in the United States.  Paolo Buonanno researched the effect that the mandatory military enlistment service has on a country’s economy, specifically those of the UK, Israel, and Germany since these countries all went through periods of mandatory draft or still continue to participate in conscription.  He claims there is a long-term effect on earnings later in life due to the conscription.  His results show that mandatory military service have negative effects on the labor market.  He claims that males who served for 2 years in the national service on average earn from 4-7% less than those exempt from the service.  This is a very large difference between incomes of those who served in the military and those who did not.  His study also showed that draft avoidance increased college enrollment rate for men by 4-6%, which makes it safe to make the assumption that those who do not have to enlist in the military are much more likely to enroll in college right out of high school.  His theory is that the mandatory draft causes a career interruption that may prevent education and acquisition of labor experience early in life.  It is also difficult for people to transition back to civilian life such as school or an office job after having served in the military.  Evidently, this conscription interrupts further education and prevents many people from entering school after the service, therefore lowering the overall education level of the country and decreasing the growth of human capital (Buonanno, 2006)

According to research done by the Organisation for Economic Co-operation and Development (OECD), human capital is a large contributor to growth.  Although they admit that it is difficult to accurately measure human capital, there is a positive correlation between years of schooling and high income in industrialized nations versus poor ones, as seen in Table 1 and Figure 4.  In Figure 4, the line for average years of school completed in Israel would be in between the poor and rich countries.  In 2000, the labor force in high income countries had an average of 12 years of schooling, while the poor countries reached about 5.7 years.  Their data shows that schooling is a large contributor to income, and education in turn creates growth in a country.  They showed that primary school alone was a major contributor to growth, while secondary schooling such as college contributed even more so to output in the long run (OECD 2001). 

The average amount of schooling completed in Israel in recent years is 9.6 years, compared to 12 years in the United States (Nation Master).  In application to Israel, one can see that the attainment of less schooling caused by the mandatory draft slows growth down significantly.  Figure 3 shows the growth rate of real GDP in Israel over time.  There was a large drop in the growth rate shortly after the mandatory draft was put into place at the end of the 1950s.  Since then the growth has been inconsistent, but shows a general downward trend over time.  Figure 8 shows that the more years of schooling the person has from high school and on, the more positive the correlation with the growth rate of GDP is.  This implies that the less years of schooling a person has, the smaller the role it plays in GDP growth, but when the country is more educated, there is larger growth.

Although Israel is a very small country, studies done by the Chicago Journal show that the quality of education at various levels differ greatly across different portions of the nation.  These differences are due to the social, economic, political, and professional resources of the particular municipality.  The government seems to put less money into so called “poor” communities.  Lazin states, “Nevertheless, the ministries of welfare and education fail to achieve the goal of egalitarian and standard services adjusted on the basis of need at the local level.  That failure is partly due to a lack of financial resources and trained personnel.  But the problem is also one of implementation: the inability of a very unitary political system to direct available resources in accord with policy goals” (Chicago Journals, 1982).  This quote shows that the educational system in Israel is by far not what it could be.  So much effort is being put into defense when some improvements need to be done to increase education levels and the welfare of the society as a whole.  This would pay off greatly in future years.

An article written by Troen states that Israeli Universities are instruments for national development including improving defense and military procedures.  In the 1950s, University funding by the government was about 6%.  This number has gone as high as 60% into the 1990s.  About another 10% of the funding comes from tuition and the rest from private contributors (Springer, 1992).  In order to improve the defense in the country, it would make sense to put more money into research and education since the quality and capability of the defense forces depends on the research being done to make advancements.

To summarize, Israel in comparison to other Democratic Capitalist countries such as the U.S., shows that on average Israelis go through less years of schooling than is normally expected of an industrialized economy.  Although the U.S. has a much larger economy, a comparison shows the effect this factor has on human capital accumulation and growth since most other factors are similar in the countries.  Ignoring all other factors in these countries, it seems that education plays a very big role on long run wage rate and growth.  The increase of human capital in a country creates many future benefits.

Some possible expected criticism of my argument could be that the conscription does not necessarily cause decreased education, but the changes in the wages and GDP fluctuations began more heavily after the 2-3 years of mandatory service was instated in the late 1950s.  Since nearly all Israeli citizens must go through this, they are loosing valuable time where they could have been increasing their human capital by furthering their education or being a part of the work force.  As seen in the data, these things in turn decrease the average wage rate of the country and the growth rate of the country’s output.

It seems that for Israel there is no other option but to have conscription for the better good of everyone and in order to protect the welfare of the country.  On the other hand, the mandatory military enlistment of nearly all Israeli citizens has a negative impact on growth.  GDP growth in Israel has fluctuated greatly, but the long run growth seems to be affected greatly and show a downward trend due to the decrease in human capital.  This is caused by the mandatory military enlistment because a large portion of Israel’s GDP is spent on its military and defense force instead of focusing on creating more human capital in the country.  This in turn has a large effect on the advancement of the nation and its ability to keep increasing the size of the economy.

 

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