’ output. this is not only because of collective granting of higher grades or increases in seniority, for instance, but also because it is difficult to pay the employee suitably on the basis of his knowledge, responsibility, or generally, his performance. this can reduce an employee ’ s motivation to provide high - quality service efficiently. on the other hand, there is hardly any way to move an employee with low output to another position in which his output might increase, or to end his employment in cases where he is making no contribution or even causing damage. • the wage - setting system has a chain of linkages. • the manager has very little authority or ability to reward his staff according to their performance. • wage negotiations sometimes take place according to a party ’ s ability to exert pressure, and do not necessarily reflect labor - market conditions. • the public sector is beset by many labor disputes, and hence many strikes. the problem with quick - fire solutions to disputes is that in contrast with established mechanisms that create agreement and ongoing norms with regard to labor relations, strikes and courts just hasten the advent of the next dispute. this is an inefficient process that leads to a waste of time and resources in the economy 3. principles for reforming the wage system and labor relations in the public sector in israel i will relate in broad outline to three aspects : the structure of wages, the recruitment and promotion of staff, and resolving labor disputes. ( a ) the structure of wages : this should be simplified. as i mentioned, currently there are numerous payment items ( more than 1, 000 ), that can be added to the basic wage, which constitutes about 50 percent of the total wage. these payments distort the wage structure, which is not transparent and which gives rise to discussions on the names of the items instead of the actual bottom - line payment to the employee. this reminds me, and probably lots of you too, of the gashash hahiver “ israbluff ”. it is important that an employee ’ s wage be real, open and transparent. ( b ) staff recruitment and promotion : it is important to implement the rule that new staff should be recruited according to their level of education and knowledge, and promoted according to their output. therefore : i ) the period of classifying a new employee should be extended, and it should include examining his suitability for more than just one position ; the trial period should also be extended. in

to financial markets, and not to other markets where the fall and rise of companies are part of the normal course of business, because there is something about the nature of financial services that make them particularly fragile : the seductive appeal of leverage. anyone who has tasted it can be excessively charmed by it, and when things turn sour the impact on the rest of the economy can be large and long lasting – as we have seen again recently in so many countries, including developed countries that had presumably well developed and regulated markets. the size of the financial sector relative to the economy in israelis close to the oecd average. a few countries such as switzerland, ireland and the uk have become financial hubs and are exporting various financial services to other countries. in the case of switzerland, the services exports are mostly asset management, ireland ’ s are mostly back office services, and in the uk it is mostly financial intermediation. the value added of financial intermediation in israel was 5. 1 % of gdp in 2013, slightly less than the 5. 4 % average in oecd countries. bis central bankers ’ speeches total assets of the banking sector in israel a share of gdp stood at 127 % in 2014, well below the oecd median ( 243 % ) and average ( 247 % ). in fact, the total assets of the banking sector as a share of gdp has been contracting for the past decade from its peak of 147 % in 2002. at the same time, the assets that you, the institutional investors, manage have grown over the same period from 67 % of gdp in 2002 to 117 % in 2014. we may not know whether the financial sector is of optimal size, but these figures show that israel appears to be pretty much where one would expect it to be, neither very large nor very small – a reassuring figure overall. turning now to the trickier and thornier issue of the sector ’ s competitiveness, we do not have all the indicators needed to make a perfect assessment of the situation, but we do note that the concentration in the banking sector is substantially higher than that of developed countries. perhaps even more striking is the area of consumer loans, which is entirely dominated by the banks, and in particularly by the large banks in israel. this was always the case, but as banks have receded from granting credit to large corporations, they have increased credit to consumers. indeed during the past decade, retail credit, including mortgages, has grown much faster than