worker – in those industries is 33 percent lower in israel than the oecd average. we can see from this that the extra education does not translate into effective education that provides skills that contribute to high labor productivity. the quality of the education system, as reflected in international tests, is also relatively low, which does not bode well for the skills of workers that will be joining the labor market in the next few years. we do not have relative advantages compared to the rest of the world, other bis central bankers ’ speeches than human capital and our innovation and creativity. as such, these trends are worrisome in this context. against the background of these trends, a study conducted by the oecd indicates that the future contribution of human capital to the expected growth in israel in the next 15 years is near zero – almost the lowest among oecd countries. in view of the analysis of the trends i have presented, it is clear that in order to support sustainable and inclusive growth, which will lead to a higher standard of living, constant improvement is required in the level of human capital of the entire population. the education system, and the education required to provide the content and skills that will enable effective integration into the labor market for all parts of the population, including schooling in mathematics, english, hebrew, sciences and computers. • an increase in investment in the education system is required, with an emphasis on expanding affirmative action in all aspects of the system, and for all levels of education. • in particular, the quality of secondary and college education must be strengthened and improved, including in the post - secondary technological schools and in professional training for graduates. • the future needs of the labor market must be examined, and skills and qualifications must be adjusted to dynamic needs, including by providing cognitive skills that will provide the ability to adjust to a changing labor market. the conclusion arising from the analysis that i have briefly provided in the areas of healthcare and education is clear, and illustrates the importance of formulating and implementing a long - term policy that deals with the fundamental demographic trends and other trends and forces facing the israeli economy in the coming years. the future is already here, and we must deal with it now. bis central bankers ’ speeches

of my fellow honorees can talk of the friendships and the attachments they have formed among this community of scholars and in this city. and every one of us will attest to the joy and the pride we feel at being recognized by our colleagues of the hebrew university of jerusalem. i have been asked to talk today about the israeli economy. in brief, the economy is doing well. it grew by 5. 2 percent last year, and the data for the most recent quarter show an acceleration of growth. current forecasts are that the economy will grow by about 5 percent this year again. the budget deficit last year was below 2 percent, and it is likely to be below 1 percent this year. our inflation rate is low. the exchange rate of the shekel is remarkably stable despite – or perhaps because of – the fact that the bank of israel has not intervened in the currency markets since 1997, and does not intend to do so except in truly exceptional situations. we have a current account surplus. the unemployment rate is declining, though unfortunately we have not yet seen a decline in the poverty rate. we are about to enter the fourth year of growth that began in the middle of 2003, at the end of the deepest recession in the history of israel. that recession started late in 2000 as a result of four adverse shocks to our economy : the collapse of the high - tech boom and the nasdaq bubble that had enabled so many israeli high - tech startups to flourish ; the global recession that started in 2001 ; the tailing off of the immigration from the former soviet union to israel ; and the second intifada. it was worsened by an inconsistent set of policy responses to the recession. by 2003 the global recession was ending, and in 2004 growth was higher than it had been in twenty years. the high tech sector was recovering. the security situation in israel improved markedly. and the israeli government in 2003 committed itself to a fiscal framework designed to restore confidence in israel's ability to finance itself, to reduce the share of government spending in the economy, and gradually to reduce the tax burden. the government also initiated a program of structural reforms, including privatizations that had been talked about for at least 20 years, and reforms of the benefits system designed to reduce disincentives to work. over the past three years the government has carried out the program to which it committed itself. this, together with a well - defined inflation - targeting approach to monetary policy, has contributed to strengthening the