As such, I will focus on an attempt to answer the question of what has caused the output per hour of labor in Israel to grow relatively slowly and to be lower in Israel than in other advanced economies. I’ll present now a schematic diagram of the factors impacting on productivity and on GDP.
GDP is affected first by factors of production – capital, human capital, and labor. These enter the production function – technology – and are affected as well by frictional factors, such as regulation, the business environment, etc. All these ultimately impact on output per hour of labor, which is the main factor in determining wages.