Israel Business Information Services Ltd.

The economic value and impact of North American aliyah
Prepared by
I-Biz - Israel Business Information Services
Pinchas Landau Yaacov Fisher
December 2004

Commissioned by Nefesh b'Nefesh
Contents
Executive Summary
Introduction
Part 1: Immigration / Aliyah
A. Human capital
a. Education
b. Experience
B. Financial capital
Part 2: Absorption
A. Employment
a. Speed of integration into the labor market
b. Quality of employment
c. Economic contribution
d. Tax contribution
B. Consumption
a. Big-ticket items
C. Children
a. Consumption patterns
b. Number of children
D. Spin-offs
a. Family visits
b. Knowledge transfer
c. Work ethic
E. Non-monetary inputs
a. Encouragement of aliyah
b. Strengthening of Israel-Diaspora links
Conclusions

Executive Summary

Since 2002, Nefesh B'Nefesh, in full co-operation with the Jewish Agency,
has facilitated the immigration and absorption of over three thousand olim
from the United States and Canada. This paper has been commissioned by
Nefesh B'Nefesh to analyze the contribution to the Israeli economy of these
olim.

The analysis conclusively demonstrates that, on the basis of all the data
available and using very conservative assumptions, North American immigrants
who made aliyah over the past 2-3 years under the auspices of Nefesh B'
Nefesh, represent an extremely valuable resource to the Israeli economy. It
is clear that both in terms of the human and financial assets they bring
with them and, to an even greater extent, through their economic activity
subsequent to their arrival, these people comprise - on a per capita
basis -- the group with the greatest potential economic contribution in the
history of Israeli aliyah.

This remarkable fact stems from the three primary economic characteristics
of the Nefesh B'Nefesh oleh population;

a) Education: the average level of education among the olim is extremely
high, with high-school education representing a basic norm for almost all
the adult olim, while over half (55%) reported having a first degree, over
one-quarter (27%) a second degree and a significant number (7%) a third
degree. We have assessed the average value of this education at some $87,500
per adult oleh.

b) Experience: the adult olim have, for the most part, arrived with a
significant amount of practical experience and know-how gained from their
employment in the US labor market in their various professions and fields of
endeavor. Using rough approximations, we have estimated the value of this
transfer of know-how and experience at $60,000 per adult oleh.

c) Labor-force participation: the olim are determined to deploy their
education and know-how in the Israeli labor market, by joining the labor
force as soon as possible and obtaining employment that most closely suits
their professional background. The level of participation is very high - in
the area of 90% of the adult oleh population, with most of the olim
obtaining employment in their professional fields; their productive
contribution is accordingly much higher than that of the overall population.
We have conservatively estimated the per capita production of the entire
Nefesh B'Nefesh oleh population (including children) at $24,000 per annum,
which is considerably higher than overall Israeli GDP per capita.

To these we would add a further factor which, although not as critical as
the three already noted, is of great value in the absorption process and
represents an important component of their overall contribution to the
Israeli economy:

d) Financial assets: their relatively long employment experience prior
to aliyah (the average age of the adult olim is 35) and their focus on
making aliyah allowed the olim to accumulate financial assets which can be
used to facilitate their immigration and absorption. These assets are for
the most part readily available for spending or collateral. On the other
hand, their not-insignificant liabilities are mostly long-term student
loans, which do not represent a burden on them in the short-term. Survey
data show that the average oleh has financial assets of more than $76,000;
we estimate that, after making allowances for short-term obligations and the
need for a cash reserve, the average adult oleh has in excess of $50,000
available for spending in Israel. However, the actual amount varies very
considerably, in line with the age and circumstances of the olim, as well as
their professional background.

Summing these assets - education, know-how and available financial assets -
reported by the adult olim, we estimate that the value to the Israeli
economy of the average Nefesh B'Nefesh oleh, on arrival in Israel, is close
to $200,000. This figure represents a one-time unilateral transfer from the
US economy to the Israeli economy.

However, the more important contribution of the olim is realized after their
arrival, via their integration into the Israeli labor market and labor
force. The extremely high labor force participation rate of the adult olim -
87-92% for those in Israel longer than one year - is far higher than that of
the overall native population and surpasses the rate achieved by the
"Russian aliyah" of the 1990's at a parallel stage of its absorption
process. This reflects the low proportion of senior citizens in the Nefesh B
'Nefesh oleh population, but also the intensely strong work ethic and
professional and career commitment of most of the olim.

Perhaps the best evidence of how successful absorption of Nefesh B'Nefesh
olim has been comes from unemployment data. Unemployment is defined as
people in the labor force, actively looking for jobs but not currently
employed; Chart 1 shows that the unemployment rate among Nefesh B'Nefesh
olim has fallen almost to the national average within 2 years of aliyah - an
unprecedented achievement.

Using very conservative estimates of the earning ability of the Nefesh B'
Nefesh olim - given their educational level etc. --- we estimate that the
average adult oleh will produce goods and services worth $40,000 per annum
over the first ten years following his or her aliyah. Adjusting these
figures for the number of children led to the finding that average per
capita production of the Nefesh B'Nefesh olim would be some $24,000 per
annum over the first ten years - some 40% higher than the level of GDP per
capita for the entire Israeli population. These data mean that the average
Nefesh B'Nefesh oleh family may be expected to generate output worth almost
$1 million, in the course of its first ten years in the country.

Unemployment rates, by year of aliyah
Year of Aliya: 2002 11% 2003 16% 2004 27%
Source: Nefesh B'Nefesh survey responses

Turning to the consumption side of the oleh's absorption, we found that
two-thirds of the Nefesh B'Nefesh olim purchase cars within one year of
their aliyah. More surprisingly -- and with much greater value to the
Israeli economy - the olim reported a very strong tendency to purchase
apartments as soon as possible after their arrival. Thus over 50% of the
olim households who arrived in 2002 had purchased apartments by late 2004,
while some 20% of 2004 arrivals had bought a home within 3-9 months of their
arrival. Many others expressed the intention of buying a home "within two
years", which we interpret as representing a defined plan of action, or
"within five years", which we regard as being more a declaration of intent
than having practical implications.

In economic terms, these purchases are of value first and foremost to the
Israeli Treasury, which receives a large proportion of the purchase price of
both cars and homes. Buying a standard family car will require the oleh to
"contribute" at least $10,000 of taxes, while an apartment costing $150,000
includes a tax component of at least $40-50,000. However, the greater
importance of these purchases is the degree to which they - and especially
the purchase of a home - reflect the achievement by the oleh family of a
relatively high degree of economic confidence and security, within a
remarkably short time of making aliyah. Here, too, the extent of the
achievement is without precedent in the history of Israeli aliyah and must
surely be rare among any group of immigrants.

The paper notes that the average oleh family is relatively small, comprising
less than two children at the time of aliyah. This, together with the
importance of educational achievement to the olim, suggests that the oleh
family's expenditure on its children, especially in the fields of education,
health and leisure services, is likely to be much higher than the Israeli
average. This service-oriented spending is particularly valuable to the
domestic economy, as it contains a very small component of foreign imports
and is likely to generate a high "multiplier effect" - meaning that this
activity will generate further economic activity within the economy.

On the basis of both past experience with earlier immigrant populations and
given the socio-religious composition of the Nefesh B'Nefesh group, it is
also probable that the oleh families will have more children and will
eventually be larger than they would have been had they remained in the US.
This may be regarded as a contribution to Israeli society (and eventually to
the economy) and to the Jewish people as whole.

Furthermore, the olim will also generate a series of indirect contributions
to the Israeli economy, which are of not-insignificant economic value. They
will generate additional visits to Israel on the part of their parents,
siblings, wider family and friends, which will generate extra spending; this
will be amplified by family visits in connection with family celebrations
(bar- and bat-mitzvahs, weddings, births and britot, etc.). We
conservatively estimate that the average extra spending in the Israeli
economy by these visitors will approach $50,000 per oleh family over the
first ten years of its life in Israel.

The olim will also transfer their knowledge and know-how to their colleagues
and others in their work environment. This knowledge transfer should, at the
least, equal the value of the accumulated knowledge the oleh brought to
Israel on arrival (estimated above at $60,000) - and may well end up being
much more.

The impact of the oleh and his/her higher work ethic on the workplace should
also not be ignored. Making some simplistic assumptions, we estimate that
the value of this contribution, per working oleh, could run to tens of
thousands of dollars over a ten year period.

Finally, we note that there are non-monetary contributions stemming from the
phenomenon of highly successful absorption of meaningful numbers of
American-Jewish olim. These are, first and foremost, a role-model effect
whereby the successful olim catalyze other "wannabee" olim to make aliyah
and more generally, they provide encouragement to potential olim in the US
and elsewhere. Beyond that, the olim will help to stem the process of
"drifting apart" which has been widely cited as a serious problem in
Israel-Diaspora relations over recent years.

Introduction

For many, the move by Jews from the Diaspora to the Jewish State - aliyah --
is the essence of the Zionist enterprise and the fulfillment of the Zionist
dream. For others, it has religious and even messianic connotations, in that
it realizes the prophetic visions regarding the "ingathering of the exiles".

However, in practical terms, aliyah is synonymous with immigration - a
social and economic phenomenon that has undergone considerable academic
analysis. If we were to summarize the "bottom line" of this research effort
in one sentence, it is this: immigration is almost always a strongly
positive factor for the recipient country, its economy and society.

Israel is one of the most outstanding case-studies of the immigration
phenomenon. From the late 19th century - long before the State of Israel
came into being - the primary factor behind the economic development of the
Jewish yishuv and, since 1948, the State of Israel, was the impact of
successive waves of immigration. Each surge triggered a boom and, when the
wave receded, the economy weakened accordingly.

This pattern has remained true even in recent times, despite the move from a
developing to a developed economy. The wave of immigration from the USSR
(now the CIS and other successor states) that began in late 1989 eventually
encompassed almost one million persons; its impact on the Israeli economy
was immense and is still being felt, while its impact on Israeli society is
likely to remain a key feature for decades.

This long-term impact reflects the remarkably successful absorption of this
"second Russian aliyah" of the 1990's (the first was in the 1970's). To the
economist, "economic absorption" is assessed via two main tracks in which
the immigrants' footprints are quickly discernable - the labor market and
the housing market. Simply put, the ability of newcomers to obtain jobs and
buy homes and the speed with which they do so are the benchmarks by which
their economic absorption is measured. By these standards, and despite its
large size, the immigration wave of the 1990's was the most successful in
Israeli history.

However, within the overall story of aliyah to Israel, the United States has
always played a marginal role. The total number of American-born olim (which
is not identical to the number who made aliyah from the USA) in the period
from 1948 through 2003 was some 82,000. We would argue that the gulf in
economic development and living standards between the US and Israel served
as a major barrier to potential and actual olim. Only in recent years has
the Israeli economy offered the quantity and quality of employment
opportunities that make aliyah a practical proposition for meaningful
numbers of American Jews.

Against this background, Nefesh B'Nefesh has developed a new approach to
encouraging and, above all, facilitating aliyah from the US. As part of this
effort, Nefesh B'Nefesh commissioned Israel Business Information Services
Ltd. (I-Biz) to analyze the contribution of North American olim to the
Israeli economy. I-Biz and its principals have previously completed in-depth
analyses of the impact of the 1990's "Russian aliyah" on the Israeli economy
(for the Ministry of Absorption) and of the contribution of olim in general,
and the 1990's aliyah in particular, to the Israeli economy (for the Jewish
Agency).

The methodology used in this paper has been to identify two main elements of
the oleh's (or olah's) economic contribution. These are, in simple terms,
capital and labour. Every adult oleh arrives with a store of capital, which
takes the form of education, experience and know-how - collectively "human
capital" - and/ or of financial assets, i.e. "financial capital".

The oleh's second and more important contribution is made via the absorption
process, first and foremost through the individual's economic production -
meaning his or her employment. By extension, children of olim represent
potential producers, but they serve an immediate economic role by generating
increased demand, which tends to be concentrated on services, notably
education, which are generated in the local economy.

The paper also notes various secondary contributions of olim to the economy,
both in the form of spending generated by them indirectly (such as visits
from parents and other relatives or friends) and in other ways, not readily
quantifiable (knowledge transfer to the oleh's new work environment) or not
given to monetary expression at all (providing role models to others
contemplating aliyah).

In conducting this analysis, we have used data made available to us by
Nefesh B'Nefesh regarding the groups of olim who arrived under the
organization's auspices in 2002, 2003 and 2004. Despite the large amount of
data available regarding these olim, it must be noted that both the small
overall population being analyzed, as well as the relatively short amount of
time since most of them immigrated, make the paper's findings - and hence
its conclusions - tentative and preliminary. Only the arrival of more olim
and the passage of more time since the first groups' aliyah will be able to
confirm our findings.

Yet, even after making every possible allowance for the quality and quantity
of data available, the picture arising from them can only be described as
extraordinary. To the best of our knowledge, the degree of success being
achieved in the absorption of olim who have arrived under the auspices of
Nefesh B'Nefesh is unprecedented in Israeli history. The cause of this
success seems to be the intensive preparation, support and guidance that
these olim receive via Nefesh B'Nefesh, which enables them to obtain better
employment, more quickly, than any previous group of highly-educated olim.

This successful absorption ensures that the enormous potential that these
olim represent will be largely realized. In economic terms, this potential
can be roughly estimated and the paper presents some calculations in this
regard. Even using very conservative assumptions, these calculations
strongly confirm that facilitating the immigration and absorption of
American Jews is the most potent contribution possible to the immediate and
long-term development of the State of Israel.

Part 1. Immigration / Aliyah

A. Human Capital

Introduction: The data in this section relate to two groups of olim who have
made aliyah under the auspices of Nefesh B'Nefesh since 2002. The first
group comprises olim who arrived in 2002-2003 and the second olim who
arrived in the first ten months of 2004 (another group is scheduled to
arrive in December). These groups are referred to as the "2002/3 cohort" and
the "2004 cohort", in line with accepted usage.

The numerical breakdown of these two cohorts is as follows:
2002/3 cohort: 1455 persons, comprising 878 adults and 577 children.
The average age of the adults was 35. The adult population comprised 318
couples (636 persons), 203 singles and 39 others (divorced or widow/ers).

These data are summarized:
Amongst the children, 212 were aged less than five years old on arrival,
266 were between 5 and 12 years old, and 99 were between 12 and 18.
Personal status of 2002/3 adult olim
Married 73% Single 23% Other 4% [878 Olim]
Source: Nefesh B'Nefesh database

2004 cohort: 913 persons, comprising 509 adults and 404 children.
The average age of the adults, once again, was 35 (34.7). The adult
population comprised 175 couples, 129 singles and 30 others.
Of the children, 170 were aged 0-5, 181 were 5-12 years old and 53 were
12-18 years old.
Personal status of 2004 adult olim
Married 57% Single 36% Other 7% [Total Olim 509]
Source: Nefesh B'Nefesh database

The outstanding features of both these cohorts were:
i. low average age of adults
ii. relatively low number of children per
family - less than 2 per married woman, not allowing for children of single
parents (if any)
iii. relative concentration of young children

These characteristics carry several important implications, which will be
discussed later.

a. Education

Although it is not surprising to find that the average educational level of
education among American olim is high, the actual level reported by the olim
themselves may still be regarded as remarkable.

The data for education is drawn from a survey conducted among the 2004
cohort, in which over 20% of the total adult population (109 persons out of
509) gave details of their formal educational accomplishments. The results
are presented in chart 4. They show that 89% of the sample have at least
college-level education (first degree), whilst 34% have at least a second
degree. None have less than a high-school education.

This sample is large enough to be considered representative; nor is there
any reason to believe that the educational profile of the 2002/3 cohort is
significantly different from that of the 2004 cohort. Furthermore, the large
number of singles include many students, at least some of whom are
presumably engaged in completing their studies.

Educational level of 2004 adult olim
High school diploma 11% First degree 55% Second degree 27% Third degree 7%
Source: Nefesh B'Nefesh survey

On the other hand, olim with low educational achievements may have preferred
not to respond, especially if they had only high-school (or lower) level
education.

However, even if we arbitrarily assume that the sample is somewhat skewed
"to the upside" and presents a higher level of educational accomplishment
than is true of the full cohort, and we therefore reduce the reported levels
by 10%, or even 20%, we are left with the following general conclusion: the
educational level of the Nefesh B'Nefesh olim population is phenomenally
high by any standards; it is significantly higher than that of the 1990's
"Russian aliyah" - which itself had an extraordinarily high level of
educational achievement; it is vastly higher than that of the overall
Israeli population. It is probable that it is also higher than that of the
overall American-Jewish population, thereby confirming that the olim are
drawn from the educational elite of US Jewry.

For the immediate purposes of this paper, however, we wish to quantify, at
least loosely, the value of this educational level. To do so accurately
would require much more detailed data regarding the type of degrees and
where they were obtained, to be able to assess the cost (and hence presumed
market value) of each degree. This is because of the huge discrepancies
between the cost of different colleges and universities, and between the
cost of different courses of study.

In the absence of detailed data, we will make a series of simple
assumptions:

a) the cost of an "average" first degree is $40,000 (4 years, at
$10,000 p.a.)

b) the cost of an average second degree is $40,000 (2 years, at $20,000
p.a.)

c) the cost of an average PhD is $50,000

In practice - given the kind of colleges most American-Jewish olim have
attended, these assumed costs seem skewed downwards and the true cost, and
hence imputed value, of the olim's education is probably much higher (see in
this connection www.collegeboard.com). We will further assume that the cost
of an average high-school education, for this population, was $40,000 per
person.

On the basis of the sample survey, each adult oleh arrived with an average
of 1.3 degrees. After reducing the sample results by an arbitary adjustment,
to account for the possible skew in the responses, we assume an average 1.1
degrees per oleh. However, we must take account of the relatively high
number of PhD's among the olim (1 in 14), and make some allowance for them.
On this very simplistic basis, we arrive at the following calculation:

-- high-school education $40,000
-- first degree $40,000
-- 1/10th of second degree $ 4,000
-- 1/14th of PhD $ 3,500
Total $87,500

Conclusion: Using deliberately reduced assumptions regarding both the
average level of educational achievement and the average cost of this
education, we note that the average Nefesh B'Nefesh oleh/ olah brings with
$84,000 of human capital. This amount represents the value of his or her
education, which is being received as a one-time transfer from the US
economy to the Israeli economy.

b. Experience

Formal education, however, is only one aspect of human capital. Accumulated
experience is the other key component - but this is even more difficult to
measure than education.

Data regarding the work experience of the olim prior to their aliyah will be
presented later. For current purposes, we will make another series of
assumptions:

a) Given that the average age of the adult olim was 35, and taking into
account their extended student "career" (as well as time spent in yeshiva/
seminary/ Israel year/ traveling/ maternity leave/ etc.), we will assume
that the average work experience of each oleh on arrival is 8 years.

b) We will further assume that this work period involved starting at
the bottom of the (college graduate) earnings ladder, so that the average
annual income over the whole earnings period was only $50,000.

c) From this total pre-tax income of $400,000, allowance must be made
for taxes, ongoing spending and savings (which show up in financial
capital - see below). We will therefore assume that only 15% of gross
income, or $60,000, represents added value accruing to the individual's
stock of human capital.

Conclusion: Using another series of downwardly-skewed assumptions, this time
regarding pre-aliyah work experience, we conclude that the average oleh
arrives with $60,000 of professional knowledge, work experience and general
know-how, which are mostly, if not entirely, applicable in an Israeli
workplace environment.

B. Financial Capital

In addition to human capital, immigrants may also bring accumulated
financial capital. In the Israeli context, the various aliyah waves have
been very different in this regard. The German and Central European aliyah
of the 1930's was capital intensive, and made a significant impact on the
pre-state yishuv economy as a result. On the other hand, the mass
immigrations of Holocaust survivors and of Jews from Middle Eastern
countries in the 1948-51 period was overwhelmingly comprised of penniless
refugees. The main bulk of the immigrants from the USSR in 1990-91 were also
largely devoid of financial capital.

Olim from Western countries, however - and especially those from the US -
usually have some accumulated financial capital. Often they have additional,
"implicit" capital, in the form of support from parents and other family
members.

In the survey conducted among the 2004 cohort, 127 responses - out of some
342 household units, including families, singles, etc.-were received to
enquiries regarding financial assets and liabilities. This is a very large,
hence presumably representative, sample of the relevant population. We
further assume that it is representative of the 2002/3 cohort as well. In
fact, since the proportion of singles was slightly higher in the 2004
cohort, it is possible that the average financial net worth of the 2002/3
cohort was higher than that of 2004.

In any event, the data show the following result:

Average reported financial assets: $76,641
Average reported financial liabilities: $39,624
Average net worth: $37,017

We would make the following points regarding these findings:

a) The most important datum is that relating to financial assets,
because these are for the most part immediately realizable and represent
either a financial cushion for the oleh household, or money available for
spending on tangible assets (cars, appliances, homes, etc.) - or a
combination of the two.

b) Financial liabilities, on the other hand, are mostly long-term
loans, in most cases student loans with payment periods extending over 25-30
years. For this reason, they do not represent a significant financial burden
on the oleh household, nor do they prevent that household from utilizing its
pool of financial assets in the course of its absorption process, if
necessary.

c) Given the foregoing, comparing the average oleh family's financial
assets and liabilities is akin to comparing apples and oranges.
Consequently, the "net worth" datum represents an accounting entry with
little practical meaning.

d) It is also important to note that the "average" in this context
relates to a particularly broad spectrum. Numerous olim, especially students
and young graduates, arrive with negative net worth because of their student
loans and often with very little in the way of financial assets. Other, more
established professionals and business people, report considerable assets
and little or no liabilities.

By way of conclusion, we may note that the "bottom line" of the oleh's
financial balance sheet is strongly positive. The average oleh household
arrives with immediately available financial assets that represent a
significant sum in Israel, in terms of the amount required for a
down-payment on an apartment, let alone in relation to the monthly household
expense bill. Even allowing for the need to maintain a readily available
cash reserve and to cover short-term liabilities, we may comfortably assume
that the average amount available is in excess of $50,000.

Overall conclusion regarding aliyah:

In economic terms, all immigrants represent an infusion of human capital to
the recipient economy. The quality and quantity of this infusion is
determined by the age, education, work experience and, where relevant,
professional knowledge of the immigrant. Hence the younger, better educated
and more experienced the immigrants are the greater the value they add to
their new country.

In addition, immigrants with positive net financial worth provide an
injection of financial capital as well.

Olim from America excel in all these respects. The specific groups of olim
who have arrived in recent years under the auspices of Nefesh B'Nefesh are,
to the best of our knowledge, the best-educated group of olim in Israeli
history. They also bring with them valuable know-how and experience in a
broad range of skills and fields of activity. Last, but not least, on a per
capita basis, they bring a significant infusion of financial capital.

These exceptional results must be qualified by the small size of the groups
in question. Nevertheless, on a per capita basis there is no question that,
in purely economic terms, we are looking at the most valuable olim ever to
arrive in Israel.

The findings may be summarized as follows:

After making very severe assumptions as to a) the cost and quality of the
olim's education and b) the value of their work output, experience and
"on-the-job training", and on the basis of survey findings of the financial
balance sheet of these olim, we concluded that the average adult oleh
arriving under Nefesh B'Nefesh auspices makes the following contribution to
the Israeli economy, on arrival:

a) value of secondary and tertiary education $ 87,500
b) value of work experience, know-how etc. $ 60,000
c) net financial assets immediately available $ 50,000
Total immediate contribution to economy $197,500

Part 2: Absorption/ Klita

Introduction:

In order to ascertain how successfully immigrants are being absorbed into
the economy the key questions that need to be asked are these: How quickly
did the immigrants join the labor force? What proportion found jobs? What
sort of jobs did they find? And, having found jobs, have they begun to put
down roots in their new homeland, most clearly by buying a home?

These questions and the answers to them, must be measured against the wider
background. In Israel's case, this includes the fact that the overall
participation rate in the labor force -- defined as the proportion of
people over the age of 15 either holding jobs (employed) or actively seeking
jobs (registered unemployed) - is very low by international standards, at
around 55%. On the other hand, new immigrants to most countries tend to join
the labor force as quickly as possible and in as large numbers as possible,
in order to establish themselves financially and, probably, in order to spur
their social integration. This phenomenon has been apparent among recent
aliyah waves, which have been characterized by a higher rate of
participation among the immigrant population than among the "veteran" or
native population.

In addition to the quantitative aspect of employment, there is a qualitative
aspect as well: Were the immigrants able to find jobs in their prior fields
of activity and expertise?