Poor by Accident or by Design?: Poverty in Israel

A while back, I toured Bethlehem with some friends. In addition to seeing the city, we also visited an attached refugee camp (now we find out whether my parents read this blog). It was a strange experience as the camp reminded me of the poorer parts of Meah Shearim, a Haredi neighborhood in Jerusalem. Both neighborhoods were densely packed, poorly planned and clearly impoverished. The main difference was that there was more pro-Fatah and less anti-Zionist graffiti in Bethlehem.

Not long ago, the OECD released an economic report covering a number of issues. Bibi proudly announced that the study showed that Israelis are among the most satisfied people in the world. Others fired back that he had ignored another part of the report that showed that Israel has the highest rate of poverty in the OECD. Some people even gloated about the poverty numbers as the political culture of the day requires cutting off our nose to spite the country. Others insisted that poverty measures are notoriously fickle and unreliable, surely these numbers have no significance! It’s Israel! Things are always great!

Exactly how big a problem is poverty in the country? First, the facts. The measure that the OECD uses looks at disposable income per household (how much money each household has for spending after paying  taxes and receiving benefits) in comparison to the rest of the country. If the household has less than 50% of the median disposable income then it is impoverished. The two countries with the highest poverty rates are the US and Israel (18%) while the OECD average is 11%. The Israeli rate has slightly increased since 2007. If we were looking at market income (how much the household takes in before taxes and receiving benefits) then Israel is below average. Let us also note that there is a 100% correlation between granting Avi Bieler citizenship and experiencing high levels of poverty.

poverty-market-and-disposable

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Above: The rates of poverty in various OECD countries. Below:Rate of increase in poverty

Israel’s current high disposable income poverty levels has its roots in 2002 when a recession crushed the Israeli economy. To cope, the government slashed many welfare benefits, removing an important crutch from two groups that tend to have lower incomes and already faced high levels of poverty, Israeli-Arabs and Haredi Jews. While the cuts led to higher employment rates among the groups, the jobs were largely part time and low paying and the new-found income was not enough to make up for lost welfare. Therefore, since the recession, poverty amongst those populations has increased while it has remained stable amongst non-Haredi Jews.

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Haredim have increased their income from labor by 41%, but still tend to have very low incomes.
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Th massive difference in Haredi and Israeli-Arab poverty and non-Haredi Jew poverty

What can the government do about this? A government’s most direct solution to fixing poverty is to transfer funds to the impoverished. However, the government doesn’t have much more to spend due to, trust me on this , low taxes in the country (see the chart below). Israel’s public expenditure is right in line with its tax revenues and it would be hard-pressed to increase one without the other. If it would want to increase taxes it would most likely do so on the middle class as taxes on the highest earners are already well above the OECD average, while the taxes on the lower income levels are quite low. Alternatively, the government could reduce spending in one area, such as defense, and transfer that money to welfare payments. Another is option is job market intervention. Though methods such as raising the minimum wage could lead to higher unemployment and would not significantly help those with part time jobs.

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Israel’s spending matches up with its revenue. Take a second to find Greece if you want to laugh a bit.

Another solution is to find a way to increase income levels in the Haredi and Israeli Arab populations. Anything to get more Israeli-Arabs and Haredi Jews to graduate high school would help as wages are usually correlated with levels of education. The current low number of graduates out of these communities are appalling. Technical schools may be one way to translate schooling into well paid labor. The communities themselves can also begin to address cultural attitudes towards labor market participation. In general, both communities and non-Haredi Jews must discover integration solutions that work for everyone.

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Its strange that Yair Lapid and the Haredi community have so much animosity towards one another when the share so much when it comes to graduating high school.

When you are thinking about which party to vote for in the next election, you should consider what they are offering to do about poverty in these two sectors. As you may remember from this glorious post, the more everyone is educated, the more the market can produce which will lead to higher tax revenues and living standards helping all of us. In the future, I hope to write more on matters of poverty and would love to hear your ideas to fight the phenomenon.

(The article is largely based on a study from the Taub Center).

2 thoughts on “Poor by Accident or by Design?: Poverty in Israel”

  1. You completely missed the point that this poverty indicator measures “relative poverty” not real poverty and in fact has nothing to do with poverty.

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    1. Thanks for reading! I don’t think I missed that point, but would you like to elaborate on what you mean by real poverty? What’s your preferred definition?

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