For Israeli politicians, poverty is someone else’s problem

One in five Israeli families continues to live below the poverty line. That’s the key finding of the National Insurance Institute’s “poverty report” released last Tuesday.

The report shed a harsh light on the country’s economic problems. Despite over a decade of almost uninterrupted growth, large segments of the Israeli economy are not prospering. These aren’t just the 91.1 percent of Israel’s salaried workers who were not employed in the high-tech sector in 2013, but entire populations who for a variety of ideological and social reasons are largely absent from the work force.

The day after the publication of the government’s report, the Taub Center, an economic and social policy think tank in Jerusalem, published its annual “State of the Nation” report, which offered its own grim findings: four out of five Israeli households spend more than they earn each month, housing costs have risen 53% in real terms since 2007, and lax tax enforcement has allowed the rise of an untaxed “shadow economy” that may account for as much as 20% of the nation’s GDP.

Coming at the start of a contentious election season, the reports sparked a flurry of denunciations and declarations from politicians.

“Have you heard about the cost of living in Israel?” asked Labor MK Merav Michaeli. “Those who set the minimum wage [of NIS 4,300 per month] so far from the minimal [needed for] expenses are knowingly creating poverty.”

“The partnership in government with [Yesh Atid chairman Yair] Lapid was a diversion from the path of Likud, and caused immense harm to many sectors of society,” declared Likud MK Danny Danon, blaming Lapid’s 18 months as finance minister for years of grinding poverty.

“[Benjamin] Netanyahu has pushed an entire nation into overdraft,” charged Labor leader Isaac Herzog, who hopes to replace the incumbent prime minister. “The wealth that Netanyahu promised would trickle down never reached the middle class or the weaker segments of society. Netanyahu can’t solve this problem because he is part of it.”

“This is the result of Shas sitting in the opposition,” offered Shas chairman MK Aryeh Deri. It is why “a new government shall not be established without a minimum wage of NIS 30 an hour” and sales tax cuts on grocery staples, he vowed.

Yesh Atid MK Meir Cohen (photo credit: Miriam Alster/Flash90)

And, from Lapid’s camp, Meir Cohen, until this month Israel’s welfare minister, noted that the number of poor had actually declined in the latest report, and suggested it was Yesh Atid’s hard work that had led to this decline.

“For the first time in many years, we can report that tens of thousands of children and families have left the cycle of poverty,” he said Wednesday. “I’m telling you all, we did this in a year and a half. Imagine if Bibi [Netanyahu] had not toppled the government, what we could have achieved — hundreds of thousands of families and children leaving the cycle of poverty. They stopped us, but we’ll be back.”

Poverty, all agreed, was caused by someone else.

‘Poverty by choice’

There is much to unpack in Israel’s poverty statistics, and it is worth unpacking because the story the figures tell is staggering.

In its March “Society at a Glance 2014” report, the OECD said Israel had the highest poverty rate of all developed nations, at 20.9%, nearly double the OECD average of 11.3%.

But this figure doesn’t really reflect the state of Israel’s economy. It reflects, rather, the stupendous gaps that divide Israeli society. When it comes to poverty, there isn’t one Israeli economy, but three.

Fully half of Arab and Haredi households live below the poverty line. As Bank of Israel Governor Karnit Flug pointed out earlier this month to Haredi college students in Jerusalem, among Arabs the figure is 54.4% of households; among Haredim, 46.6%.

Outside these communities, the poverty rate is just 12.5% of households, not far from the average in the developed world.

And it is no accident of fate that has left these communities so poor.

“They are to a significant degree making a conscious choice to be poor,” said Hebrew University economist Avi Simhon, who advised former finance minister Yuval Steinitz and was a member of the Trajtenberg Committee charged with lowering the cost of living in the wake of the 2011 social protests.

That “choice” to be poor, explained Simhon, is rooted in how these communities think about fertility and education. “If you have seven children on average, you are choosing to be poor.”

An unrecognized Bedouin village in the northern Negev (photo credit: Kobi Gideon/Flash 90)

Israel’s poverty line is set at one-half of the after-tax median income (the income level at which half of Israeli incomes are higher and half are lower). In other words, it is relative, moving up or down as salaries rise or fall. This week’s NII report set the poverty line for 2013 at NIS 2,392 per month per family member, with adjustments downward as the family size grows.

So for example, an eight-member Bedouin family in the Negev, where the average woman has 5.4 children in her lifetime, must earn NIS 12,436 per month to rise above the poverty line.

But Bedouin families have little hope of reaching that level of income, because, as the Central Bureau of Statistics reports, just 23% of Muslim Arab women worked in 2013, compared to 58% of Jewish women. With Arab women largely absent from the workforce, household incomes are severely limited.

There is every reason to think that this employment gap is caused by social norms, not a lack of economic opportunity. For one thing, unemployment dropped below 6% in 2013.

For various reasons, including state neglect, these communities also lack access to the kinds of high-quality educations that might contribute to higher incomes and greater workforce participation.

Among Haredim, schools stop teaching secular subjects such as mathematics, science and English after age 13, if not earlier, leaving their community members bereft of the skills required to support their large families.

The NII report proves Simhon’s point in stark terms. Those 18.6% of Israeli households who live below the poverty line contain 30% of Israel’s children. That is, the poor have almost twice as many children per household as the non-poor.

Indeed, it is no accident that within Israel’s Muslim community, the poorest group, the Bedouin of the Negev, also have the highest birthrates. Muslim women in northern Israel, who are on average better educated and more prosperous than their southern counterparts, have an average of 2.8 children. But in southern Israel, where the Muslim population is primarily Bedouin — the poorest population in the country — Muslim women have 5.4 children on average, the highest rate in the country.

And so the question of poverty in Israel is not a straightforward economic one. “Israeli poverty is an anomaly,” said Simhon, “because there is this ideological element” that drives many of the choices that sustain poverty.

And it is this harsh truth that politicians steadfastly ignored. Thus Deri, the leader of the Haredi Shas party, conspicuously avoided mentioning the need to increase the earning power and employment levels of Haredim. And Arab leaders offered scarcely a word about the profound effect that the status of women in some segments of Israeli Arab society has on poverty in that community.

Aryeh Deri seen during a vote on a bill to dissolve the Knesset on December 8, 2014 (photo credit: Yonatan Sindel/Flash90)

And by ignoring this reality, the debate ignores what might be done about it.

Thus, for example, there is much good news in the latest poverty report, as Yesh Atid’s welfare minister Cohen took pains to point out. Even as the median income rose, pulling the poverty line itself up 4.4% from 2012 to 2013, some 100,000 Israelis nevertheless saw their household incomes rise above that rising line.

And that improvement was due in no small part to promising trends in the Arab community. As the NII report noted, Arab poverty declined from 54.3% in 2012 to 47.4% in 2013, an improvement driven primarily by a sudden jump of 18% in the number of Arab women who went to work.

This good news is part of a positive long-term trend in the Arab community that is evident also in fertility rates. After the steep cuts in child subsidies passed in 2003 (by then-finance minister Benjamin Netanyahu), fertility rates leveled off and then declined among Israel’s poorest minorities. In 2000, Israel’s Muslim population grew by 3.8%; in 2013, by 2.4%. Net fertility among Muslim women – the number of children an average woman has over her lifetime – declined in those years from 4.7 to 3.4.

These figures suggest that the conditions for growing prosperity are already materializing. Arab women are going to work in larger numbers, while the households they support are shrinking in size.

But much of this good news has nothing to do with Yesh Atid. The steep single-year spike in Arab women’s employment in 2013 was driven by the passage of a negative income tax in 2011 intended to encourage Arab mothers to enter the workforce. The negative tax offers hundreds of shekels each month to those whose salaries passed certain levels. Coupled with a series of massive cuts to child subsidies since 2003 (the latest cut was passed in August 2013), this carrot-and-stick approach has led to growing numbers of Arab women making a different choice from the past, and driving many household incomes in their communities above the poverty line.

Making ends meet

But the debate had another lacuna: the profound crisis faced by the middle class.

Hundreds of thousands of Israelis marched in the summer of 2011 to voice their frustrations over the high cost of living. But the demonstrators, despite the zealous efforts of some politicians, refused to identify politically. The demonstrators did not come from Israel’s poor, or from the left or right of the political spectrum. They were a mixed jumble of Israelis from across the middle class who shared one common concern: the sense that they were being financially squeezed to the breaking point.

And they were right.

Professor Dan Ben David, chairman of the Taub Center, during a Knesset committee discussion on June 25, 2014 (photo credit: Hadas Parush/Flash90)

“The average Israeli family cannot ‘make ends meet’; across all population groups in Israel, expenditures exceed income,” said the study released Wednesday by the Jerusalem-based Taub Center for Social Policy Studies in Israel.

“High housing prices are the primary reason for this phenomenon, and for non-Haredi Jews, the purchase of an apartment is the factor that shifts them from a positive to a negative monthly balance. The average household cannot purchase an apartment without assistance, which usually comes from their parents’ gradually decreasing savings,” reads a summary of the report’s findings.

Non-Haredi Jews spend NIS 864 more each month than they make. Among Muslims the negative balance rises to NIS 1,919, and among Haredim to NIS 3,209 – essentially a monthly deficit equal to one-third of their reported income, according to the report.

Housing prices have indeed risen steeply, the report found — 53% in real terms between April 2007 and July 2013. One key reason: it takes an average of 11 years for Israel’s bureaucracy to approve housing construction and two years more to build.

“By comparison, in most European Union countries, the maximum amount of time needed to obtain a building permit is 8-12 weeks,” the report noted.

Here, too, the study suggested there is much to be done.

“If you reform education in the periphery to make it the best in the country, something that can be done, and you connect the periphery with roads and railways so that nearly the entire country is just a half-hour from the large cities, you’ve solved the housing problem,” said Dan Ben-David, a Tel Aviv University economist and director of the Taub Center. There would be far less competition for a narrow band of housing near the major centers of employment, a competition that is partly responsible for high cost of housing, he explained.

Such a project would also fundamentally change Israel’s geographic periphery, where poverty rates, including among non-Arab and non-Haredi populations, are relatively high.

“The question is strategic,” he said. “Where do [the politicians] want the country to go? Then comes the tactical part,” the policies or legislation that might get them there.

“There is a willingness among politicians,” insisted Ben-David, whose institution advises the Finance Ministry and Prime Minister’s Office, “and the disagreements [on economic issues] are not very great. But there is one central thing that [voters] must demand: that the politicians take time out from the issues that divide them on the diplomatic-security front and unite to push through the reforms in labor, education, etc.”

The upshot of last week’s reports, then, is that politics matter, and thus that the failure of politicians to speak clearly and honestly about Israel’s economic problems is a major impediment to solving them. And there is an optimistic upside to this conclusion: that the growth and prosperity of recent years has all been achieved in spite of these economic and social handicaps. If the handicaps can be addressed through better policy and deep educational and economic reforms, the Israeli economy has a great deal of growth still ahead of it.