The 2018 poverty report, which was recently published by Israel's National Insurance Institute, provided a platform for demagogic statements about the poor standard of living among the economically disadvantaged and governmental neglect in failing to aid these groups. Here are some of the headlines: "More poor children and old people… Israel has put poverty on the back burner," "A fall in the middle class's income, a worsening in the situation of the children and old people," "Working full time and still poor: A slap in the face from the state," "Israel has forgotten its old people." This discourse is disturbing for several reasons. The worst of these are that the figures in the report tell a different story, and the report writers nevertheless encourage this demagoguery.
When you boil it down, the poverty report deals with inequality. The poverty rate does not measure the number of households, individuals, old people, or children searching for food in trash cans and begging for handouts (the manipulative illustrations attached to all of the articles about the poverty report try to persuade the reader otherwise). The poverty rate actually measures relative poverty, and notes the proportion of individuals or households in the population below a certain level in the distribution of income. Most of the journalists and commentators covering the poverty report know this, and the report's authors certainly know it, but a major part of the public does not know it. Not only do the report's authors and the financial media make no serious attempt to explain and educate the public about this, but many people exploit this lack of knowledge and mislead public opinion with pictures of wretched children, garbage cans, and empty refrigerators.
Actually, many families classified as poor in the poverty report have no sense of material want. The most prominent example is haredi (Jewish ultra-Orthodox) families. The incidence of poverty among haredim in 2018 was 42%. Furthermore, the report states, "The proportion of people living in prolonged poverty is highest among haredim… over 80%." According to a social survey for 2018 by the Central Bureau of Statistics, however, 70% of the haredim at the bottom of the income distribution chart report that they have no problem covering their expenses, and 56% report that they are satisfied or very satisfied with their economic situation. How can this contradiction be explained? Priorities, and especially birth priorities.
The average number of children per haredi family is more than triple the average number of children in other Jewish families. Every additional child in a family lowers its standard of living, but does not necessarily detract from its welfare. Because a family can choose to bring fewer children into the world, it is likely that choosing a larger number of children reflects an increase in its welfare. A haredi family with three children that has NIS 12,000 net monthly income (from labor and transfer payments) is above the poverty line. When a fourth child is born in the family, all of the family members, including the newborn baby, and including the three older children, all become "poor." But the birth of the baby, which the family wanted to bring into the world, is a joyous event that increases the family's welfare and happiness.
High measures of poverty and inequality in Israel resulting from the choice by families to have many children at the expense of their material standard of living give a distorted picture of gaps in welfare. This simple fact, however, does not prevent many people in both the National Insurance Institute and the economic media from accusing the government of neglect, and arguing that the high rate of poor children in Israel is a disgrace and proves that cruel neo-liberalism causes damage.
In addition, according to the report's figures, the material situation of the most economically disadvantaged groups greatly improved in the past year. Standardized net per capita real income has grown impressively over the past year at every income levels in Israel - by an average of 4.6%, and by the highest rate in the bottom income 20% (a phenomenal 6.9% increase in real terms). All of the main population groups, especially the relatively economically disadvantaged ones, improved their income in 2018. The report states, "The situation of the population living in poverty improved in 2018: the indices for the depth and severity of poverty fell by 9.4% and 1.4%, respectively." In other words, in general, the situation of poor people in Israel improved.
The authors of the poverty report also contribute to the manipulative discourse that has developed in the media. The main table in the report estimates the level of difficulty in escaping poverty. The examination focuses on the question of the extent to which full-time work by the parents at minimum wage (NIS 5,300 per month in 2018), with the addition of child allowances, prevents families from living in a state of poverty. The examination actually compares a family's per capita income with the per capita income required to be above the poverty line, with some dependence on the number of children.
The report's authors conclude that a single mother with this salary will be in poverty from her first child, because "If a single mother with two children works full-time at the minimum wage, she will not escape poverty without additional resources amounting to 40% of her income…," and if "a couple work full-time at the minimum wage, they will live in poverty if they have three children, and every additional child in the home means deeper poverty."
These are quite alarming conclusions, but this portrayal is false and manipulative. The situation is much better when other income to which families are legally entitled is taken into account. For some reason, the report's authors decided to ignore families' income from income supplements and negative income tax. Had they avoided this error, they would have discovered that all families with up to three children (both single-parent and two-parent families) in which the parents work full time live above the poverty level.
In their analysis, however, the report's authors ignore these families' additional income. Where income from negative income tax is concerned, the report's authors relegate its effect on the conclusions from their examination to Appendix 26, where the picture is no longer as gloomy as portrayed in the body of the report. The excuse for omitting negative income tax from the calculations is that the proportion of people utilizing these benefits is low - 60% (inexplicably, they write elsewhere that it is 70%). Astonishingly, the author's report believe that it is correct to assume that the amount of these benefits eventually reaching households is zero, instead of the billions that the benefits cost the public.
Income supplements are not included at all in the report, even in the appendices at the bottom of the report. If these allowances are doubled tomorrow, which will greatly increase the income of many families, the distorted calculations by the report's authors will still portray a situation in which families earning minimum wage are unable to live in dignity. Furthermore, ignoring this factor creates inconsistency with the calculation of the poverty line itself, which takes into account income from all other allowances and benefits. Comparing the poverty line to income that does not take these transfer payments into account is therefore illogical.
I pointed out this grave error to the National Insurance Institute in December 2017, and again in December 2018. Unfortunately, however, they repeated it, showing that the error was deliberate, not a mistake. As a result of this deception, an impression is created anew each year that the situation of single-parent and two-parent families in which the parents work full-time and earn the minimum wage is getting worse, in contrast to the general improvement in the poverty and inequality indices showed by reports in the past decade.
Israel may not be an egalitarian utopia. There are many distortions in welfare policy, but the biased and manipulative analysis in the poverty report and the tragic one-dimensional portrayal presented by the media discourse in the report's wake does not reflect the true situation.
The author is a senior fellow at the Kohelet Economic Forum
Published by Globes, Israel business news - en.globes.co.il - on January 13, 2020
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