Poverty and Inequality in Israel: Trends and Decompositions

This study examines the trends in inequality and poverty rates between 2002 and 2014. Most of the analyses relate to the working age population, whose contribution to income inequality and to long-term changes in it is the greatest, as well as to the elderly population. The method used in this analysis is an estimation of the share of the three central population groups – Haredim (ultra-Orthodox Jews), Arab Israelis and non-Haredi Jews – in changes in the poverty and inequality indices over time.

Among the working age population, market income inequality (inequality in income from employment, occupational pensions and capital, before the deduction of compulsory payments) decreased consistently over the period examined, but the decline was only reflected in disposable income (income plus transfer payments, after the deduction of direct taxes) in recent years. The decline coincided with the adoption of two key policy measures after 2003: pension cuts and a reduction in direct taxes. Because of these policy changes, there was a change in the composition of household income (income from work increased, while government support decreased).

The findings show that the overall poverty level in Israel has not changed between 2002 and 2014. However, the composition of the poor population has changed substantially. In 2002, the share of poor Haredi and Arab Israeli households out of all poor households stood at 44%; in 2014, they comprised 54% of poor households. This represents an increase that exceeds the rise in this group’s share in the overall population of working age households.

The chapter also presents findings relating to the population over age 60. Over the years, there has been a decline in the inequality and poverty indices in market income among the elderly population. Large discrepancies were found in the income levels between different groups in this age segment, particularly between long-time Jewish residents and new immigrants and Arab Israelis. Most of the gap can be explained by differences in income from occupational pensions and work between each group, even though there was an increase in private pension eligibility among new immigrants. In addition to differences in income, there are large disparities in home ownership between the groups: high rates of home ownership among long-time residents and Arab Israelis, compared with low rates among new immigrants.

This paper appears as a chapter in the Center’s annual publication, State of the Nation Report 2016, edited by Prof. Avi Weiss.