The number of working poor is on the rise, Bank of Israel Governor Karnit Flug
told the Knesset Finance Committee on Monday, though overall poverty rates are
“Poverty among families with one wage-earner, and even with two,
presents us with a large challenge to raise the training and skills of those
joining the labor force,” she said, in her first appearance before the committee
Though labor participation and employment levels are at
record highs, the overall poverty level has remained stable – at around 20
Poverty levels among non-working families are now near 71% and
rising, as they are among one-income households (25.9%) and two-income
However, the increase in the number of working
households, where the poverty rate remains far lower than average,
counter-balanced the increased poverty levels among the non-working
The news may be a thorn in the side of Finance Minister Yair
Lapid, who emphasized moving from a “culture of allowances to a culture of work”
as the means of reducing poverty.
In his budget he slashed welfare
subsidies, garnering criticism that his policies would push greater numbers into
The numbers, which represent post-tax/welfare incomes, seem to
vindicate elements of both arguments.
Lapid’s had no comment on the
Flug argued for increasing “negative income tax” (known in some
places as earned income tax credit), which subsidizes the working poor as an
incentive to stay in the labor market.
She also noted that the growth in
employment in the past two years has come primarily from the public sector,
meaning that future budget cuts, needed to meet deficit goals, could raise the
Another issue that could affect the employment market
is the continuing strength of the shekel.
Flug said that while hightech
exports were not very sensitive to price changes, low-tech exports
Even though low and medium- tech manufacturing accounts for just a
fifth of Israel’s manufacturing exports, they accounts for 60% of manufacturing
jobs, making them vulnerable to fluctuations in the shekel’s value.
MK Erel Margalit said that BoI had failed to prevent the shekel strengthening,
painting a dour picture of its effects on the job market.
exchange rate in 2014 remains at the current level, the Israeli economy will
face a large wave of lay-offs,” he said. “We require a change in policy, perhaps
a dramatic one.”
Flug responded that the Bank’s policy of buying foreign
currency and lowering its interest rates were intended to moderate the shekel’s
rise, but could not battle economic fundamentals.
“The Bank of Israel’s
policy in this area is intended to make the adjustment period easier, and even
to prevent excessive harm in the commercial sector as a result of the exchange
rate overshooting,” she said.
Turning to the larger economic picture,
Flug projected that Israel’s economic growth for 2014 would come in at around
3.3%. She predicted that a higher proportion would come from “real” economic
activity than would from gas profits, whose contribution would fall from 9%
growth to 4%.
Offering medium-term projections, Flug burst another of
Both he and Prime Minister Binyamin Netanyahu have said
their goal for Israeli growth rates at a hefty 5%.
According to Flug’s
projections, however, “a view forward gives us good reasons to assume that
average growth in the last decade was higher than what is expected in the coming