Poverty in J'lem 370.
(photo credit: Marc Israel Sellem)
The government has taken upon itself to combat poverty. How should it approach
the task? There are many policies it could adopt and targets it could set.
Clearly, accurate and objective information about the state of the poor would
help the government make choices that are rational and effective.
example, a large share of the poor population is already working, focusing on
the labor market may be useful. If most poor do not work, reforming welfare
programs or creating incentives to work may be more effective. If poverty is
generally a brief episode in people’s lives, some might argue that transfer
payments would be an effective tool while others would advocate a “hands-off”
policy of less state involvement. If poverty is “hereditary” in certain families
or segments of the population, then the debate might turn on investment in
Every year the National Insurance Institute (NII) publishes a
report to supposedly give the government the information it needs to combat
Unfortunately, it does not include the accurate and objective
data the government needs.
Earlier this month the NII published its
annual report on the state of the poor, this time relating to 2011. The 70-page
report includes heaps of tables, figures and data on the distribution of income
in Israeli society, as well as conclusions that were widely quoted in the local
But a close examination of the NII report by the Jerusalem
Institute for Market Studies reveals that it does not provide the accurate and
unbiased data necessary for good policy-making.
When a government agency
is tasked with reducing poverty it has an incentive to portray the problem as
severe, which only more funding and authority can tackle. Such a portrayal is
not always in line with the facts.
First, has poverty risen or declined?
That depends on who you ask.
According to the NII, the share of poor
families increased 0.1 percent in 2011. But the OECD defines poor families
slightly differently from the NII, and according to the OECD’s methodology,
Israel’s poverty rate actually decreased by 0.5 percent.
OECD’s methodology and the NII’s are at odds about Israel’s “working poor.” The
NII reported a 6.7% poverty rate among Israelis living in a household with two
workers, while according to the OECD’s methodology the figure is only 3.5
percent. This information was included on page 37 of the NII report but was
omitted from the NII’s executive summary for policymakers, its powerpoint
presentation and its press release for the media.
IS POVERTY among
working families a serious problem or not? The NII further clouds the question
by defining a worker as someone who has worked at least one hour in the three
months preceding the NII survey.
NII does not incorporate the number of
hours worked, so there is no way to know how many of those defined as “the
working poor” by NII actually worked a significant number of hours. This is
critical information, since in the OECD an average two-thirds of those classified
as poor who live in working families were living in families in which the total
amount of hours worked did not exceed one halftime position. In other words,
contrary to the NII’s conclusion that working in Israel is not much help in
getting out of poverty, it may be a great help.
policymakers reading the NII report may be left clueless about is how many of
those classified as poor in 2010 remained poor in 2011. How many people became
impoverished? Social mobility is central to the issue; if people are “poor” for
relatively short periods before their lot improves, a widely different policy is
called for compared to a situation in which the same poor remain poor all their
lives. The NII claims it is waiting for the results of a survey being developed
by the Central Bureau of Statistics.
The NII chose not to use the huge
NII database already available, of millions of Israelis who either pay NII taxes
or receive NII transfer payments, in order to assess social
Another weakness of the NII report is that it is based on
income reported in surveys. But how many of the people surveyed under-reported
their income? One way to estimate the figure is to compare income to expenses.
The spending of 37% of “poor” families is above the poverty line. Among the poor
who own a business, who have more opportunities for tax evasion, the figure is
as high as 59 percent.
While some of these families spending more than
they reportedly earn may be going into debt, it is likely that most of them have
other sources of income. So how badly off are the poor whose income does not
cover their needs? Well, according to the Central Bureau of Statistics, 41.2% of
families in the bottom decile (the lowest income group) and 54.9% of families in
the second-lowest decile lived in an apartment they own.
The use of
questionable definitions and interpretations renders the NII report virtually
meaningless in any serious discussion of poverty. The NII consistently
overestimates the rate of poverty and underestimates the importance of work in
the process of exiting poverty. Such a strategy allows it to claim that only
more funding and authority for its bureaucracy can help ameliorate the situation
the bureaucracy itself has exacerbated.
No doubt the government needs an
objective annual assessment of the state of the poor and the best means to
improve it. But it seems that perverse incentives do not allow the NII to meet
this task. A different, more objective body, such as the Central Bureau of
Statistics or the Bank of Israel, would be better suited for the
task.The writer is a research fellow at the Jerusalem Institute for
Market Studies (JIMS).