The poverty rate among workers has increased over the past 10 years due to low wages and lax enforcement of labor laws, the Bank of Israel reported Tuesday.
“A shortage of wage earners in a household is one of the main causes of poverty, which in turn is one of the reasons that welfare policy in recent years has focused on providing incentives to find employment, mainly by cutting benefits, which reduced the inducement to remain outside the labor force. However, finding employment does not guarantee escaping from it,” the central bank said in an excerpt of its annual report to be published on April 21.
“Poverty among households with at least one wage earner has increased greatly in the last 10 years,” the report said. “The major factors related to poverty among workers emphasize the vital role of enforcement of the labor laws in reducing the rate of poverty in Israel.”
The report analyzed employment, wages and poverty from July 2008 to June 2009. It showed that more than 60 percent of the poor, about a million people, live in households with at least one wage earner.
Moreover, the poverty rate among those living in households with at least one wage earner, defined as the working poor, has risen steadily during over the past 10 years, from just over 20% in 1997 to 36% in 2008-2009.
Among households with two or more wage earners, the poverty rate was lower but jumped from 2.1% in 1997 to 5.1% in 2008-2009.
In comparison, the average rate of poverty among the working poor in OECD countries was 7.7%. In these countries, most of the poor, about 60%, were in households with at least one wage earner, and, as in Israel, poverty was higher among households with children than among those without them.
Most working poor in Israel are in households with a single breadwinner, including those who have a full-time job. Such households are found largely in the Arab population, and about half of the Arab poor are in households with one wage earner with a full-time job.
The poverty rate was also very high in the haredi community, but the incidence of working poor was less widespread. Only 10% of poor haredim live in families with a full-time wage earner.
“The major factors related to poverty among workers emphasize the vital role of enforcement of the labor laws in reducing the rate of poverty in Israel,” the report said. “Working poor, whose position in the labor market is uncertain and vulnerable, are unable to defend their rights. Thus, many are paid less than the minimum wage. Yet there is very little enforcement of the labor laws in Israel.”
The central bank cited a OECD report on Israel that found the number of inspectors dealing with labor-law enforcement was less than a quarter of the International Labor Organization benchmarks for the number of workers per inspector.
The report found that one of the main contributing factors for poverty among workers was the low earning capacity among Arab, haredi and non-haredi households.
In practice, low earning ability reflects a low level of education, or education unsuited to the requirements of the labor market, and employment in typically low-paid occupations and in industries with relatively low wages, the report said. As such, the working poor receive a wage that is less than half of the hourly wage of other workers working for a similar number of hours.
Another factor that increased the probability of being poor among workers was a lower number of working hours. The probability of poverty among workers was higher among Arabs even if other relevant aspects, such as low education and size of household, are excluded.
The Bank of Israel attributed the increase in poverty among workers over recent years partly to government cuts in benefits, which were instituted in 2003, to increase the incentive to join the labor force.
“The cuts in benefits, which increase the incentive to join the labor force, resulted in some of the poor, who were not working, finding employment at the bottom of the wage scale,” the report said. “In other words, the participation in employment of employees with lower earning capacity than in the general pool of employment may have increased the incidence of poverty among workers, despite the fact that the situation of previously employed workers who continued working had not changed.
In comparison with OECD countries, the correlation between low wages
and poverty was relatively low. In these countries, what was notable
among the working poor was the relatively low labor input, with fewer
working hours or employment in only certain months of the year, the
One of the main policy measures intended to deal with the problem of
the working poor is a negative income tax, or earned income tax credit
(EITC), which was introduced in several locations in Israel in October
“EITC has marked positive effects on the welfare of individual
workers,” the report said. “It improves the economic situation of
households with low-wage earners and can save them from poverty. It
also increases the return to labor, and hence it is an incentive to
work rather than depend on benefits. But the fact that the EITC is
operating only in certain areas and the relatively low level of the
grant reduce its positive effect.”