Ethics@Work: Poverty and inequality

Israel's poverty rate was among the highest in the developed world in 2008. But it rose even further in 2009.

November 11, 2010 23:00
3 minute read.

ASHER MEIR 58. (photo credit: Courtesy)

Every year around this time the National Insurance Institute publishes its annual Poverty and Social Gaps Report for the previous year. Nearly every year the news is not good, and this year was no exception.

The poverty rate, representing the fraction of individuals or families whose adjusted disposable income (including transfer payments) is less than half the median, was already among the highest in the developed world in 2008. But it rose even further in 2009, and more than 20 percent of Israeli families are defined as poor based on this metric.

However, it gives only one piece of the whole poverty picture, so it is helpful to look at some other measures.

One very interesting statistic that has been added to recent reports is a poverty metric based on consumption expenditure. I believe this is a very important contribution. The essence of poverty is not low income, which is what the official poverty measure reports, but rather low consumption.

In fact, some countries denote so-called “income poverty” as the rate of “poverty risk.”

When a government committee was formed some years ago to consider changing the way poverty is measured, I proposed to the committee that poverty be measured solely on the basis of consumption, and some committee members advocated this same position. This proposal was not adopted, but the reporting of consumption poverty has become an increasingly prominent feature of recent reports.

The discouraging reality is that the large majority of poor are also poor based on the consumption measure. Specifically, 59% of poor families have consumption expenditures that are below the income poverty line. That means the rate of substantive poverty in Israel is greater than the poverty risk in the leading Western European countries.

Another limitation of the traditional poverty measure is that it only counts how many poor people there are, but it doesn’t measure the poverty gap; that is, how poor the poor people are. One family may have an income one shekel below the poverty line and another hundreds of shekels below; the poverty rate does not distinguish. However, the NII report also displays the so-called FGT measure, which accounts for both the scope and also the intensity of poverty. Again, the additional information provided is discouraging. This measure increased even more than the “head-count” measure, indicating that not only are there more poor people, but they are also poorer than they were.

Another important issue is that of the “working poor.” It is often pointed out that the primary reason for Israel’s very high poverty rate is the very low workforce participation rate. Comparatively few haredi men and Arab women go to work, so it is hardly surprising that poverty in these communities is more than three times as high as that of non-haredi Jews.

However, the report and recent research show that this is far from being the whole story. The NII report shows that even among non-haredi Jews, the poverty rate is far higher than that found in Western European countries, even though these countries also have less-developed sub-populations who are not excluded from the poverty statistics.

And a recent study by Ayal Kimhi of the Taub Center shows that even among Israelis who work full-time, the wage differentials are among the highest in the developed world.

The report understandably highlights the contribution of NII’s various programs for reducing poverty. They undoubtedly have an important role in the war against poverty, but the persistence and wide scope of the problem demonstrate that the main effort needs to be directed at the structural causes of Israel’s high poverty rate: low workforce participation and low wages among many of those who do go to work. Asher Meir is research director at the Business Ethics Center of Jerusalem, an independent institute in the Jerusalem College of Technology (Machon Lev).

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