Ethics @ Work: Employment growth for the poor - An optical illusion?

The National Insurance Institute semi-annual report on poverty and income inequality in Israel.

poor kids crying 298.88 (photo credit: Ariel Jerozolimski)
poor kids crying 298.88
(photo credit: Ariel Jerozolimski)
The National Insurance Institute, which has long published an annual report on poverty and income inequality in Israel, is now publishing a semi-annual report on the same. The report came out early this week. The press has done a decent job of publicizing the main findings and, as usual, I will by trying here to look a little behind the raw numbers to figure out what they mean. The first point of interest in the report is its very existence - the NII's decision to publish a semi-annual report. Some have questioned this step. It's true that frequent publication of data invites analysis of seeming trends that are really phony, as in the latest US presidential campaign where month-to-month changes in employment numbers became fodder for mutual attacks. The monthly or quarterly numbers are neither reliable enough nor correlated enough with policy to draw any meaningful conclusions from them. The same is true for poverty statistics. But, ultimately, it is only for the good to have more timely data. The poverty and inequality situation is an important aspect of our national economic performance, and it deserves to remain in the public eye. More data translates into a little more fluff (especially during elections), but it also translates into more substantive public discussion and, if the data are good, then ultimately the second trend will dominate. (This does not apply to earnings data for companies. The problem with these is that earnings definitions include lots of discretion, which give acres of wiggle-room on a quarterly level.) In the background of the report, the overall economic news is favorable. Growth in gross domestic product, GDP, was about 3 percent in the half-year interval between reporting periods, while unemployment dropped significantly from 10.5% to 9.7%.The overall economic standard of living rose about 1.4% in the period. But one of the main purposes of the report is to remind us that even when conditions are improving for most, they may be stagnant or even declining for others. Let's look at some of the findings: 1.In 2004, 20.3% of families lived under the 2004 poverty line. Six months later, 20.5% of families lived under the new poverty line. On the one hand, this means that the poverty rate is not declining and in fact is slightly increasing. On the other hand, the poverty line is a moving target - it rose between 2004 and the new survey period. The new poverty line is 1.3% higher than the old one, so poor families on the whole are probably slightly better off than they were in 2004, but they certainly did not share meaningfully in the overall economic growth. 2.The number of children living in poor households rose a lot. One very direct cause of this was the decrease in the child allowance. It would be nice if we could increase it, but that would be very expensive. The reason is that the child allowance is a very regressive kind of aid; it is given equally to rich and poor families. If it were taxable, poor families would get their whole allowance and rich families only about two-thirds, so we could afford to raise the allowance without raising the budget and without causing hardships to poor families. This is one simple and fair way to improve the child poverty situation. In any case, the child allowance has now been raised again and this is virtually guaranteed to translate into a welcome reduction in child poverty. 3.Poor families are working more. The number of families without any earner declined by 3% - a very impressive number for such a short period of time. Here's one statistic that the press has emphasized: The number of working poor rose. This could mean one of two things. Does it mean that non-poor working people are being driven into poverty? That would mean we're backsliding. Or does it mean that more poor people are working, but not enough to get them out of poverty? That would be some progress. Sadly, it looks from the report that the former effect is dominant, not the latter. The number of working poor jumped a lot but the number of non-working poor did not decline much. Evidently a lot of people who were able to keep themselves out of poverty by working in 2004 were, by the first half of 2005, unable to do so. People are working more but earning less! It seems to me that what is happening is that as more people are joining the work force, they are driving wages down. Indeed, the report states that an impressive increase in the number of lesser educated workers (4%) was accompanied by a significant decrease in their wages (1.4%) - including the wages of workers who were previously not poor. It is likely that much of the increase in employment in the low-wage sector is driven by increased supply (which drives wages down), instead of increased demand (which pushes wages up). In other words, I'm guessing that job growth in the low-income sector is "fake" - it's not being driven by a firming of demand but merely by the fact that more people are competing in the same old weak job market. Does this mean we should increase the minimum wage? That will be the topic of a forthcoming column. [email protected] The writer is research director at the Business Ethics Center of Jerusalem (, an independent institute in The Jerusalem College of Technology. He is also a rabbi.