Analysis: Why Jerusalem is the poorest city in the country

Close to 50% of residents live in poverty, mainly from ultra-Orthodox, Arab communities.

A view of the Old City of Jerusalem. (photo credit: REUTERS)
A view of the Old City of Jerusalem.
(photo credit: REUTERS)
Jerusalem may be a “port city on the shore of eternity,” as the poet Yehuda Amichai famously observed, yet many people express incredulity and disappointment upon learning that it also is the poorest city in the country.
Data released by the Central Bureau of Statistics this week states that approximately half of the capital’s total population, including 82 percent of east Jerusalem residents, live below the poverty level as of 2014.
The poverty rate for the remainder of the country is 22%, while levels for east Jerusalem residents increased 6% since 2013, and 16% since 2006, the study claimed. However, a sampling of only 150 families in east Jerusalem was used for the analysis, which may call into question its results.
Either way, Jerusalem’s economic woes should come as no surprise.
There are several factors for this based on clear metrics provided by the most up-to-date data from the Jerusalem Institute for Israel Studies.
According to the independent think tank, as of the end of 2014, approximately 850,000 people live in Jerusalem. Among that population, 61% or 520,000 are Jews, of which roughly 30% are ultra-Orthodox; 36% or 303,400 are Arabs; and the remaining 3% or 25,000 consist primarily of Christian-Arabs and other minorities.
The wildly disparate work ethics and educational standards embraced by these populations have resulted in an economic crisis, says Dr. Naomi Hausman, assistant professor of economics at the Hebrew University of Jerusalem.
“The main determinant of a city’s success is its population, and Jerusalem is special because it has two very large populations that have different characteristics,” she said. “One is the haredi population, and the other is the Arab population.”
“Both of those groups are problematic in terms of production and income because they work at markedly lower rates.”
Indeed, while nearly 70% of secular Jewish men and women are working in the capital, among the haredi population, only 20% of men work, while 50% of women are employed.
“The haredim men don’t work because they study Torah full-time, and so many of their wives work to earn money for the household,” Hausman said.
“Still, there are a large number of haredi households that have no labor income.”
As a result, the economist said most haredi families receive approximately one-third of their incomes from welfare.
Based on statistics from the Taub Center for Social Policy Studies in Israel, in 2011, haredi households earned an average of NIS 2,400 per month from work and approximately NIS 1,200 monthly from subsidies.
Similar to the haredi population, the Arab sector also has fewer skilled laborers, resulting in very high unemployment.
“Their statistics are a little better than the haredi statistics,” said Hausman. “Arab men work at a rate of about 60%, and Arab women, who are more troublesome in that sector, work 23%.”
“These patterns of Arab women not working and haredi men not working are very robust,” she continued.
Variables contributing to the low employment numbers include societal norms, lack of education and skills, and labor discrimination.
“You may have a population that is being employed at lower rates from the labor supply side because they don’t want to work, which can be due to societal factors based on norms,” Hausman said.
“So in the haredi male population, that would be because the norm for them is to study Torah, and in the Arab female population, it is because the norm for them is just not to work.”
Moreover, Hausman noted that due to their collective lack of education and viable skillsets, there is little demand for either population in the work force.
“We know that in the haredi population they are generally going to schools that don’t teach them skills appropriate for the modern labor market; they teach them religious subjects,” she said.
“So that dynamically creates a problem where the kids in school today are not going to be ready for the labor market a few years down the road.”
Consequently, Jerusalem has adopted a model of wealth redistribution from the working population to welfare recipients, as well as inequitable property tax rates for both populations.
“The fact that we have lower rates for arnona [municipal property tax] for poorer populations means that the populations that make more money in Jerusalem pay higher arnona to subsidize the population that does not make as much money,” she said.
However, based on the general principle of urban economics, Hausman said redistribution of wealth “is a very bad idea.”
“When you do that at a local level, which is what Jerusalem does, it’s problematic because the richer people can leave,” she said, noting there are numerous examples of this principle around the world.
Asked what can be done to reverse Jerusalem’s anemic economy, Hausman emphasized education to engender more viable labor-market skills in both populations.
She cited the Joint Distribution Center as one example of an apprenticeship program that trains both haredim and Arabs to have the skills necessary to join the work force.
“That sort of program can get people back into the labor market,” she said.
Additionally, she said the government has a “strong policy tool in its hands” by ceasing to provide welfare payments to nonworking populations.
“We’ve known for a long time that there is an incentive problem with welfare payments,” she said. “If you give welfare to people regardless of their employment status, then they are going to stay out of the labor market and continue to collect their payments.”
While Hausman said the government has somewhat improved the situation in recent years by reducing welfare payments, moderately spurring the haredi population to seek employment, she named the US’s Earned Income Tax Credit as an ideal model to utilize in Jerusalem.
“With the EITC the welfare payments kick in when you work,” she explained. “So, if you work a little bit you get your income boosted by the welfare payments, so it’s an incentive to work rather than not to work.”
In the meantime, Hausman said she is not sanguine about the capital’s economic prognosis due to major employers not viewing Jerusalem as a desirable base.
“Company’s want to locate where there are skills, and where they’re going to have good employment, and in Israel that’s going to be in the center of the country, and not so much in Jerusalem,” she said, noting that 45% of the nation's population lives in Tel Aviv.
“Tel Aviv’s metropolitan area is one of the most productive cities on the planet,” Hausman added.
“So, I think that if the government were to think of what actions it could take to dynamically improve the situation in Jerusalem, I would focus on the population and getting that population skills.”