BoI: Middle Class Dwindling in Numbers and Purchasing Power

Since 2007, goods and services became more expensive, while the middle class's real income remained steady, according to a Bank of Israel report.

The middle class is shrinking, and its purchasing power is shrinking, too, found a Bank of Israel report due to be released this month. The report gives a concrete basis to the sentiments underlying last summer's cost-of-living protests.

Since 2007, goods and services became more expensive, while the middle class's real income remained steady, the bank found.

Stroller protest - Keidar - 14.3.12
Parents protesting high childcare expenses last summer. Nir Keidar

In contrast, since 1997 the middle class's purchasing power has increased significantly. However, over that period, the percentage of individuals and households in the middle class shrunk.

The central bank's researchers defined middle class as all households with net income between NIS 7,275 and NIS 12,125, which included about one-quarter of all households in 2010 and 2011. Upper-middle class was defined as households with net incomes of NIS 12,125 to NIS 19,400, which includes another quarter of all households. Above NIS 19,400 was defined as upper class, and below NIS 7,275 is lower class.

In 1997, 25.4% of all households were in the lower class; in 2011 the figure was 30.2%. Meanwhile, 28.8% of all households were middle-class in 1997, versus only 24.7% in 2011. The upper-middle class contracted from 26.9% to 25.7%.

Since 2007, the price of basic goods such as housing, rent, food, electricity, cooking gas and water have increased more than incomes, the bank found. The high cost of many of these items helped spark the social protest.

The report was prepared in response to that protest.

"The growing social gaps in Israel, coupled with the political and economic changes around the world, led to dissatisfaction among the core of Israel's society - the middle class. These are the people who are generally said to bear the brunt of the social, economic and defense burden, and they feel that their quality of life and state services are eroding," it states.

The overwhelming majority of middle-class households - 90% - are non-Haredi Jews, as are an even larger percentage of upper-middle class households - 95%.

Half of all households within these two groups include two parents and children, while one-quarter are childless couples. Of those with children, the majority have only one or two. Only 2% of middle-class households and a negligible percentage of upper-middle class households have five children or more.

Over the past two decades, the average age of people in these groups has increased. While the number of people over 65 in the middle class has decreased, their number has increased among the upper-middle class.

Most of these households include two wage-earners. More than 40% of middle-class households and 50% of upper-middle class households include two full-time workers, while the remainder have at least one person who works full-time or is self-employed.

One of the main arguments during last summer's social protest was that the middle class's purchasing power was eroding as expenses increased. The middle class's expenditure on costs such as education and health care grew significantly over the past few decades, while the public expenditure was low compared to that in developed nations, argued protesters.

The central bank said the items that cost middle-class households a significant proportion of their wages were: rent and mortgage payments, public transportation and vehicle maintenance, and preschool.

While the disposable income of the middle class and the upper-middle class increased more quickly than prices until 1997, the trend reversed in 2007, with real wages stagnating while prices continued to increase, stated the bank.