Income Inequality in Israel Among Highest in OECD

Although Israel succeeded in reducing inequality in poverty and income over the two years through 2013, it still remains among the most unequal economies in the Western world, according to new OECD report.

A person in Ashkelon, Israel, searching through the garbage on Election Day, March 17, 2015.
A person in Ashkelon, Israel, searching through the garbage on Election Day, March 17, 2015. Ilan Assayag

Israel succeeded in reducing inequality in poverty and income over the two years through 2013, but still remains among the most unequal economies in the Western world, the Organization for Economic Co-operation and Development said in a report on Thursday.

The OECD, which groups together most of the world’s most developed economies, said Israel’s Gini coefficient dropped to 0.360 in 2013, from 0.3777 in 2011 and 0.371 in 2007. The Gini index measures income inequality, with 0 being the score for an economy of perfect equality and 1 complete inequality.

In addition, the proportion of Israelis living under the poverty line – measured as less than 50% of a country’s median disposable income – dropped to 18.6%, from 20.9% in 2011 and 19.9% in 2007, the OECD said in the report comparing its 34 members.

But the news for Israel wasn’t all positive. The share of all income going to the wealthiest 10% climbed to 14.9 times the share going to the poorest 10% in 2013, the OECD said. That was an increase from 12.5 times in 2011 and 13.4 times in 2007. This means that, in 2013, the top 10% were getting 35.6% of all income, compared with just 1.7% for the bottom 10%.

Moreover, Israel remained at the bottom of the OECD rankings for measures of inequality and poverty. The average Gini coefficient for the 34 OECD countries was 0.315 in 2013, while the poverty rate was just 11.2%. On average, the richest 10% of OECD countries earned 9.6 times the income of the poorest 10%, a much lower ratio than Israel’s.

On the other hand, Israel’s slight improvements stood in contrast to most of the OECD, where the organization said income inequality has reached record highs. The OECD noted the ratio of income between the top and bottom deciles had widened sharply, from 7:1 in the 1980s and 9:1 in the 2000s.

“We have reached a tipping point. Inequality in OECD countries is at its highest since records began,” OECD secretary-general Angel Gurría said, warning that policy makers cannot remain indifferent to the phenomenon.
“The evidence shows that high inequality is bad for growth. The case for policy action is as much economic as social. By not addressing inequality, governments are cutting into the social fabric of their countries and hurting their long-term economic growth,” Gurría warned.

The OECD report, “In It Together: Why Less Inequality Benefits All,” estimated that the rise in inequality between 1985 and 2005 in the 19 OECD countries it analyzed knocked 4.7 percentage points off cumulative growth between 1990 and 2010.

Inequality affecting the bottom 40% of all income earners was the main factor bringing down overall economic growth. “As inequality rises, families with lower socioeconomic backgrounds experience significant falls in educational attainment and skills, implying large amounts of wasted potential and lower social mobility,” the report said.

Unlike much of the OECD, Israel has enjoyed relatively high rates of economic growth in recent years, while its unemployment rate is at a record low. The OECD said a factor contributing to inequality and poverty was the fact that between 1995 and 2013, more than half of all jobs created in OECD countries were part-time, based on temporary contracts or self-employed.
“Low-skilled temporary workers, in particular, have much lower and unstable earnings than permanent workers,” the report warned.

Among OECD countries, inequality was highest in Chile, Mexico, Turkey, the United States and Israel, and lowest in Denmark, Slovenia, Slovakia and Norway. Not all of the countries reported up-to-date poverty figures, but among those that did, Israel’s rate in 2013 was only exceeded by Mexico’s.