Some 711,000 Israeli families – 2.4 million people – have been hurt financially by the coronavirus pandemic, according to a recent calculation by the National Insurance Institute. About 42,500 households have fallen below the poverty line and another 110,000 have come close to “poverty risk.” All told, 151,000 families (441,000 people) have fallen into a lower economic category.
The NII’s research shows that the coronavirus has impacted the income of every layer of society, but primarily the middle class. Two groups stand out: the self-employed and families with two breadwinners.
In a soon to be published article in the journal Hevra U’revaha (Society and Welfare), Professor Daniel Gottlieb, the NII deputy director of research and planning, presents a comprehensive and detailed analysis of the pandemic’s economic impact on Israelis. In accordance with the standard income distribution system used by the World Bank and the OECD, he estimates that of those 151,000 families whose standing has changed, nearly half – 67,000 households – have fallen from the middle class, which roughly encompasses income deciles 5, 6 and-7, to a lower level in which they face a high risk of falling into poverty.
One interesting finding that stands out: Of the tens of thousands who have fallen into poverty, 20 percent fell directly from the main middle income level.
The analysis (done in conjunction with Dr. Miri Endeweld, Dr. Oren Heller and Lahav Karadi) is based on continuous data and simulations conducted by the NII in recent months, and assumes the expectation of a decline in the unemployment rate – “an assumption that has since turned out to be overly optimistic,” writes Gottlieb, who notes that the number of families who have fallen into poverty already took into account the special grants announced by the government.
“Right now, these economic blows are temporary, as opposed to the more persistent status, usually, of impoverished families.” But he adds, “These blows leave scars in terms of the material standard of living and on mental health.” In the article, he repeatedly calls for a government policy that “will help make ‘the new poverty’ temporary and not ongoing – as was the state of things for most of the poor prior to the coronavirus crisis.”
Taking a broader look at all families and not only those who declined to a lower socioeconomic level, the cost of the coronavirus translates into an average loss of nearly 12,000 shekels ($3,600) in annual income. Thirty-six percent of those impacted are families in which both parents worked prior to the pandemic, and a third are self-employed. The poverty rate among the latter group is estimated to have risen by 20 percent. Other groups requiring attention are people under 29 and single mothers.
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Further analysis shows that the middle socioeconomic level was affected to a larger degree than those at the poorest levels, who had difficulty finding work before the coronavirus and even more so during it. The middle class also was hit harder than those at the more affluent socioeconomic levels, who enjoy better prospects in the job market and have more savings to see them through any loss of income.
For example, 23 percent of people in the lowest three deciles saw their economic situation worsen due to the coronavirus, compared to 30-33 percent in deciles 4-7, which represent a broad definition of the middle class. In the three highest deciles, the corresponding figures gradually decrease.
“Initially the government went by a misguided focus, in which the first grant was focused in part on all citizens, even if their economic situation was okay and hadn’t changed because of the crisis,” Gottleib writes. He says the objective ought to have been “to help those who absorbed most of the blow – the unemployed in the broad sense – including people who were put on unpaid leave and people who’ve been living in poverty for a long time.”
He also mentions the huge challenge imposed on the NII “to quickly cope with the flood of claims that within days jumped from 17,000 to a million new claims.” When the crisis began, out of concern for how long it would take to handle and distribute unemployment payments, Gottlieb and Dr. Gabriela Heilbrun proposed differentiating the unemployment stipend from the automatic, one-time or renewable stipend meant to provide subsistence to those in need during the lockdowns and a serious recession. The two researchers made a series of calculations that took into account the amount of the stipend, the age groups that would receive it and the income test, but the proposal did not move forward.
The need for this version of a safety net, Gottlieb says, arises because the income assurance stipend falls far short of providing for basic needs. The average stipend is 2,150 shekels ($642) a month.
“For many years the government, and even the Alaluf Committee to Fight Poverty that was established in 2014, rejected the NII’s proposals to increase the level of the stipend while boosting the incentive to work,” he writes. “Its rigid conditions and low level of income assurance negatively impacted the use of these rights until, over time, only a quarter of the impoverished families in which the head of the household is of working age are getting this stipend, compared to more than half in the early 2000s.”
In the article, Gottlieb also warns, once again, about the deficit in the NII budget, which, according to his latest calculations, will range from 7.5-8 billion shekels, and could mark the start of a process that harms the institution’s financial resilience, which in the future could endanger Israelis’ social security.
“What it means is that for the first time, the NII’s reserve will shrink,” he writes. “This is the year in which the deficit, which up to now was only actuarial, will for the first time become a current deficit. Without a recovery plan for the sustainability of social insurance, then for the first time, the future social security of young and middle-aged people will be shrouded in uncertainty, if not worse.”
The source of the problem, Gottlieb says, is the “lack of correlation” between all the NII revenues and the payments for the different stipends (not just the unemployment payments which, because of the coronavirus, rose to 23 billion shekels), which “will require some tough decisions” in the not-too-distant future. He says if there’s something to be learned from the blow that was dealt to the welfare system in 2002-2006, it’s that such government decisions primarily hurt the weaker socioeconomic groups, and the impact lasts long beyond the election.