The standard of living in Israel fell to a 20-year low in 2020 as a result of the coronavirus pandemic, according to the annual poverty report of the National Insurance Institute, which was released Thursday.
Government allowances, grants and extended unemployment benefits prevented a double-digit increase in poverty rates, the agency said, but as a result hundreds of thousands of families are now dependent on government handouts. Moreover, the extended unemployment benefits are slated to end in June, while the grants were one-time measures.
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The middle class suffered the steepest drop in income. People in the lowest-earning decile actually saw their income rise, due to greater government aid.
The standard of living of families in Israel, as measured by median income, fell 22.7% in 2020.
The number of Israelis whose income in 2020 put them below the poverty line was 23%, up from 22.4% in 2019. This means that almost 2 million Israelis, including 907,000 children, were officially living in poverty.
Among salaried workers and the unemployed, the poverty rate remained little changed, but it rose among the self-employed, to 16.5%, up from 15.3% in 2019. This means almost 25,000 self-employed people fell into poverty last year.
In contrast, for salaried employees, the poverty rate rose by much less, from 18.1% to 18.7%. And among the unemployed, it was unchanged at 78.4%.
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Nevertheless, comparisons to previous years are necessarily imperfect, because the Central Bureau of Statistics had trouble gathering data last year. Thus the current poverty report relies on internal NII data rather than the statistics bureau’s annual income survey.
Altogether, 1.5 million Israelis, including 400,000 children, depended on government aid last year to escape poverty. Were it not for this aid, 48.4% of older adults, 41% of children and 42% of families would have been considered poor. Instead, the rates were 31.7% of children (up from 30.9% in 2019) and 22.2% of families (up from 21.7%).
Many Israel were “saved” from poverty only by the fact that the overall drop in income lowered the poverty line, which is defined as percentage of the average income. Had the poverty line been the same as it was in 2019, they too would have been classed as poor.
“The drop in the poverty line is itself an unusual development that occurs only during severe recessions,” the report noted.
Last year reversed the trend of the previous two years, when the poverty rate fell by about two percentage points combined.
The socioeconomic impact of the coronavirus will last for years, the report warned. Thus to reduce poverty, it urged the government both to enlarge the social safety net and to take steps to encourage employment.
Despite the massive increase in government aid, which totaled tens of millions of shekels, the standard of living as measured by disposable income dropped 4.4% last year. But the bottom two deciles actually saw their standard of living rise by 3-4%, which means the drop in other deciles was even greater. By comparison, during the financial crisis of 2008, the standard of living fell by just 0.5%.
Without this massive government aid, however, average incomes would have dropped by 23%. “The effect of this expansion [of aid] on reducing the economic damage underscores the great importance of a social safety net, especially in times of crisis,” the report said.
According to senior NII officials, Israel’s spending on welfare rose by 6-7% last year, for the first time in about two decades. This increase was about average for Organization for Economic Cooperation and Development member states, they added.
In previous years, Israel’s spending on social welfare was significantly below the OECD average, at about 16% of gross domestic product, the NII said. The average was 20.1%.
Eran Weintrob, the executive director of Latet, an organization that works to fight poverty and food insecurity, said the NII report largely confirms his organization’s alternative poverty report. That report concluded that the middle class shrunk by about 15% last year.
Moreover, the situation is likely to get worse before it gets better, he said. “We expect the economic crisis to reach its peak in the coming months.”
The massive government aid was “important and necessary, but it can’t offset the distress at a time when hundreds of thousands of people have lost their jobs,” Weintrob added. “Tens of thousands of middle-class families have applied for aid for the first time in their lives, and hundreds of thousands of impoverished senior citizens are suffering from cold and intolerable distress and living without dignity.”