In the Money

How Much Do Israelis Earn? It Depends on Who’s Counting

Various government agencies rely on different methods and different data. The real answer is important in the debate over the cost of living.

Conventional wisdom has it that no one can get by in Israel because salaries are low and living expenses are high. That's probably the overriding economic complaint these days, the growing sense of the Israeli middle class of falling behind and not being able to maintain its standard of living.

In order to figure out whether this claim is objectively true or merely a matter of perception we must first answer two questions: How much do Israelis make, and how much does it cost to live here. These ostensibly trivial questions turn out to be nearly impossible to answer.

Let's start with the simpler of the two: How much do Israelis earn? According to the Central Bureau of Statistics, the average monthly wage at the end of 2011 was about NIS 8,500 (now it's around NIS 9,500). We chose the end of 2011 because there are two other official sources of data for that period, the Finance Ministry's State Revenue Administration and the National Insurance Institute. If you ask them the same question, they will tell you it was between NIS 8,000 and NIS 11,500.

The huge discrepancies are due to different calculation methods. The CBS uses the number of positions to arrive at its figures for average wages. The problem with this method is that it ignores the fact that job slots aren't people, and that many people have more than one job.

Economics teachers, for instance, often work at several colleges, each of which the statistics bureau will count as a separate position when compiling the average rather than adding them up to arrive at each teacher's total earnings. As a result, the bureau's averages are necessarily understated.

The treasury and the NII, which use figures from the tax authority, don't have this problem. They count people, not positions. But their data contain other biases. One is that their basic calculations ignore the fact that some people don't work a full year. Students who only work during the summer, for example, are counted as having worked for a full 12 months. This obviously skews their average wage downward.

According to NII data, 35% of workers don't work all year round so the distortion arising from ignoring this fact is quite significant. For this reason both the NII and the revenue administration also produce, in addition to figures for the average and median wage, calculations adjusting for work covering less than a full year. This brings the average monthly wage calculated by the NII to NIS 9,500 and that of the revenue administration to NIS 11,500 – but there is a 20% difference between the two.

How can this be explained? The NII apparently uses actual 2011 data while the revenue administration takes its data from 2008 and adjusts it for 2011. Both claim that their own calculations are more precise than the other. But what's more interesting is their admitting that their calculations aren't, in fact, truly precise.

The reason for this is a third distortion – ignoring part-time jobs. None of the three entities is capable of adjusting their equations for workers employed on a part-time basis. According to the Economy Ministry, these people made up 17.4% of the workforce at the end of 2011, including those who worked no more than a few hours each month.

In fact, a Bank of Israel study reveals that the lowest-earning decile in Israel works an average of just 23 hours a week while the next lowest decile works 31 hours a week and the third lowest works 38 hours a week. Only from the fourth decile and up can we see the more familiar full-time job range of 41 to 48 hours a week.

This shows that the average wage calculations include a large number of jobs that aren't genuine positions of employment, with some needing to be accounted for as no more than job fragments. The average wage therefore clearly understates the real wage according in each and every one of the calculations published.

The same bias also holds for the median wage – NIS 5,800 according to the NII and NIS 7,600 according to the revenue administration. The statistics bureau, well aware of the inherent distortion, simply refrains from trying to calculate this figure.

So what is Israel's average wage? We don't have a clue.

Moti Kimche