Income Inequality in Israel Rises for First Time in Seven Years, Figures Show

Israel still has some of the highest rates of inequality among developed countries, and also one of the highest poverty rates

The Ministry of Finance
Emil Salman

A consecutive seven year decline in income inequality ended in 2018, with the Gini index measuring a slight increase based on salaries.

Figures published on Tuesday by the Central Bureau of Statistics, showed inequality among Israeli households had increased to 0.355 on the Gini index last year, up from 0.351 in 2017, Israel’s lowest level since the statistics bureau adopted its current measurement methods in 1997. The Gini index has values between 0 and 1. It had measured an annual decline in income inequality from 2010 to 2017.

The increase for 2018 was small and not statistically significant, the bureau said.

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However, Israel still has some of the highest inequality in the developed world, and also one of the highest poverty rates. Countries including France, Iceland and Belgium have Gini values between 0.25 and 0.3. Israel’s inequality rate is closer to South Korea (0.35), Britain (0.36) and the United States (0.39).

One of the Finance Ministry’s stated goals in its annual work plan is to reduce inequality. The National Insurance Institute is slated to publish a poverty report for 2017 in the next few weeks, including figures on inequality.

One of the statistics bureau findings was that the wealthy had become more wealthy: There was a sharp increase in income among the wealthiest households, coupled with a decrease in income among the poorest households. The top decile saw its income rise 13.4% in nominal terms in 2018 to 40,254 shekels per household per month, up from 35,489 shekels per household in 2017.

The other deciles saw a more moderate increase - 7.6% for the eighth decile, and 1-4% for the fourth through eighth deciles, with the exception of the sixth decile, whose income declined by 0.2%.

The income for the bottom decile declined by 0.7%, and for the second decile, by 4.9%.

These drops were even sharper in real terms (after adjusting for inflation).

In 2017, incomes increased for all deciles in nominal terms. And in 2016, net incomes decreased for the top deciles and increased by 10% for the bottom decile. The bottom decile’s net income was only 4,786 shekels a month per household in 2018, which is below Israel’s minimum wage of 5,000 shekels a month.The third decile had a monthly income of 9,976 shekels a month. The ninth decile had a net income (after taxes) of 25,700 shekels a month.

The income inequality was also expressed by a growing gap between top and bottom decile incomes. In 2018 the top decile’s average income was 8.4 that of the bottom decile, whereas in 2017 the figure was 7.4. In terms of expenditures, the top decile spent only 2.4 times more than the bottom decile, versus 2.3 in 2017 - the top decile spent some 21,245 shekels a month in 2018, versus 8,998 shekels a month for the bottom decile.

Furthermore, well-off households tend to have fewer members than poorer households - those in the top 20% have an average of 2.6 people, versus 4.1 people on average in the bottom 20%.

The income gap was also reflected in each decile’s portion of the income pie. The top decile took in 23% of all income in 2018, up from 22.1% in 2017. In comparison, the ninth decile’s portion of the income pie was 14.9% in 2018, down from 15.8% in 2017. The bottom decile received 2.8% of all income, up from 2.5% in 2017.

On average, however, incomes increased in both 2017 and 2018, and more so than expenditures. The average pre-tax household income for all Israelis in 2018 rose 4.3% in inflation-adjusted terms, to 21,063 shekels a month. This was a relatively sharp increase in historical terms, even though household incomes increased by an even sharper 4.5% in 2017.

After taxes, average household income was 17,276 shekels a month.

In contrast, average expenditures increased by only 0.5% after adjusting for inflation in 2018, after a 2.7% increase in 2017. Average household expenditure totaled 16,475 shekels a month in 2018. This figure includes housing; for households living in an owned home, a cost estimate was calculated based on the cost of an equivalent rental house. Average expenditures excluding housing totaled 13,324 shekels per household per month in 2018, or 77% of average income. The statistics also indicate that average income for households led by someone self-employed tended to be higher - 25,104 shekels a month - than those led by a salaried employee, which averaged 23,898 shekels a month.

The bureau counted 2.6 million households, 1.8 million with a working head of household; 283,000 with a self-employed head; and 517,000 with no one working.