Israel's Middle Class Is Struggling -- and Shrinking

A Knesset report shows that the border between middle class and lower class is gradually blurring.

The last decade has been a roller-coaster ride for Israel's middle class. Its share of the population fell after 2002 and rebounded in the middle of the decade. It then declined during the global financial crisis, recovered and fell again around the time of 2011's social protests.

But whether waxing or waning, Israel's middle class is relatively small and vulnerable, according to a study by the Knesset Research and Information Center. Indeed, most people in the middle class are in the lower middle class.

"It's not only that the middle class is collapsing, but the borders between it and lower income groups – those that are usually considered poor – are blurring," says Yedid, the community empowerment organization that requested the study. Yedid points to what it calls the Central Bureau of Statistics' worrying numbers showing that Israel's median income is below the minimum wage.

The report, which was formally commissioned by former MK Ruhama Avraham Balila (Kadima), found that the lower middle class and low-income groups accounted for 62.5% of Israel's population while earning only 39.9% of the income.

One definition of the middle class is households with net per capita income between 75% and 125% of the median. The Knesset Research and Information Center chose to broaden this definition by adding an upper middle class – income as much as 200% of the median.

Upper middle class includes households in the top 10% to 30% of the population as measured by income. These people would be considered upper class by most economists.

When the definition is limited to between  75% and 125%, Israel's middle class is particularly small – just 26.6% of households in 2011. The lower class – income below 75% – represented 36% of households.

If the broad definition is used, another 22.8% of households are added to the middle class for a total of 49.4%, less than at the beginning of the decade. Under 15% of households have more than double the median income.

"The middle class constitutes the mainstay of developed societies," the Knesset report says, but by some standards, Israel's middle class is small. According to the Eurostat statistics agency in Luxembourg, 53% of European households were middle class in 2009, compared with 39% in Israel. The European study, however, defined middle class as households with 70% to 150% of median income, compared with Israel's 75% to 125%.

The income of many middle class families in Israel is not particularly large. When the narrower definition is applied, it covers households with net monthly incomes of NIS 7,600 to NIS 13,000 as of 2011. Most of these households rank in the fourth to seventh income deciles. By contrast, the Knesset research center's definition of upper middle class would apply to households with net monthly incomes of NIS 13,000 to NIS 18,600.

Despite the concerns about the plight of the middle class, the incomes of lower-class Israeli households are much more worrying. These are households with no more than NIS 7,600 in monthly net income; they represent 36% of Israeli households. If you add up the income of Israel's families, this 36% of the population gets just 15.6% of the pie.

By contrast, upper-class households, families with monthly net incomes of NIS 18,600 or more, get 31% of the pie. According to the Central Bureau of Statistics, the median net income per person per month in Israel in 2011 was NIS 4,001. And amazingly, in 36% of households, net income per person was below NIS 3,000 per month, and in 65% of households it was below NIS 5,000.

The middle class has shrunk over the past decade both by percentage of the population and percentage of national income. Until 2002, more than half the country's households were considered middle class or upper middle class by the Knesset research center. Then the shrinkage began, a process that has coincided with the government's economic policies since 2003.

Coming just before proposed cuts to child allowances, the Knesset report notes that about 38% of income in lower-class households comes from government benefits. (This is down from 42% in 2005, but dependence on the government is still high). Eleven percent of middle-class household income and about 5% of upper-class income comes from government allocations.

Most income of middle and upper-class families is generated by employment. It's about 80% of the income of these two classes. But wages constitute just 60.6% of lower-class household income.

Nir Keidar