When It Comes to Israel's Middle Class, Numbers Can Lie

Yair Lapid set off a firestorm when he asserted that an income of NIS 20,000 a month was middle class. But a look at the numbers crunched on the Israeli economy tells us that statistics, in this case, don't tell the whole story.

Freshman Finance Minister Yair Lapid got himself into hot water over a recent Facebook post about a fictional teacher from Hadera by the name of Riki Cohen, whom he characterized as middle class. After his post appeared, Lapid was accused of being arrogant and out of touch for daring to characterize the Cohen household as middle-class when, in his example, the finance minister gave Cohen and her husband a monthly household income of NIS 20,000 – NIS 10,000 from her teaching job and a similar salary from her husband's job in the high-tech sector.

Top experts rushed to trot out salary data from the Central Bureau of Statistics to show Lapid that his hypothetical middle-class family was actually in the ninth decile of the population, meaning that it had household income that would put it in the top 80% to 90%. The experts also pointed out that half of the labor force in Israel makes less than NIS 5,500 per month. In short, they claimed, this out-of-touch finance minister of ours doesn't know the reality in which the people of Israel live.

It is true that Lapid made a mistake in not distinguishing whether the NIS 20,000 a month in income that the Cohens earned was their gross income or net after taxes and other withholding. On the assumption that he meant gross income, we should step back a moment and ask why all that wrath was directed at Lapid. According to the Finance Ministry's wage division, the typical gross monthly salary for teachers in Israel is NIS 10,746. On that basis, in fact, a household with two teachers would bring in a bit more than NIS 20,000 per month. So would a household with two teachers really be in the ninth decile in income? And is it really fair, when the finance minister cites a similar example, to tar him as out of touch and arrogant and interested only in protecting the millionaires among us?

Actually more than sparking criticism of Lapid, the Riki Cohen Facebook post should have prompted pointed questions about wage statistics in Israel. According to the Finance Ministry wage division, among government civil servants, the median wage last year was NIS 12,500 per month. That's right. NIS 12,500 and that's a verified figure, meaning that half of the civil service made that amount or more and the other half earned that amount or less. The wage director is the guy who issues paychecks to every government civil servant so he should be able to stand by these numbers.

The wage director also reports that the average – as opposed to median – gross monthly wage of 50,000 government clerks is about NIS 14,000. That's an important figure too, because it reveals that the wage disparities between the average and median wage in the civil service is just 10 percent to 15 percent. We will use this figure when we consider all public sector employees, including not only government civil servants but also teachers, doctors, municipal employees, army employees, etc.

With regard to the entire public sector, we're talking about half a million employees for whom we don’t have a median wage figure, meaning the wage at which half would earn that figure or less and half that figure or more. All we have is an average wage by sector of employment and average wages can be skewed by extremes that distort the general picture. The data show that the average wage across the entire public sector is relatively high. In the sector with lowest average wage – religious council staff – the average, in fact, is about NIS 8,700 a month. The average among employees at the local authorities, which is considered a low-ranking sector, is NIS 9,100 per month. The wages in every other public sector, however, are much higher.

So anyway we look at it, it's not possible for the median public sector wage to be less than NIS 8,500 a month and here we're talking about half a million public sector employees. If that's true, then how is it possible that the median wage of the entire economy – public and private, a workforce of 3 million people – is just NIS 5,500 per month? Who are those millions who earn so little and purportedly push the median wage so much lower?

It turns out no official source has a firm answer to the question, even at the Central Bureau of Statistics, which deliberately refrains from calculating a median wage figure for the entire economy. Instead, they just calculate the average wage, and they acknowledge that even that figure is far from accurate. The reason is that the statistics bureau uses data that employers report to the National Insurance Institute rather than looking at data for specific individuals.

As a result, if someone is working two part-time jobs, as far as the Central Bureau of Statistics is concerned, he is counted as two employees, each of whom only earns half of his real salary. As a consequence, the average wage figure is skewed too low and because of the absence of precise data, the statistics bureau doesn't dare try to come up with a median wage figure.

The agency that does calculate a median wage is the Finance Ministry's state revenue division, based on income tax data, and the people at the division say they actually do analyze data based on specific examples of individual taxpayers and would therefore know if someone was working two part-time jobs. And they say that in 2010, the median wage for the entire economy was NIS 5,600 per month, but even the revenue division acknowledges that this figure is not accurate because it ignores the fact that some taxpayers may have worked for only part of the year. And when they look specifically at taxpayers who worked for the entire year, it turns out that the median wage was NIS 7,400 per month.

So here are some conclusions that can be drawn from wage statistics in Israel. First of all, the average wage reported by the Central Bureau of Statistics is skewed downward. Secondly, the median wage as reported by the state revenue division is skewed downward and a more accurate figure is apparently around NIS 7,400 per month. Third of all, none of this data includes undeclared income, which is estimated at 23%, meaning that the population's actual income is 23% higher than official calculations.

Fourth, that still doesn’t explain teachers who have become millionaires, or how the median public sector wage can be between NIS 8,500 and NIS 12,500 while the median wage for the entire economy, including the private sector, is between NIS 5,600 and NIS 7,400. Are salaries in the public sector really so much higher than what private sector employees get? Are public sector employees really Israel's wealthy class? Are there really millions of Israelis who earn less than NIS 5,500 per month while half a million public sector employees earn twice that? Only the statistics know.

Tal Cohen