A surprising revelation by recent studies on inequality in Israel is a relative improvement in the condition of the poor. A new study published by the Taub Center for Social Policy Studies in Israel, as well as another to be presented next week at the Brookings Conference at Tel Aviv University’s Sapir Center by doctoral students Ofer Korenfeld of Tel Aviv University and Oren Danieli of Harvard University, display the exact same finding: Israel’s labor market has taken on the shape of a smiley face.
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That’s right: Both ends of the socioeconomic scale, the rich and the poor, have been gaining in comparison with the middle class, with most of the improvement registered by the poor. Over the past 25 years they’ve narrowed the gap in income with the middle class by 20%.
There are a number of reasons for this improvement, but it’s mainly due to their growing tendency to join the workforce and an increase in minimum wages. This can be taken as proof of how far correct government policy – both in urging people to join the labor market and protecting vulnerable workers – can go in contributing to the reduction of poverty and inequality.
But the study by Korenfeld and Danieli uncovers a problem with this conclusion. The relative improvement for the poor, it turns out, didn’t apply to all the poor. The poorest of them, all comprising the bottom decile in income, didn’t actually improve their situation relative to the rest of the population.
Poor working fewer hours
This was discovered when the researchers examined the gaps in overall pay rather than hourly rates, and by doing so took into account the average number of work hours. Here the painful picture unfolds: While workers in all other groups managed to maintain, more or less, the same number of work hours for the past 25 years, those in the poorest decile saw their average number of work hours plunge by 20% - from 28 a week to 23.
Korenfeld and Danieli call this phenomenon the “collapse of the labor market for the bottom decile.” The average Israeli can see it in the street sweepers, cleaning women and security guards – all working part-time jobs and employed by contractors. Their chance of working a steady, full-time job no longer exists as it did 25 years ago.
The fact that the poor work fewer hours is nothing new. A Bank of Israel analysis shows that only in the fourth decile from the bottom does the average position in Israel reach over 40 hours a week. The top decile, incidentally, averages 48 hours a week. So the low pay earned by the poor is largely explained by their working less.
An analysis by the National Insurance Institute in 2010 showed that poor families in Israel meet just 25% of their working potential. For a family where both spouses are healthy and capable of working two full-time jobs, for example, this means getting by together on just one half-time job. And while 57% of poor families don’t work more than half their potential, 20% remained poor despite meeting at least 60% of their work potential – with just 7% of all poor families exhausting 80% to 100% of their employment potential.
The link between poverty and the low number of work hours is clear, but the troubling question is why it exists? Do the poor work less by choice or are they forced to? The Economy Ministry estimates that 17% of the population works part-time, which seems to be quite close to average for the Organization for Economic Cooperation and Development. A little more than one-fifth of these 17% reported in surveys that they were forced into working part-time. This means only 4% of the workforce is employed on a part-time basis against their will. The other 13%, mostly women, hold part-time jobs by choice.
Therefore, there is reason to suspect that a substantial percentage of poor workers choose to be poor by opting for fewer work hours. The Haredi population, where most men choose not to work, illustrates this. The large number of traditional Arab families in which women aren’t customarily encouraged to work also bears this out.
But Korenfeld rejects the supposedly implied charge that the lazy poor are to blame for their situation. “The rich work more because it’s worth it for them to work,” he claims. “The amount they receive for an hour’s work is high, so it’s worthwhile for them to exchange leisure for work. The poor, however, receive much less for an hour’s work and they also have a strong need to work at home. A poor woman, for example, cleans the house herself rather than hiring a cleaning woman. They have another alternative use for leisure time.”
Korenfeld and Danieli suspect that their findings express a structural deterioration in the labor market that is mainly harmful to poor workers: the disintegration of organized labor and the full-time job. “Labor market flexibility,” as it’s often termed euphemistically, largely comes at the expense of job security and the pay earned by contractor employees working only on an hourly, part-time basis.
Daniel Gottlieb, vice-president for research at the NII, is also wary of the idea that most people working part-time do so out of choice. He questions whether it isn’t a structural problem of low demand for poorly educated workers, geographic distance from employment centers (and lack of decent public transportation) that likely makes it hard for Arab women to find work, or if unfair competition from foreign workers take many of the jobs away from the weaker sectors.
“In cases where both spouses work and are poor, the reasons for poverty are probably similar to those for all the other poor working families: unfair pay, low earning capability, and the size of the family,” Gottlieb wrote.
Raising minimum wage is no solution
The question of whether the poor make themselves poor by choosing to work less or because they have no choice in the matter doesn’t have an answer. But it probably doesn’t make much difference. The fact is that the poor don’t work enough hours to afford them decent pay, so just raising the minimum wage isn’t enough.
While the government enforcement of labor laws has tightened considerably, it continues to permit employers to hire workers in part-time jobs that don’t pay decently. It is also doing too little to encouraging poor workers to boost their working hours. According to an OECD report published this week on Israel, the country spends just 0.02% of national output on encouraging employment among the poor, as opposed to 0.4% to 0.5% in the other developed countries. The report specifically mentioned the absence of a Wisconsin Plan to help the poor integrate into the workplace, and the miserly negative income tax benefit paid to poor workers.