Young, Middle Class Israeli Families Suffering Sharp Wage Erosion

Data released by Taub Center in new study show college education no longer ensures path to prosperity.

Why did 400,000 Israelis take to the streets to protest in the summer of 2011?

The answer may very well be found in a new study from the Taub Center for Social Policy Studies in Israel, released yesterday. The report shows the economic situation of young working families in Israel got much worse in the five years preceding the social protests.

The Taub Center's State of the Nation Report 2011-2012 also shows that the standing of young Arab and Haredi families, which was already poor compared to that of the rest of the population, has declined further.

The main reason for the deteriorating fortunes of the average Israeli is the erosion of wages, the report states. The survey of Israeli society, economy and policy is based on research conducted in 1995 to 2010 by Hebrew University's Prof. Michael Shalev.

The things that used to raise living standards for young middle-class Israelis have lost much of their influence: A college degree, two wage-earners in the household, being part of the Jewish majority and living in the center of the country. None of these markers translate into prosperity as they did before. The only demographic group whose income has risen in the period surveyed is immigrants from the former Soviet Union.

Another factor eroding wages for young families is the rapid rise in housing prices. Significantly more people in their early 30s are living with their parents, while home-ownership for young middle-class families has dropped sharply.

"A larger percentage of 25-34 year olds is living with their parents, compared to 15 years ago. While apartment ownership among young families in the lowest income quintile [20%] has been relatively constant during the last decade, there was a substantial drop in ownership rates among the young middle and upper classes," states the report.

The research, based on wage surveys conducted by the Central Bureau of Statistics, looks at income from work, which has remained frozen, or even fallen, since 2005. "Last summer's protests," writes Prof. Dan Ben-David, who heads the Taub Center, "represent only the tip of the iceberg when it comes to challenges faced by Israel in the realms of labor, productivity, education and income gaps. Without a change in national priorities, Israel will remain on trajectories that are not sustainable over the long term."

Value of college degree shrinks

The study found clear erosion in wages for young people with college degrees living in the center of the country. The median income for young families was NIS 5,917 a month in 2010, which means half of young families earned less than that amount.

The report addresses the 2011 summer protests; implications of the country's privatization policies; low labor force participation rates; decreasing welfare spending; and an evaluation of Israel's health and education systems in recent years.

"The implication of this is clear: Though it has been rising in absolute terms during the past several decades, Israel's standard of living has been falling further and further behind, in relative terms, the living standards in the leading Western countries," wrote Ben-David.

In the 1990s, 55% of Jewish men born in Israel and holding college degrees were in the top 20% of the income scale, yet this figure dropped to 46% in 2009-2010. For Israeli Arab men with college diplomas, there was a steeper decline: 20 years ago 43% of Arab men earned wages in the top 20% of the scale, but only 16% did in 2009-2010.

Women also saw a sharp drop in their financial status as wage earners, and the figures for Arab women were similar to those of Arab men. "The primary problem underlying the long-term picture," Ben-David writes, "is that a very large share of Israel's population - a share that is steadily increasing - does not receive the necessary tools and conditions to work in a modern global economy.

Israel is similar to an island whose survival depends on allocating abnormally large amounts of resources to its defense from both financial resources and manpower that are diverted away from productive economic activity.

Despite the presence in the country of universities and a hi-tech industry at the forefront of world knowledge, Israel's labor productivity continues to fall further behind leading Western countries. And despite relatively low unemployment rates, employment rates among Israeli men are still much lower than in the leading Western countries, with income gaps between Israel and these countries being much higher today than they were three decades ago.

"Until there is a significant change in national priorities - towards the benefit of the many rather than the current biases toward the few," Ben-David notes, "Israel will continue lumbering down the very steady - and unsustainable - trajectory that it has been on since the 1970s."