The pandemic year of 2020 had a significantly harmful effect on the standard of living in Israel, poverty and inequality. The just-issued annual report of the country’s National Insurance Institute (NII) shows that the standard of living of families in Israel, as measured by the median economic income, fell by a significant rate of 22.7% last year. However, due to social assistance from the government’s coffers at a rate similar to the average provided in the OECD, economic damage to the population was reduced. and overall, the standard of living according to disposable income decreased by 4.4% in 2020. In normal years, the standard of living has risen by three to four percent annually.
In addition, there was a significant increase in the poverty rate and inequality. However, it can be seen that the social assistance provided in 2020 along with the reduction in the poverty line led to a decrease in the incidence of poverty according to disposable income of families, individuals and children at rates between 0.5% to 1% in 2020 compared to 2019. This decline was one of the factors that moderated the measured poverty. Yet, according to the report, poverty rates have risen significantly among the self-employed in Israel due to the months of lockdowns that forced them to close stores on the street and in malls.
As a result of special social allowances, there was an unusual situation in which people who were defined as poor in the past were not defined as such in 2020 – even though their income increased and may even have decreased. For example, someone who lives below but close to the poverty line in 2019 and whose income has fallen by less than 4.4% found himself above the poverty line even though his condition has worsened, and his feeling of being poor has increased, the report continued.
Since the first Israeli poverty report in 1971, the NII – as is customary in Western countries – has been measuring poverty. At this stage, there is great uncertainty about the duration and depth of the crisis, the authors wrote. Considerable economic damage is expected to continue in the coming years, posing a major challenge to the socioeconomic policy. A reduction in the consequences of the COVID-19 crisis on the socioeconomic situation of the population – and in particular of the poor and the middle class – will be determined by the extent to which a safety net is put in place. At the same time, an active policy to encourage employment and quality employment to the level accepted in OECD countries is needed.
In view of the socio-economic crisis in 2020 and the delay of the Central Bureau of Statistics in conducting the 2019 expenditure survey (which is used as a basis for calculating poverty in general), the NII compiled its report based on administrative data in its possession. Due to the difference between the two data sources, instead of comparing the absolute level of the socio-economic indices in the two methods, it was important to look at the trends – changes over the years and among sectors in the population. The last time there was such a decrease in the standard of living in Israel occurred last in 2001. In addition, the inequality index of the distribution of disposable income remained almost unchanged from 2019, after increasing by about half a percent between 2018 and 2019.
The two benefits in 2020 that significantly reduced poverty, at least on the books, were child benefits and unemployment benefits – three times and 10 times more, respectively. Unemployment benefits in themselves rescued 23.6% of families from poverty, compared to two percent in 2019. The child allowance “rescued” about eight percent of families from sinking below the official poverty line (compared to 2.6% in 2019), mainly thanks to the universal grants transferred from the government to families in 2020.
Thus, alongside the conventional focus of measuring relative poverty, the report calculates according to the spirit of absolute approach, leaving the poverty line at the pre-recession level – the poverty line of 2019. According to that index, the incidence of poverty increased by half a percentage point. Given the intensity of the economic crisis, the increase in the dimensions of poverty measured by this calculation is also surprising in its relative moderation, and it once again illustrates the importance of policy measures this year for reducing socio-economic damage to Israelis.
Labor and Social Welfare Minister MK Itzik Shmuli commented that “the corona crisis is one of the worst the state has ever known. Not only were the underprivileged affected, but according to this report. the hardest hit was suffered by the middle class and owners of small businesses. It must be said clearly that thanks to actions initiated and taken, such as unemployment benefits and grants for many populations, we managed under impossible circumstances. From now on, active measures must be taken to encourage employment, so we are investing heavily in professional training and return to work grants and at the same time significantly expanding the social safety net in the next budget by increasing transfer payments and more massive investment in social services.”
NII director-general Meir Spiegler added: “I must emphasize that the report and its findings were prepared by the employees of the National Insurance Institute, with professionalism and transparency. The poverty report is based on a database that materially reflects the trends and effects of the COVID-19 crisis in the past year, compared to previous years. The findings of the report prove the validity of the National Insurance Institute’s claims regarding the state’s obligation to increase the benefits and thereby reduce the large gap between us and that provided by the OECD countries.”