Middle class income eroded since 2007

The Bank of Israel finds that the prices of rent, food, electricity, gas, and water have risen by more than the rise in income.

"Average income for a middle class household rose between 1997 and 2010/11 more than prices of most goods and services. With that, since 2007, the prices of housing services, rent, food, electricity, gas, and water have increased by more than the increase in income," states the Bank of Israel) today in excerpts from its upcoming Annual Report. In other words, the income of Israel's middle class has eroded sharply in the past five years, under the impact of rising prices.

The Bank of Israel defines the middle class as the portion of the population whose income is 75-125% of the median income and the upper middle class as the portion of the population whose income is 125-200% of the median income. Each segment accounted for about a quarter of the population. The proportion of middle and upper middle class fell from 50.4% of the total population in 1997 to 48.6% in 2011, while the proportion of the lower class rose from 37.6% to 40.7%, in line with trends in other Western countries. The proportion of the upper class rose from 11.9% to 19.3% over the same period.

Non-ultra-Orthodox Jews account for 90% and 95% of the middle class and upper middle class, respectively. Half of middle class are families with children, and another quarter are childless couples. Among the households with children, the majority are households with one or two children. Only in about 2% of middle class households have five or more children; in the upper middle class the number of such households is nearly zero. The average age of the heads of households in the middle classes has risen over the past two decades.

There are two full time earners in over 40% of middle class households and in more than half of upper middle class households. There is at least one full time earner or a self-employed head of household in most of the other households. Fewer than 10% of middle class households have no earners or part time earners. The labor input of middle class and upper middle class households increased markedly since 1997.

The Bank of Israel concludes, "One of the main claims that arose in the public discourse on the state of the middle class in Israel related to the erosion of earnings of this class, in contrast to the marked increase in its expenditure on products and services. At the same time, over recent decades, the share of private expenditure in total expenditure on services such as health and education increased. In contrast, public expenditure on health and education in Israel is relatively low compared with developed countries.

"In an analysis of the expenses of people who belong to the middle class, several expenditure categories stand out in taking a considerable share of those households' income: housing-related expenses, such as rent and mortgage payments; transport expenses, such as car maintenance and public transportation; and education expenses for young children, are all a considerable burden on those paying such expenses, and may reach noticeable shares of available income.

"The available income of middle class and upper middle class households increased since 1997 at a pace faster than that of the increase in prices in general, both on average (as measured by the CPI) and in most expense categories (excluding health insurance and expenditure on electricity, water, and gas). Nonetheless, since 2007, there has been an acceleration in the rate of increase in prices, and a comparison of the pace of increase in average income to the pace of increase in prices of goods and services, from 2007 through 2010, shows that prices of goods and services, which were at the core of the protest - housing, food, electricity, gas, and water - increased at a higher rate than did income."

Published by Globes [online], Israel business news - www.globes-online.com - on March 13, 2012

© Copyright of Globes Publisher Itonut (1983) Ltd. 2012

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