An overview of the middle class in Israel. Dr. Karnit Flug Deputy Governor of the Bank of Israel March 2012

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1 An overview of the middle class in Israel Dr. Karnit Flug Deputy Governor of the Bank of Israel March 2012

2 Middle class: a definition Accepted definition: The population group consisting of households whose equivalized income is greater than 75 percent but less than 125 percent of the median income (per standard person). Similarly, the upper-middle class includes households whose income ranges from 125 percent to 200 percent of the median income. 2

3 The Middle in Israel Income distribution Population distribution Upper 26.2 % Upper middle 31.8 % Low 16 % Middle 26 % 2010/2011 Upper 10.7 % Upper middle 22 % Low 40.7 % Middle 26.6 % Income distribution Population distribution Upper 26.3 % Upper middle 31.4 % Low 16.7 % Middle 25.5 % 1997 Upper 12 % Upper middle 22.7 % Low 37.6 % Middle 27.7 % * The analysis is based on income reported in the Central Bureau of Statistics Income Survey.

4 The middle class: Distribution by population segment /2011 Non- Ultra- Orthod ox Jewish 89.7% Arab 7.4% Ultra- Orthod ox 2.9% Non- Ultra- Orthod ox Jewish 88.4% Arab 9.0% Ultra- Orthod ox 2.6%

5 The upper-middle class: Distribution by population segment Non Ultra- Orthod ox Jewish 88.4% /2011 Arab 9.0% Ultra- Orthod ox 2.6% Arab 3.1% Non- Ultra- Orthod ox Jewish 95.8% Ultra- Orthod ox 1.1%

6 Arab sector: Segmentation by socio-economic class /2011 Middle 17.0% Upper- Middle 5.4% Low 76.7% Upper 0.9% Middle 15.6% Upper- Middle 3.5% Low 80.4% Upper 0.5%

7 Ultra-Orthodox sector: Segmentation by socio-economic class /2011 Upper- Middle Middle 2.3% 19.8% Low 77.1% Upper 0.9% Middle 13.0% Upper- Middle 4.9% Low 81.2% Upper 0.9%

8 35% 30% 25% 20% Composition of middle class households, selected years /11 15% 10% 5% 0% Single without children Single parent Couple without children Couple with 1 2 children Couple with 3 4 children Couple with five+ children Head of household 65+

9 Composition of upper-middle class households, selected years 40% 35% 30% 25% /11 20% 15% 10% 5% 0% Single without children Single parent Couple without children Couple with 1 2 children Couple with 3 4 children Couple with five+ children Head of household 65+

10 Employment status of the middle class, selected years 50% 40% 30% / % 10% 0% Two (or more) full time wage earners One full time and one part time wage earner One full time wage earner Selfemployed head of household No earners Other

11 Employment status of the upper-middle class, selected years 60% 50% 40% / % 20% 10% 0% Two (or more) full time wage earners One full time and one part time wage earner One full time wage earner Selfemployed head of household No earners Other

12 Employment status of the top decile, selected years 60% 50% 40% /11 30% 20% 10% 0% Two (or more) full time wage earners One full time and one part time wage earner One full time wage earner Selfemployed head of household No earners Other

13 Employment status among socio-economic classes (2010/2011) 60% 50% 40% 30% Low Middle Upper-Middle Upper 20% 10% 0% Two (or more) full time wage earners One full time and one part time wage earner One full time wage earner Selfemployed head of household No earners Other

14 Education in the middle class Distribution of households by years of education % / % % % 0-8 4% % % % % %

15 Education in the upper-middle class Distribution of households by years of education % 0-8 5% / % % 0-8 2% 9-10, 4% % 11-12, 24% % %

16 Education among socio-economic classes (2010/2011) 70% 60% 50% 40% Low Middle Upper-Middle Upper 30% 20% 10% 0% Number of years of education

17 Composition of income in the middle class 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Earned income Pension and advanced training fund income Allowances and support payments 12% 9% 9% 84% 84% 85% Capital income Transfers from other households

18 Composition of income in the upper-middle class 100% 90% 5% 4% 5% 80% 70% 60% 50% 40% 89% 89% 88% 30% 20% 10% 0% Earned income Capital income Pension and advanced training fund income Transfers from other households Allowances and support payments

19 100% Composition of income among socio-economic classes (2010/2011) 80% 60% 40% Low Middle Upper-Middle Upper 20% 0% Earned income Capital income Pension and advanced training fund income Allowances and support payments Transfers from other households

20 Composition of income Middle class and upper-middle class Middle class: 85 percent of income is earned, 9 percent is from allowances and support payments, and 6 percent from other sources (capital income, pension and advanced training fund income). Upper-middle class: 88 percent of income is earned, 5 percent is from allowances and support payments, and 7 percent from other sources (capital income, pension and advanced training fund income). This composition has barely changed over the past 15 years.

21 Change in households' real net income (2000 = 100) Low Middle Upper-Middle Upper GDP per Capita Average net income per household by socio-economic class

22 Who is the middle class? An overview, The middle class makes up 28 percent of the population Sector: A significant majority are non-ultra-orthodox Jews Employment: Primarily two wage earner households Education: More than half have post-secondary education; a significant share has years of education Income: Overwhelming majority of income is earned income Household composition: Varied

23 Who is the middle class? Development over time Works more More educated Smaller households (Slightly) wealthier

24 Price indices of selected goods and services compared with CPI (1998 = 100) % 4% Pre-primary education Housing CPI Rent % 1.7 % 24.4 % 4.7 % Gas, electricity, water, etc. Food, including fruits and vegetables Average net household income in middle class Fuel for transport

25 Policies The Trajtenberg Committee identified housing and childcare as central issues demanding attention. Main recommendations in education: Free education for children ages 3 4 Subsidized daycare for children up to age 3 (with income test) and expanded availability Subsidized after-school childcare Main recommendations in housing: Expanded supply of land for large scale construction Incentives for construction of homes for long term rental Construction of affordable housing and allocation by criteria which maximize earning potential Consideration for populations with specific needs and for public housing. 25

26 Thank you