Startup Israel Suffering Most OECD Poverty as Poor Surge

Unable to pay their rent and turned down for public housing, Yafit Krisi and her husband gathered their four children and moved into a tent outside the city hall in Ashkelon, on Israel’s Mediterranean coast.

“Life is very hard in Israel and everything is very expensive,” the 33-year-old mother said as her children played in a nearby parking lot. “It weighs down on us.”

The family left the tent after a friend of Ashkelon’s mayor gave them enough to rent an apartment, Krisi said. She and her husband earn about 6,000 shekels ($1,721) a month from their jobs at a local beach resort, below the government poverty line.

The Krisis represent a growth sector in Israel’s economy: the working poor.

At 20.9 percent of its households, Israel’s poverty rate is the highest of any country in the 34-nation Organization for Economic Cooperation and Development, according to OECD measures. Hit hard by the rising cost of living and falling wages, the number of employed and impoverished Israelis has risen steadily even as the economy outran the U.S. and Europe in recent years.

Their plight is upending ideas about poverty in Israel, traditionally seen as a function of joblessness among Arab citizens and ultra-Orthodox Jews. The high poverty, combined with income inequality that ranks fifth in the OECD, is dimming some of the economic luster of the country that inspired “Start-Up Nation,” a book by Dan Senor and Saul Singer that said Israel was the foremost creator of new companies per capita in the world.

Two Israels

“In a nutshell, there are two Israels,” said Dan Ben-David, executive director of the Taub Center for Social Policy Studies in Jerusalem. Taub’s research finds a growing mass of Israelis unequipped to work in its high-tech-oriented economy. “Not only is it huge, but its share of the total is growing,” Ben-David said.

One in every three children lives in poverty in Israel, which joined the OECD, generally made up of the world’s wealthiest states, in 2010. A year later, 400,000 Israelis took to the streets to protest a lack of affordable housing and high living costs. Many, copied later by the Krisis, set up tents to dramatize the housing shortage.

In the last five years, Israel’s economy has grown an average of more than 4 percent a year, versus 0.7 percent for the OECD. It has been an uneven expansion.

School Woes

“When people talk about how great the Israel economy is, it’s a lie,” says Avishay Braverman, a member of the opposition Labor Party, chairman of parliament’s Economic Affairs Committee and a former World Bank official. “People are working but they’re working for low wages.”

A government panel recommended in February that Israel spend 10 billion shekels in a “war on poverty” that would boost the monthly minimum wage to 5,000 shekels a month from 4,300, raise welfare payments, expand child tax credits and lengthen the school day. Prime Minister Benjamin Netanyahu and Finance Minister Yair Lapid have encouraged the committee’s work, their spokesmen said.

In a country proud of its scholarship -- Israeli trade groups say it publishes more scientific papers per capita than any other state -- educational shortcomings are cited as one of the key reasons for chronic poverty.

Competition Shortage

While many Israelis clustered around Tel Aviv benefit from the knowledge economy, about half of Israel’s children are taught in ultra-Orthodox schools where core subjects such as math are scorned in favor of religious texts, or in underfunded Arab schools, according to the Taub Center. Karnit Flug, governor of the Bank of Israel, has called for educational changes for the ultra-Orthodox to make them more employable.

Alongside successful export companies, which make up 40 percent of the economy, are businesses underpinning the lives of the average Israeli -- from the local cement maker to tomato growers -- that lack competition, leading to high prices, according to David Gilo, who heads Israel’s Antitrust Authority.

“Much of Israel’s economy remains highly concentrated,” Gilo said in a Tel Aviv conference in February. “Because of this, Israelis are suffering from a relatively high cost of living.”

Monthly apartment rents climbed 41 percent from 2008 to 2012 while wages rose only 11 percent, Taub’s Ben-David said, citing figures from the housing ministry and statistics agency. House prices are 80 percent higher than 2007.

Staying Afloat

The government’s poverty line is 4,513 shekels in monthly income for a couple and 8,500 shekels for a family of five. The thresholds placed 1.75 million people in poverty in 2012, according to a government report. That’s down from 1.84 million in 2011, although the number of Jewish families in poverty -- the biggest component -- climbed 3 percent.

Meirav and Yaacov Levi said they thought of themselves as members of Israel’s middle class. They lived in a spacious three-bedroom apartment in Petach Tikva, outside of Tel Aviv, and went out to dinner every few weeks.

When they had their third child in 2010, things started to get difficult, said Meirav, a kindergarten assistant. Everything from their rent to their water bill went up, while the couple’s annual income stayed flat at about 132,000 shekels, she said. To stay afloat, they began taking out loans, first from banks then from family members.

Frozen Account

As their bills kept rising, the Levis ended up with more than $50,000 in debt and a frozen bank account, and found themselves relying on food from a local charity.

“I don’t know how this happened to us,” Meirav said, a tear streaming down her cheek.

Far from the slums of Johannesburg and Rio de Janeiro -- though close to the Gaza Strip, the Palestinian territory where annual income per capita is $1,077 -- the Krisi and Levy children aren’t starving. They have clean drinking water and health insurance. Charity groups and soup kitchens help Israel’s most destitute, particularly in the ultra-Orthodox communities in Jerusalem and Bnei Brak, near Tel Aviv.

Lifting the ultra-orthodox and Arabs out of poverty are the country’s “great challenges,” according to Stanley Fischer, who stepped down as governor of the Bank of Israel last year before his nomination as vice chairman of the U.S. Federal Reserve.

Flug, his replacement, has repeatedly called for government intervention, including incentives for employers to hire ’’under-represented populations,’’ and an increase in the earned-income tax credit to make employment more attractive for those with low earning capacity.

Soup Kitchens

Off downtown Bnei Brak’s Rabbi Akiva Street, a 15-minute drive from Tel Aviv, the Beit Tavshil soup kitchen feeds thousands a day. Men and women sit on opposite sides of the dank cafeteria, separated by a room divider following strict religious custom. A white-bearded man sitting at the door takes 1 shekel coins on a plastic plate as a symbolic fee.

“These families are collapsing because they don’t have any food,” said Effi Davidyan, manager of the nearby Beit Avraham charity, which assists about 6,000 families across the country, raising money from Jewish communities abroad. “I get swarms of people outside my door.”

Signs of poverty are everywhere in Bnei Brak, from the deteriorating tenements to the bold-red script on charity boxes seeking donations for observant families: “Mommy, you promised us chicken for the Sabbath!”

Lod’s Arabs

Many ultra-Orthodox men study religious texts full-time at seminaries instead of taking jobs. Their families -- with an average of 6.5 children -- often live off working mothers and government subsidies.

While the Israeli government points to 6.3 percent unemployment as a sign of a solid economy, that figure doesn’t take into account working-age people in poor groups who aren’t seeking jobs. The work-force participation rate for ultra-Orthodox men is about 46 percent compared with 78 percent for all Jewish males.

“There are 300,000 to 400,000 people in Israel who could be working but are not looking for jobs,” says Yaron Zelekha, dean of business administration at Israel’s Ono Academic College.

In Lod, about 15 miles south of Tel Aviv, the Arab neighborhood of Kerem Al-Tufaah is one of the country’s poorest. In the streets, children play amid heaping piles of uncollected trash where chickens and goats roam freely.

Sewage Sea

The neighborhood suffers from abject government neglect and looks more like the Gaza Strip than Israel, according to Abdallah Moussa, a 31-year-old repairman who said he makes about $1,200 a month.

“The sewage is completely backed up,” Moussa said. “When it rains, this place becomes one big sea. Kids are stuck at home and can’t go to school.”

His friend Sami Anwar Sansour said he has been in and out of prison, and that crime is the only way for his children to prosper.

Half of Israeli Arabs and 60 percent of the ultra-Orthodox are below the poverty line, according to the OECD. Both groups, which together make up almost a third of Israel’s population, have traditions of large families and no more than one working parent, adding to their economic difficulties.

Even as more in the two cohorts have taken jobs over time, work brings less economic security than it once did. The poverty rate in working households is 13.7 percent, up from 9.6 percent a decade ago, according to the government. In families with two workers, poverty has doubled since then to 5 percent.

Lapid’s Rise

The street protests of 2011 ignited the political career of Lapid, a former talk show host focused on bread-and-butter issues, who emerged as the head of a new party, Yesh Atid, Hebrew for “There Is a Future.”

Once he became finance minister, Lapid cut welfare payments and this year temporarily froze subsidies for unemployed ultra-Orthodox men who refuse to serve in the army, measures that garner support from some in Israel’s middle class who view the religious as freeloaders.

The welfare cuts “are a historic move from a culture of subsidies to a culture of work,” Lapid said in an August posting on his Facebook page.

The reductions for large families will push another 40,000 to 50,000 children below the poverty line, according to the Association for Civil Rights in Israel.

Tent Specter

“Lapid’s economic plan is an awful plan, which harms the middle class, brutally crushes the poor, and shatters what remains of the welfare state,” Zahava Gal-On, leader of the Meretz party, said.

Measures adopted after the 2011 protests included boosts in income taxes at 1 million shekels and above, higher corporate and capital gains taxes, tax credits for child-care, and a commitment to build more affordable housing.

The steps did little to help the country’s neediest, according to charities, who say they have to rely on private donors that are often non-Israeli.

“It’s embarrassing that foreign donors need to replace the government to feed Israel’s needy,” said Gidi Kroch, the chief executive officer of Leket, Israel’s largest food bank, which gets most of its support from Jewish organizations abroad. “It is becoming unbearable and the government needs to do more about it.”

In Ashkelon, Krisi said her husband hasn’t been able to work for the last two weeks because of a back injury, and the family barely has enough to pay their bills and buy food. She said she “is still fighting with the bureaucracy” to get public housing, as the family must leave their current apartment in August.

’’After that, only God knows,’’ she said. “We may have to go back to the tent.”