Where's the Leadership?

March 25, 2009

Poverty rates in Israel are highest among ultra-Orthodox and Arab-Israelis, mainly for two reasons: very large families and limited involvement in the formal economy, especially for Arab and Jewish women and ultra-Orthodox men. Benjamin Netanyahu is still negotiating to form a government, six weeks after the election. It looks as if he has jettisoned one of the major achievements from his previous administration, the re-structured child allowance policy. During that term as prime minister he was either respected or reviled for a fundamental change in which the financial incentives for higher birth order children were eliminated. As the editorial in today’s Haaretz points out, the allowance reached 860 NIS per month in 2002, for the fifth child, five times the rate for the first child, but beginning in 2003, the stipend was equalized so that each child receives 160 NIS. While this cut caused outrage among some, the policy result was predictable. Birth rates have declined and employment has increased, especially among the ultra-Orthodox, so poverty has declined. As in the U.S., there are other benefits that can aid families with children while not disincentivizing work and as in the U.S. there is ongoing debate about the funding level of those benefits, such as child care subsidies to facilitate work. As Netanyahu scrambles to put together a “governing” coalition that includes the ultra-Orthodox Shas party, he apparently has agreed to re-institute the disproportionate allowances, motivated by narrow political interests instead of a broader national interest. The well known saying that “there are two things that you don’t want to watch being made—sausage and legislation” captures what is happening as Netanyahu tries to from a government. Netanyahu will implement a policy that is likely to increase poverty among these high risk groups in order achieve 61 votes in the Knesset, a coalition that will be fragile at best in any case.