child poverty

5th International Research Conference
on Social Security
Warsaw, 5-7 March 2007
"Social security and the labour market: A mismatch?"
Child Poverty, Children Allowances and
Labor Force Participation
The Case of Israel
Abraham DORON
Berwald School of Social Work and Social Welfare
Hebrew University
Israel
International Social Security Association Research Programme Case postale 1, CH-1211 Geneva 22 Fax: +41 22 799 8509 e-mail: issarc@ Web: www.issa.int
Child Poverty, Children Allowances and Labor Force Participation
The Case of Israel
By Abraham Doron
Summary
The paper deals with the dilemma of preventing poverty among families with children, in
particular of large families with four children or more, by maintaining a system of generous
children allowances, and at the same time assuring adequate incentives for parents of children
in these families to participate in the labor force. The risk of children of large families to grow
up in poverty is significantly higher than in small families. In the case of Israel, poverty
among large families with four children has increased significantly in recent years. To
increase incentives to work among these families the rather generous children allowance
program was recently redesigned. The policy problem with the redesigned systems remains
however how to keep a proper balance between the two different goals.
The major shift in social protection policies pursued in the last decade by almost all advanced industrial countries, including Israel among them, was to introduce work activation programs. The activation programs were conceived as a mechanism to change the existing social security programs from being passive to becoming more active in promoting participation in work of recipients of social security benefits. In general the trend was to establish closer links between the entitlement to many social security benefits and participation in the labour market (Lodemer and Trickey, 2001; Van Oorschot 2002; Walker and Wiseman, 2003; Foden and Magnusson, 2003; Serrano Pascual, 2004).
A key factor in these policies was the underlying ideological and practical premises to encourage citizens in general, and recipient of social welfare benefits in particular, to take a more active role in shouldering their individual responsibilities to maintain themselves in a rapidly changing world economy. The practical premises of the activation policies was the increasing need to contain the growing cost of social security benefits and the need to reduce the number of people out of employment and dependent on their livelihood on welfare payments .The major thrust of the activation policies was thus to increase incentives to work and stimulate labour market participation of benefit recipient by a series of changes in entitlement to benefits and the reduction of level of benefits and the duration of their payments .
The aim of this paper is concerned with the dilemma of pursuing activation policies for parents of children in large families with the goal to encourage them to increase their participation in the labor force and the same time the need to preventing poverty and hardship among these families. The risk of children of large families to grow up in poverty is significantly higher than in small families. Most countries in the European Union have a higher child poverty rate in large families than in small families (Bradshaw et al., 2006). In the case of Israel, poverty among families with children in Israel has risen in 2004/5 to the rate 25.1%. Among large families, with four children and more, the poverty rate, however, increased to 57.0% (National Insurance Institute, 2006).
The problem of poverty among large families is thus particularly related to the Israeli experience that maintained a system of generous children allowances, especially for large families with four and more children (Doron, 2001). In recent years it became increasingly clear that there is a need to provide adequate incentives for parents of these families to actively look for work and take up gainful employment. The paper deals with the policy dilemmas of concerning the reform of the benefit systems to these families since the beginning of the century.
The Israeli children’s allowances program
Israel has maintained since the late 1950’s a system of children allowances that became in more recent years especially generous for large families. At the beginning of the 21st century the program was fully universal in its coverage, i.e. it provided benefits for every child in Israel younger than eighteen. It consisted of one uniform scheme fully integrated into the direct tax system. In practice the program was built on a credit point system and played a dual role: It served as a tax credit for families with incomes exceeding the tax threshold and was the equivalent of a "negative income tax" for families whose income was below the tax threshold level (Roter and Shamai, 1977).
The children’s allowances were the dominant and almost only factor taking into account family size in the direct tax system (Gabai and Lavon, 1996, p. 5). They were linked to the consumer price index and raised accordingly in January of every year. The value of a credit point in 2000 was equal to 2.5 percent of the average wage (National Insurance Institute, Annual Survey 2002).
Table 1. Families and Children Receiving Children’s Allowances, 2000
All Recipients by Number of Children in Family, Monthly Averages
Total 1 2 3 4 5 6+
Families 912.5 321.0 276.9 165.7 76.3 34.5 38.1
Children 2,118.8 912.5 591.5 314.6 148.9 72.6 78.7 Percentage of All Recipients, Monthly Averages,
Families 100 32.3 30.3 18.1 8.4 3.8 4.2
Children 100 43.1 27.9 14.9 7.0 3.4 3.7
Source: Annual Survey 2001, Jerusalem: The National Insurance Institute, Research and Planning Administration, April 2002, p. 173.
It is in this context that the children allowances program became the second largest program in Israel’s social security system. The benefits paid by the program consisted nearly 20 percent of the total benefit payments made by the National Insurance Institute, NII, the country’s agency responsible for the administration of national insurance and other social security payments. The program run, however, against the trend dominating Israeli social policy to cut public expenditure and in this manner reduce government responsibility for ensuring the welfare of the population (Doron 2001a). By the end of the 1990s the government, and especially the Treasury, were determined to use the first opportunity to introduce significant cuts in the
children’s allowances program. Although earlier attempts to pass such measures failed, this did not deter them from further pursuing such policies.
At this particular time when the government made repeated efforts to cut children allowances, the Knesset, the Israeli parliament, on the private initiative of a Orthodox religious party, succeeded against the declared government policy to significantly increase the children’s allowances to large families , i.e. families with five and more children. The purpose of the legislation was mainly to increase the benefits to a large part of Jewish religious orthodox families who have many children and live in difficult economic circumstances and to prevent poverty among them. The government was strongly opposed to the bill as it was contrary to its policy of reducing public expenditure on welfare in general and the cost of the children’s allowances program in particular (Doron, 2005).
Even before the new legislation the rate of benefit to the fifth child in a family was 3.6 time higher than the benefit to the first and second child. This new legislation increased even further the rate of benefit payable for the fifth child and further children in a family, and made it five times higher than the rate for the first and second child. It also brought about to a steep increase in the total cost of the children’s allowances program. As a result, the debate concerning the cost of children’s allowances program and their effect gained further momentum; it moved to the top of the country’s political agenda and became entangled with the wider social, political and demographic issues and especially with the work activation policies pursued by the government (Doron, 2005, op.cit).
The change in the children’s allowance program and the significant increase
in the benefits paid to large families brought with it a strong public backlash against the program. It raised also a number of social policy issues. The main issues were related to the demographic effects of the new policy, the financial repercussions of it, and mainly so in the area of activation policies concerned with the low participation rates of parents of large families in the labour market.
The Demographic Effect
Large families with five and more children were mainly concentrated within two population groups – The Jewish ultra orthodox population and the Moslem Arabs. While the fertility rate of the majority Jewish population was 2.2 children per woman, a rate higher than in most OECD countries ( Sleebos, 2003) the equivalent rate among the Arabs was 4.4 children, and even considerable higher, 5.8 children, among the ultra orthodox Jews.
The high fertility rates among these two population groups were seen to have
a major impact on the country’s social and economic problems. On the one hand the sharp increase of poverty among these population groups in more recent years contributed to the increasing cost of public support for these families. On the other hand the low rate of participation in the active labour force of parents in those families contributed to the reduction of public support for the benefits provided to them.The policy dilemma was thus how to reconcile between these conflicting trends.
The subsequent debate centered therefore on the role of the state in providing increased cash benefits in the form of children’s allowances to large families. The main
issue in the debate was first, to what extent is it proper and wise for the state to provide such increased support to large families (For example: Ilan Shahar, 9 April 2000; Shohat, 14 April 2000; Golan, 17 April 2000;) and, second, whether the provision of such support actually promotes high fertility rates among the particular population groups as the ultra orthodox Jews and the Arab parts of the population.
In part, the debate reflected the rift between the non-religious part of the population and parts of the ultra orthodox Jewish groups that consciously prefer not to participate in the labour market which is considered part of the ordinary duties binding all Israeli citizens (Ha’aretz, 4 July 2000). It also reflected the unfavorable attitudes of the Jewish population to the Arab minority and the high fertility rates among them. The ensuing debate reflected the growing opposition to the increased the children’s allowances paid to large families. The debate centered therefore not only on the role of the state in providing increased support to large families but also whether the provision of such support should be directed to these two particular population groups.
In the debate opposing the increased support for large families two economists even invoked the support of Malthus and his population theory which claimed that assistance to the poor encourage them to have children at times when they have no prospect of being able to support them. The two economists admitted that they were unable to prove any causal link between the children’s allowances and the birth patterns but, in their view, the data on birth patterns in Israel are not incompatible with the Malthusian population theory (Mayshar and Manski, 2000).
In addition, demographers, newspapers columnists, and other scholars brought to the fore the prevailing public mood against the increased children’s allowances to large families. The Ben-Basat Committee, a governmental committee that dealt with tax reform issues, adopted a similar opposing view and stated in its report that “because of the structure of the ladder of the children’s allowances payments, they operate to encourage high fertility among poor families, that in any case face economic difficulties in raising their children. The allowances paid to them thus help to produce a poverty trap among them and especially for their children (Ben Basat Committee [Income Tax Reform] Report, p. 3).
The cost effect of the increased allowances program
The increased level of the children’s allowances to large families paid for the fifth child came into effect inn January 2001. The annual cost of the increased payments summed up to about NIS 500 million, or an increase of nearly 8 percent of the cost of the total children’s allowances program. Compared to the previous year the social security payments by the National Insurance Institute grew in 2001, in real terms by 13.3%. The scope of these payments reached that year about 9.6% of the GDP, as compared to about 8.5% in 2000 (National Insurance Institute, 2002).
The policy repercussions of the increased cost of the children’s allowances program in general and of the allowance to large families program were related to three main issues: The timing of the increase, the particular circumstances at the time of the national economy; and the change in the political climate towards the welfare state in general and the social security system in particular.
The increase of the children’s allowances to large families occurred at an importune time when the country found itself in a serious economic recession. In addition, the policy trend supported for some time by the Treasury economists was to curtail the children’s allowances program and to introduce substantial cuts in the allowances rate. The dominant neo-liberal ideology of the government in power was, in general , hostile to the welfare state and was committed to make significant cuts in public spending , mainly so in social welfare expenditures . It was also strongly influenced by the welfare reforms adopted in the United States and considered the introduction of similar reforms in the country welfare payment system. Under these circumstances a radical reform of the benefits paid to large families was an inevitable part of the reform in these payments to follow.
Participation rates of large families in the labour market.
Another aspect of the debate concerning the children’s allowance to large families was the incentives to work issue, i.e. the low participation rate in the labour force of the two population groups, the ultra orthodox religious groups and women in the Arab Moslem population (Sheinin, 2003; Rubinstein, 2003).
The debate was mostly related to the motivation for and availability of fathers to work among large families and especially large Jewish ultra orthodox groups. Some economists claimed that that there is a clear link between the level of the children’s allowance and especially their more recent increase and the decline in the participation of this group in the labour force. The allowances, in their view, created negative incentives to work and the more they provided support for the children the more they enabled their parents to remain for many years outside the labour force (Ilan Shahar, April 11, 2000). In practice, the meaning of the increased allowances was that it would be easier for the fathers in these families to live without work (Shtrasler, 2000).
The reform of the children’s allowances program
Following this debate and in line with the prevalent ideological disposition,
the Government in the years 2001 –2003 saw as a first priority not only the annulment of the increase in the level of children’s allowances to large families but also to make significant cuts in the entire program of children allowances. Using the fiscal difficulties of the period as an additional lever the government passed a range
of consecutive and substantial cuts in the level of the children allowances and also made significant changes in their structure. The opposition to the increased allowances to large families among significant parts of the populations provided the necessary backing to the policies adopted.
The major structural change in the program was its alteration from a system of benefits paid on an ascending level which increased steeply for the third child onwards, to a system of a single flat rate allowance paid to all children irrespective of their consecutive place in the family. Children born after July 1st 2003 are entitled only to the new flat rate allowance. To ease the transformation that involves substantial losses of income to large families the change was introduced gradually over a longer period of time and will eventually become fully mature in 2009. The initial phases of this change of reducing the allowances paid to large families have
been un effect since 2002 as shown in Table 2.
Table 2. The Cuts in the Rate of Children Allowances 2001-2004
(Israeli Shekel)
2001 March
2002 July
2002
2003 Febr.
2004
July
2004
1-2 children 171 152 146 144 120 120
Third Child 343 289 303 195 171 166
Fourth Child 694 614 586 454 430 404
5th &6th Child 856 757 724 522 498 458
The rate for each additional child was 886 Shekel in 2001, it was reduced to 458 Shekel in July 2002, and will be gradually reduced to 144 Shekel by 2009.
Source: National Insurance Institute Data and Ruth Sinai, The Fourth Cut in Two Years, Ha’aretz, January 4, 2004.
The cuts in the children’s allowances and the gradual process of equalizing the allowances to all children continued in 2005. In comparison to 2004, the monthly average allowance to a family with two children decreased by about 2.8% in real terms , while that paid to a family with five children decreased by about 13 %. The accumulated decrease since 2001 amounted to about 35% for a family with two children and 52% for a family with five children (National Insurance Institute, 2006). The repercussions of the reform
The restructuring of the children’s allowances program had its effect in three major fields: the extent of poverty, participation of large families in employment, and changing the social protection network. In all three fields the reform had major social repercussions.
Increase in Poverty. With regard to poverty all families with children have been affected by the restructuring of the child benefits and receive currently significantly reduced allowances on behalf of their children. The bulk of the cuts fell, however, on the four lowest deciles of the population on the income distribution ladder. Already in 2002 it was estimated that the total sum of cuts in the two lowest deciles of the population would be six times higher than the cuts in the two highest deciles of the population (National Insurance Institute, 2002). The result was that more families with children joined the ranks of the poor.
Recent data show that in 2002 29.6% of all children in Israel in lived with incomes under the poverty line. In 2005 their number reached 35.2% and the likelihood is that their number will still increase in the coming years. The restructuring effect on large families was, however, much more serious. The incidence of poverty among families with four or more children rose in 2005 to 58.1% compared to 54.7% in 2004 and 41.8% in 2000 (National Insurance Institute, 2002 and 2006).
Participation in the labour force. The policy pursued by the government in restructuring the children’s allowances program was clearly designed to use the levers of financial pressure to encourage parents in large families to enter the labour market. By making significant cuts in the safety net provided by the child benefits and other social protection programs, the intention was to reduce the dependency of large
families on these payments and force them to engage in work and thus play a more active role in providing for their families
The question is how effective was this policy in terms of the initial goal of the work activation policies and of strengthening the link between the entitlement to child benefits and participation in the labour market. In reality there are no data available with regard to the actual success of the reduction of these benefits and the entrance to the labour market of parents of large families.
The restructuring policies certainly succeeded in reducing the cost of the child allowances but it seems doubtful whether they had any real and lasting effect on the cultural and religious patterns of behavior of large families in terms of work and fertility. The low participation rate of ultra orthodox Jewish males in the labour force
is strongly related to the pattern that has developed among them in Israel to devote their time to religious studies as a way of life. Although this cultural pattern of behavior may seem odd it has become deeply entrenched among a part of the ultra orthodox Jewish population. Many of them prefer to live in rather difficult economic conditions and poverty as a matter of choice and spend their adult life studying in religious institutions.
The high fertility rates among the ultra orthodox parts of the Jewish population are also strongly related to their religious beliefs and practices. Although some economist claim that these practices have been reinforced by the generous system of children’s allowances it is unlikely that most of them will change their behavior and cease to follow the biblical command of “Be fertile and multiply”(Genesis , 1, 28) that guides them
With regard to the Arab Moslem population - the relatively high fertility rates among them is combined with very low participation rates of women in employment. Again, this behavior patterns is strongly related to the traditional cultural behavior norms of the Arab population where employment of women outside the family household, or outside the local community is, if not outright forbidden, is not generally accepted . It is difficult to assume that financial pressure of the sort of reducing support by cutting the level of children’s allowances, without a parallel change in the traditional culture, will significantly affect the employment pattern of women in this population group.
The changing social protection network. The changes and cuts in the children’s allowances programs and in the level of benefits to large families program since the year 2000 reflect the radical shift in the system of social protection that affects the core of the Israeli welfare state. The trend to pursue work activation policies and transform the existing social security system played an important role in the policies regarding the support system for large families. It seems, however, important to point out at least two additional important factors driving the restructuring process of the support system for large families.
One of these factors was the antagonistic attitudes to large families in general and to the ultra orthodox religious Jewish group that comprise most of the large families in particular. The other was ideological and political in its nature reflecting the pursuit of current dominant neo-liberal policies of small government and the reduction of public spending .The alignment of negative public attitudes towards large families
and an aggressive ideology committed to reduce public spending, converged together in shaping the welfare discourse which eventually led to the passing of the package of restrictive social policies towards large families.
The policy dilemmas
There is general agreement on the importance of currently pursued activation policies to encourage and help people to enter the labour market and thus reduce their dependency on social security benefits (Carcillo and Grubb, 2006). The policy dilemma is, however, how to achieve the aims of increasing participation in the labour market of benefit recipients, reduce the cost of benefit payments, and at he same time prevent the increase of economic hardship and poverty among them. The dilemma is how to generate positive effects of activation programs without producing possible negative outcomes of increasing poverty and social exclusion among the targeted population groups (Vaughan-Whitehead, 2003).
In evaluating the Israeli experience with regard to the activation policies aiming to encourage parents of large families to enter the employment market one can hardly assume that these basic dilemmas have found a satisfactory solution. The reform of the children’s allowance system to large families implemented since 2002 has received a considerable degree of political support of the majority of the population. What was absent, however, in this political consensus was a sympathetic approach to the predicament of large families suffering from economic hardship and the need to reduce the widespread poverty among them. The reform adopted stressed the need to activate the parents of large families but it did not sufficiently appreciate the contribution of the relatively generous children’s allowances made to reducing the income gaps and disparities between small and large families and the inequalities between various population groups in Israeli society.
Although the reform policies adopted were under the circumstances politically acceptable it is doubtful whether they were also effective in achieving their main goals. It is doubtful whether the strategy of exerting strong financial pressure on large families actually succeeded in forcing them to enter into employment and it is also debatable whether the financial pressures of significantly reduced benefits had an impact on the fertility patterns of the affected population groups.
On the face of it may seem that many parents of large families are able to work and are thus a proper target of work activation policies. In reality, the social, cultural and religious norms guiding the actual behavior and way of life of the majority of these families in Israel continue to form for them very real barriers of bringing them to employment. Although the demands made on them to accept work may seem reasonable, they seem to disregard the particular cultural context of life circumstance of the large families in Israeli society. The need of activation policies to be more sensitive to the cultural aspects and their implications are thus of particular importance in any attempt of bringing particular groups at the margins of the labour market into employment.
In summing up, the reform of the children’s allowance program in Israel and its impact on the well being of large families needs to be seen in the wider context of the trend to curtail spending on social protection programs. The activation policies pursued
in this context also reflect the radical shift to neo-liberal modes of social protection. The effect of this radical shift can be seen in rise in poverty and increase in social exclusion as well as growing inequalities. The case of the reform of the children’s allowances program in Israel exemplify the actual impact of this shift in policy. The broader effect of these policy choices made will be decisive in the forthcoming years in setting the climate of growing insecurity, erosion of social solidarity and decline of social cohesion.
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