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13.03.12
 
Excerpt from the Bank of Israel Annual Report which will be published at the end of the month:
The middle class in Israel
 
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  The middle class, according to the relative definition, included a quarter of households in 2010/11. The upper middle class included an additional quarter.
  More than 90 percent of those counted as middle class and upper middle class are non-ultra-Orthodox Jews. Half of them are couples with children.
  In most households belonging to the middle class there are two earners. The labor input of households belonging to those classes has increased markedly since 1997.
  Average income for a middle class household increased 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.
The continuing widening of the economic and social gaps in Israel, together with a period of political and economic change around the world, have generated an overwhelming sense of dissatisfaction with the quality of life of the core of Israel's society and economy, the middle class; those of whom it is generally said that they bear most of the burden—social, economic, and security—but are concerned that their standard of living and the quality of services that they receive from the government are declining.
A. Who belongs to the middle class?
Identifying the middle class has engendered widespread research literature in Israel and around the world, both in economics and in other social sciences, primarily sociology. The figures brought below are based on the relative definition, under which the middle class includes the portion of the population whose income is between 75–125 percent of the median income and the upper middle class includes the portion of the population whose income ranges from 125–200 percent of the median income. The use of income level as the sole parameter for establishing socioeconomic class affiliation is intended to simplify the calculations and analysis; the use of the relative definition allows us to refer to changes in income distribution which are not reflected in the income of the various quintiles, for example, when the income distribution becomes more concentrated around the median.
Figure 1 presents the distribution of the population into classes based on net income. It can be seen that the share of the middle and upper middle class among the overall population has decreased since 1997, primarily due to an increase in the proportion of the lower class. This is similar to developments in other developed countries.
 

 
Characterization of the middle and upper middle classes from a demographic aspect shows that the vast majority of those who comprise them are non-ultra-Orthodox Jews (who make up 90 percent of the middle class, and more than 95 percent of the upper middle class); about half of the people in those classes live in households comprised of a couple and children, and an additional quarter in households comprised of a couple without children. Among the households with children, the majority are households with one or two children. Only in about two percent of middle class households are there five or more children, and in the upper middle class the number of such households is nearly zero. The composition of ages of heads of households has changed in the past two decades, so that the average age in the two middle classes has increased. With that, the share of those aged 65 and older declined among the middle class, and increased among the upper middle class.
 
 


 
B. Employment characteristics of the middle class
In more than 40 percent of middle class households and in more than half of upper middle class households there are two full time earners. In most of the other households there is at least one full time earner or a self-employed head of household. The share of households with no earners or those in which the earners work part time is very low, at less than 10 percent. The labor input of middle class and upper middle class households increased markedly since 1997.
 


 
C. Expenses and prices of goods and services
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.