Economic Resilience. Not Poverty.

The current index for assessing poverty based on available income is an ineffective tool of policy. Israel should define its poverty and assess its extent by using a multidimensional index that approximates the economic resilience of each household.

The Government of Israel has recently engaged in a cross-agency effort, led by the Central Bureau of Statistics (CBS), to reach an agreed definition of poverty and to build the tools to assess its extent and characteristics. The purpose is to help design more effective socioeconomic policies.

This effort is long overdue. The definition of poverty and its assessment have been dominated by non-governmental organizations and by the Social Security Agency. Both have a strong incentive to amplify the scope of the problem in order to increase philanthropic and government funding. Dr. Yaacov Shainin discussed this issue in his report presented at the last Hertzliya Conference.

To date, the poverty index used in Israel focuses on disposable income. It is an insufficient index in assessing present or future economic wellbeing or for designing and planning government policy.

For example, the present poverty index would not distinguish between the following two four-person households (two parents and two children) with identical income: in the first, the parents are in their twenties with academic education struggling to start a small business. In the second household, parents are in their forties with elementary education earning their livelihood in the textile sector.

As part of Reut's work on TOP 15 Vision, we have presented an alternative approach to the CBS committee. We called upon it to replace the index, which is based on disposable income, with a multidimensional index that will assess economic resilience of households based on six components: disposable income, additional financial or other assets, level of consumption, health, number of weekly work hours and job security i.e. the prospects of losing a job and finding a new one.

We believe that a new index of such logic will improve the ability of the GOI to design more effective and focused policies. For example, evidently, the first afroementioned younger more educated household would require transitional support to transcend the labor pains of starting up a new business. Also, there is no doubt that their children would be educated to join a modern labor force and provide for their own needs. However, the second older and under-educated household would require significant job training to avoid permanent unemployment and poverty that may be passed down to the next generation.

We look forward to the final report of the committee, expected within a few months. Contrary to common perception, some public committees actually trasform the way government designs, plans, manages or executes policy.

We hope that GOI will not miss this opportunity to upgrade our ability to take care of our poor and to grow our human capital and economy.

Gidi Grinstein is Founder and President of the Reut Institute. The views expressed in this blog are his own and do not necessarily reflect the views of the Reut Institute.

For additional information regarding BloGidi see his original post: A Link in the Chain.