Components of Economic Resilience

Economic Resilience is comprised of six pillars. By evaluating all of these variables together, the Government will be able to better define poverty and design ways to alleviate it.

In a previous post, I discussed the importance of defining poverty as a lack of Economic Resilience rather than being based solely on disposable income. In this post, I want to expand on the idea of Economic Resilience and its importance for creating a healthy and stable workforce and economy.

'Economic Resilience' is an individual's ability to utilize the resources at his disposal to achieve three main things that will improve his economic situation - to live in comfort, improve his wellbeing, and to cope with unexpected changes in his personal, family, or employment situation.

Through the work of our Top 15 team at Reut, we have come to understand Economic Resilience as being comprised of six pillars - Disposable Income, Asset Depth, Consumption, Employment Security, Health and amount of Free Time. Weakness in any one of the components doesn't necessarily mean low Economic Resilience. However an individual's and household's Economic Resilience would deteriorate as a result of weakness in a combination of these six pillars.

The six components of Economic Resilience are:

  • Disposable Income: This component examines the individual's ability to guarantee standard of living, investment, and savings.

  • Asset Depth: This component refers to a household's present and future net-worth, including savings, real estate, pension accounts, and debt.

  • Consumption: This component allows measuring how severe poverty might be as well as reflecting the continuing standard of a person's living despite fluctuations. If the standard of living is higher than income, it may suggest potential future income or the existence of other sources of income.

  • Job security: This component refers to a person's ability to be continuously employed. This ability is a major pillar of an individual's Economic Resilience. This component refers to the likelihood of finding employment based on the demand for the household's skills in the labor market, their level of education, work experience, and knowledge of Hebrew or foreign languages. It would also include the likelihood of losing one's job and could be based on labor law and agreements within the specific industry that employs members of the household.

  • Health: A household whose members are healthy will have a higher economic resilience than a household whose members are unwell. Among the important variables worth considering are: total health costs, age, and chronic ailments.

  • Free time / Work Hours: This component refers to the amount of time the individual can dedidate to needs other than earning income. This component is indicative of the ability to nurture human and social capital and to cope with unexpected difficulties.

    The Reut Institute suggets that by evaluating all of these variables together, the Government will be able to better define poverty and design ways to alleviate it.

    It is also possible to think of other variables. However, as I wrote in my previous post, it is economic reslilience and not simply disposable income that constitutes the index for designing governmental policy towards the poor.