POOR WORKERS OR WORKING POOR?

Osnat Peled () and Ella Shachar ()
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Osnat Peled: Bank of Israel
Ella Shachar: Bank of Israel

Israel Economic Review, 2021, vol. 19, issue 1, 59-102

Abstract: Over the past two decades, policy designed to reduce poverty has focused on various means of promoting employment. However, along with a significant increase in employment rates, an increased incidence of poverty has also been seen. The increased incidence of poverty was particularly evident among households that include persons who work. The current research aims to identify the reasons for the increased incidence of poverty among households that include workers (hereinafter, "in-work poverty"). In particular, the research aims to answer the question: to what extent is the increased incidence of in-work poverty a reflection of a deterioration in the (relative or absolute) position of workers, and to what extent is it a reflection of change in the composition of employment in terms of workers’ earning capacity? Using a unique data panel allows us to monitor the employment status of individuals and households and their income from wages. The findings show that the increase in in-work poverty was probably due to a combination of these two forces: Some deterioration in the status of persistent workers (those who are employed now and were continuously employed previously as well), along with the increased entry of nonworking poor into the labor market. Wages of heads of households, who worked at the beginning and end of the period, increased at a similar or faster pace than that of the poverty line, as did the aggregate household income from wages. This means that developments in the labor market per se did not push existing persistent workers into poverty. However, households with income around the poverty line had to extend their labor supply to compensate for the decrease in allowances. Furthermore, in half of the vulnerable households—those who managed to stay above the poverty line only due to allowances, wage income decreased over the

Date: 2021
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