Birth preferences in Israel and their effect on poverty indices and welfare levels

In this study, we examine the question of how birth preferences (i.e., decisions regarding family size and timing of having children) in the Haredi sector and in Arab society affect the conventional welfare measures within these sub‑populations in particular, and in the Israeli population in general. Raising this question does not constitute a value judgment regarding the appropriate number of children per family. On the contrary, we believe that the government should respect the freedom of the individuals and the choices of the families. Families are generally in the best position to know what is best for them, including how many children they should bring into the world. But because the poverty indices in Israel are higher than in other developed countries, and because the government has a stated goal of reducing poverty rates, it is important to identify the factors that lead to the high poverty indices, including the birth preferences of sectors in Israeli society, and to appraise their relative weight. For example, if the main reason for the high poverty indices are birth preferences, their significance for the welfare of the population and for the desirable social and economic policies of the government is entirely different than if the main reasons are poor functioning of the education system, failures in the labor market, or an inadequate welfare system.

The average number of children under the age of 18 living with their parents in Haredi families is 2.4, in Arab families 1.3, and in other families 0.7. A key examination conducted by the study was how poverty rates in Israel as a whole, and in Haredi and Arab communities in particular, would change if the birth preferences of the first two groups were similar to those of the rest of the population in Israel. The results of the examination show that such a change would lead to a decline in the incidence of poverty of households and individuals, both in the Israeli population as a whole, and in each of the two groups, the Haredi and the Arab – and that despite a simultaneous rise of the poverty line itself. The decline in the poverty rate of children is particularly pronounced. Our examination also shows that whereas the birth preferences of the Haredi populace constitute a significant factor affecting the incidence of poverty in the entire population, and within the Haredi sector in particular, birth preferences in Arab society have a more moderate effect on the indices of poverty and inequality.

Simulation: Change in the incidence of poverty in various populations as a result of a decline in births in the Arab and Haredi populations, assuming that there is no change in the labor supply for the children’s parents*

With a decline in births, a significant convergence is manifest also in the international comparison of poverty rates, especially of children. The gap between poverty rates in Israel and the OECD average decreases, depending on the particular simulation, by 14%-24% for individuals, and by about 42%-53% for children.

Additionally, the decline in the number of children leads to a decrease in the Gini coefficient of inequality in disposable income in Israel, so that in the ranking of the OECD countries based on this index, Israel moves from 9th to 13th or 18th place, depending on the particular simulation, very close to the median of OECD countries.

How should one interpret the implications of the choice by a family in bringing another child into the world for the welfare (or general well-being) of the household? “Welfare” is a broad and multi-dimensional concept. The addition of each child to the family causes a decline in the family’s material standard of living, and therefore harms its welfare. But families can choose to have fewer children, and therefore it appears (given their revealed preferences) that the choice of a large number of children reflects an increase in their welfare. In other words, a family may change from a situation where it is not poor to one in which it is poor, and at the same time increase its level of welfare. Therefore, high rates of poverty and inequality resulting from the families’ choices to have many children at the expense of their material standard of living necessarily reflect a distorted picture of inequality in welfare.

Social and economic policy today generally ignores the broader meaning of welfare, according to which it must be determined whether it is right to subsidize certain population groups at the expense of others. The use of simple and clear indicators, such as the incidence of poverty, assists in comparisons of disposable or economic income and of consumption, but does not allow for a comparison between the levels of welfare of different individuals or families. To compensate for this, it is essential to begin by understanding which factors affect welfare, either directly, or indirectly through these indicators. In the second stage, the total effect of these factors on welfare must be quantified to the extent possible, to formulate an appropriate policy guideline. This task is far more complex than the measurement of poverty rates or the calculation of Gini coefficients. The distinction made here, between the material standard of living and the level of welfare (or overall well-being) of the family (which includes many other variables, such as the size of the family) has great significance in understanding social disparities and in determining government policy.

Finally, note that the simulations presented in this study examine only short-term effects. It is likely that the effects on long-term poverty rates (inter-generational effects) are even stronger, as a decline in births is expected to increase the ability of the family to invest in the human capital of each child.