Israel’s middle class has enjoyed robust income growth in the two decades up to 2021, and income inequalities have narrowed – a trend that distinguishes Israel from many other advanced OECD economies. The Israeli median equivalised disposable household income grew by almost 45% between 2001 and 2021 after adjusting for inflation – substantially more than in peer OECD countries such as France, Germany and the United States. The Israeli middle class – proxied here as people living in households with disposable incomes between 75% and 200% of the national median – has expanded since the global financial crisis. Still, it remains among the smallest across OECD countries, at 54% of the population versus an OECD average of 62%.
Substantial disparities persist in access to the middle class. Despite the overall growth in the size of Israel’s middle class, the share of young people who reach the middle class has stalled since the early 2000s. There are also substantial ethno-religious disparities in access to the middle class: only 37% of Arab Israelis and 33% of Haredim – the ultra‑orthodox Jewish minority – made it into the middle‑income group in recent years, compared to 63% of the non-Haredi Jewish majority. The middle class is also increasingly out of reach for people without upper-secondary educational qualifications.
Since earnings from work are the main source of income for most families, access to quality employment is a key determinant of people’s chances of making it into the middle class. Yet having a job does not guarantee equal access to the middle class for everyone: only 49% of Haredi Jewish workers and 56% of Arab-Israeli workers belong to the middle‑income group, compared to 66% of workers from the non-Haredi Jewish majority. More broadly, since the mid‑2000s, Israel’s workforce, and middle‑income workers in particular, have benefitted from considerable occupational advancement. The share of middle‑income workers in high-skilled occupations strongly rose, by over 10 percentage points (p.p.) for professional occupations and 6 p.p. for managerial roles, while the share in middle‑ and low-skilled occupations declined. This trend distinguishes Israel from many other OECD countries, which have rather experienced occupational polarisation. Persistent inequalities in occupational distribution and wages by gender and ethno-religious background endure: among middle‑income workers, the share of men in managerial roles is almost three times that of women (11% vs. 4%), and non-Jewish workers remain strongly underrepresented in high-skilled occupations.
An analysis of consumption expenditures provides an important complementary perspective on middle‑class living standards and points to declining inequalities but growing cost pressures on Israeli households. Spending inequalities have slightly narrowed over the last two decades – unlike in most European OECD countries – reflecting declining income inequality. However, housing alone accounts for over one‑third of total consumption expenditure, and its budget share increased by 3 p.p. between 2001 and 2018. Prices for housing and food have risen well above the overall inflation rate, and the overall price level in Israel is the second highest across all OECD countries, after Switzerland. Despite rising expenditures, middle‑income Israeli households have gradually increased their savings rate, as robust income growth has outpaced growth in spending. Yet the combination of high price levels and rising housing costs weighs disproportionately on low-income households and ethno-religious minorities, pointing to persistent gaps in living standards that mirror the inequalities observed in income and employment.