How is Israel's Middle Class Faring?

1. Overview

Abstract

This chapter provides an overview of the main findings from the review on the middle class in Israel, putting the country's experience in comparison with other OECD countries. It synthesizes key results from the three substantive chapters, covering trends in the size and composition of Israel's middle-income group, the labour market situation of middle-income workers, and consumption expenditures and savings patterns of middle-income households.

1.1. Who is middle class in Israel?

People in the middle of the income distribution – the group that this review focusses on when referring to “the middle class” (see Box 1.1) – have enjoyed robust income growth in Israel over the last two decades, and income inequalities have narrowed.1 The Israeli median equivalised disposable household income – i.e. household income after taxes and transfers, adjusted for household size, of the person situated exactly in the middle of the income distribution – grew by almost 45% between 2001 and 2021 after adjusting for inflation, or at an annualised rate of 1.8%. This rate substantially is higher than that experienced in countries such as France (10%), Germany (20%) and the United States (35%). As a result, people in the middle parts of the income distribution have partially caught up with top income earners, while simultaneously pulling away from those at the bottom. The trend of narrowing income inequalities distinguishes Israel from some other advanced OECD economies, such as Germany and the United States, where the gap between top income earners and other parts of the income distribution has widened since the early 2000s. People in the bottom of the income distribution are lagging behind in Israel: they experienced a more significant income decline in the wake of the 2001 economic downturn, and failed to close the resulting income gap in the two decades that followed.

Box 1.1. Defining “middle class”

The middle class is a complex social construct and has no unique definition. Indicators used to define, and study, the middle class vary significantly, within and across disciplines. Some measures and indicators are based on occupation and employment status, relating, for example, to certain aspects of job quality; others are based on social, cultural, or economic criteria, such as income level, educational attainment, as well as values and attitudes; yet other definitions are consumption-based, with households being defined as middle class if they are able to buy a home, afford certain type of cars, or holidays (for a more detailed discussion, see OECD (2019[1]; 2021[2])).

This review follows earlier OECD work, notably the OECD flagship report Under Pressure: The Squeezed Middle Class (OECD, 2019[1]), in using an income‑based definition of the middle class. In other words, it focusses on the middle‑income group as a proxy for the middle class. Indeed, there is a strong rationale for looking at incomes when defining people’s middle‑class status for the purpose of comparative statistical analysis. Income is a key determinant of people’s living standards and of many aspects of their well-being. It permits households to consume goods and services, including housing, education and healthcare, and to build up savings as an insurance against shocks. Income also strongly correlates with other determinants of social class, such as occupation, education, and self‑perceived class. From an analytical point of view, the benefit of employing an income‑based definition of the middle class is that income data are readily available across countries for long periods, unlike information on self-perceived class or other socio‑economic outcomes.

Following the definition used in Under Pressure, Chapters 2 and 3 of this review define the middle‑income group as people living in households with disposable incomes between 75% and 200% of the national median. In 2021, this corresponded to an annual disposable income of around NIS 75 000 to 200 000 (International USD 18 500 to 49 500)1 for a single person, and NIS 150 000 to 400 000 (International USD 37 000 to 99 000) for a couple with two children. Within the middle‑income group, the review further distinguishes the lower middle (75% to 100% of the median), the mid middle (100%‑150%) and the upper middle (150%‑200%). Disposable household incomes are adjusted for household size using the square‑root method to account for within-household sharing of resources. This approach follows the methodology used for inequality and poverty measurement, including in the OECD Income Distribution Database (OECD, 2025[3]). Chapter 4 of this review, which is largely based on tabulations of consumption data provided by the Israel Central Bureau for Statistics and Eurostat, employs a different definition of the middle‑income group, focussing on the three middle quintiles of the income distribution, i.e. households between the 20th and 80th percentile of the income distribution.

1. International US Dollars are a hypothetical currency unit based on purchasing power parity. They represent the same purchasing power in any country as a U.S. Dollar provides in the United States.

1.1.1. The Israeli middle‑income group has expanded since the global financial crisis, but it remains among the smallest across OECD countries

As a result of these income trends, the Israeli middle‑income group has expanded over the last decade or so since the global financial crisis, though it remains smaller than it was in the 1980s and early 1990s. The middle‑income group, defined here as the share of people living on incomes between 75% to 200% of the national equivalised disposable household income, grew from a low of 48% of the population in 2009 to 54% in 2021. Meanwhile, the share of people in the top-income group (over 200% of the median) and that of poor people (below 50% of the median) both declined since 2009, from 15% to 12% and from 20% to 18%, respectively. Despite its recent growth, the Israeli middle‑income group remains among the smallest across OECD countries. Out of the twenty-nine countries for which data are available, only the United States, Chile and Mexico had smaller middle‑income groups than Israel in 2021. Israel also lagged the OECD average by a large margin, at 54% versus 62%.

1.1.2. Young people have not equally benefited from the growing size of the middle class, and people with lower educational attainment and ethno-religious minorities remain underrepresented

As a result of the strong income growth, each successive generation in Israel has enjoyed higher real median incomes than the previous one did at a comparable age. In particular, the generation of Millennials – i.e. people born in the 1980s and early 1990s – benefited from somewhat steeper income trajectories than earlier generations – unlike in many OECD countries. Nonetheless, young people in Israel saw their income position deteriorate relative to other age groups: despite the overall growth in the size of Israel’s middle‑income group, the share of 18‑29 year‑olds who reach this group has stalled since the early 2000s, while the share of young people in the low-income group has risen. Demographic change helps explain this shift: older age groups, who have higher incomes on average, now make up a larger share of the population, pushing up the median income, and making it harder for young people to access the middle‑income group. Families with children and seniors experienced an improvement in their relative income position, though both groups remain overrepresented in the low-income group.

People with lower educational attainment and ethno-religious minorities have also been struggling to reach the middle‑income group. While in the early 2000s, around one‑in-three people in the middle‑income group held a tertiary degree, the share had risen to one-in-two 20 years later. This increase reflects the expansion of tertiary education in Israel, as well as a shift in the Israeli labour market away from manufacturing into high-skilled service‑oriented activities. In this context, people with low education increasingly struggle to leave the low-income group. This applies particularly for young people, with two‑in‑three of those without a high school diploma falling into the low-income group. There are also substantial ethno-religious disparities in the access to the middle‑income group in Israel. People from ethno-religious minorities, notably Arab-Israeli and Haredi (ultra‑orthodox Jewish) people, remain strongly underrepresented in the middle‑income group relative to the non-Haredi Jewish majority, even if their situation has improved. In recent years, only 37% and 33% of Arab Israelis and Haredim made it to the middle‑income group, compared to 63% of the non-Haredi Jewish majority. The share of people from ethno-religious minorities who make it into the high-income group is practically negligible.

Various factors can explain why among ethno-religious minorities a much smaller share of people reach the middle‑income group: educational outcomes in Israel remain closely tied to ethno‑religious background, with Arab‑Israeli pupils performing substantially less well on the national Meitzav exams in primary and lower‑secondary education and lagging their Jewish peers in high‑school graduation rates, by around 10 percentage points (p.p.). These educational disadvantages translate into a weaker school-to-work transition, with the share of Arab‑Israeli youth not in employment, education or training (NEET) being twice as high as for non-Haredi Jewish youth (35% vs. 15%). Arab Israelis – and among them particularly women and young people – also exhibit substantially lower employment rates. Most Haredim obtain a tertiary degree, however their education often takes the form of religious studies, which offer limited relevant and transferable labour market skills. Living arrangements and demographics also differ between ethno-religious groups, with both Arab Israelis and Haredim living, on average, in larger households with a greater number of children.

1.2. Middle‑class workers in Israel: trends in occupations and wages, sectoral shifts and persistent inequalities

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. Among working-age people in the three middle quintiles of the income distribution – both women and men – around three‑in‑four were employed, compared to around one‑in-three in the bottom income quintile. Put differently, households in which one or more working-age members do not participate in the labour market often struggle to earn sufficient income to reach the middle‑income group. However, navigating a transforming labour market has become challenging for many workers, as megatrends such as digitalisation and demographic change are changing the skills workers need to remain competitive.

1.2.1. Not for all groups does having a job provide equal access to the middle class

While people in employment were overrepresented in both the middle‑ and the high-income group relative to the overall population, having a job does not provide equal access to these groups for everyone. Substantial disparities in the access to the middle‑ income group exist again among different ethno‑religious groups in Israel. Only 49% of Haredi Jewish workers and 56% of Arab-Israeli workers belong to the middle‑income group, compared to 66% of non-Haredi Jewish workers; very few workers from these two minorities reach the high-income group. These gaps reflect the overrepresentation of non‑Jewish workers in low-paying occupations and the greater prevalence of single‑earner households among ethno‑religious minorities. By contrast, immigrant workers were more likely than native workers to make it into the middle‑income group in Israel (70% versus 63%), partly a reflection of the strong skill base of Israel’s immigrant workforce, in particular among those who arrived from the former Soviet Union in the 1990s and early 2000s. Young workers (aged 25‑34 years) are equally likely to be part of the middle‑income group as prime‑age and older workers, but they are overrepresented in the low-income group, mostly due to life cycle effects.

1.2.2. Israel has experienced strong growth in high-skilled employment, and a comparatively large share of middle‑income workers works in high- and middle‑skilled occupations

The large majority of middle‑income workers in Israel are employed in high- and middle‑skilled occupations. High-skilled professionals, including IT professionals, scientists, engineers and teachers, were the largest occupational group, accounting for nearly 33% of all middle‑income workers. A further 17% of middle‑income workers were employed as high-skilled technicians and associate professionals, in roles such as business administration officers, nurses and social and community workers. Middle‑skilled crafts and trades workers, clerks, and plant and machine operators accounted for one‑fifth of middle‑income workers. Still, a significant share of middle‑income workers are employed in low-skilled occupations, with 17% working in service and sales jobs, and another 4% in elementary occupations. Given the generally low wages paid in these occupations, workers in these jobs who make it into the middle‑income group usually do so by living with a higher-earning partner, or though other sources of income.

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 p.p. for professional occupations and 6 p.p. for managerial roles; the share in middle‑skilled occupations substantially declined, by nearly 6 p.p. for clerks and 5 p.p. for machine operators; and the share in low-skilled occupations also declined modestly, by nearly two p.p. each in sales and service and elementary occupations. This trends of occupational advancement is by no means standard across OECD countries, with many countries rather having experienced occupational polarisation in recent decades, i.e. employment growth in both high- and low-skilled occupations at the expense of middle‑skilled employment. Overall, middle‑income workers in Israel are more frequently employed in high-skilled occupations than their counterparts across the OECD (59% vs. 48%), while a comparatively low share of them hold middle‑skilled (20% vs. 28%) or low‑skilled jobs (21% vs. 24%).

1.2.3. Female workers have experienced similar occupational advancement as male workers, but continue to have lower access to managerial roles

These aggregate patterns mask persistent inequalities across different groups of middle‑income workers, notably between women and men. The occupational distribution is more polarised for female middle‑income workers than for their male counterparts: female middle‑income workers are substantially more likely than men to be employed in low‑skilled sales and services roles (20% vs. 14%), but a greater share of them also worked in high-skilled professional occupations (38% vs. 28%) and as high-skilled technicians or associate professionals (20% vs. 14%). This pattern may be partly explained by Israel’s substantial gender gap in tertiary education attainment, which favours women over men, especially among younger generations. By contrast, women continue to face a glass ceiling when it comes to access to managerial roles with the shares of male vs. female middle‑income workers differing by almost a factor of three (11% vs. 4%). Since the early 2000s, female and male middle‑income workers have experienced comparable expansions in high-skilled and declines in middle‑ and low-skilled employment.

1.2.4. Non-Jewish workers struggle to move up the occupational ladder

Occupational divides are very strong also between middle‑income workers living in Jewish vs. Arab‑Israeli households. Jewish workers are more likely than Arab‑Israeli workers to occupy high-skilled managerial positions (7% vs. 4%), as well technician and associate professional roles (18% vs. 8%); meanwhile, Arab‑Israeli workers are around twice as likely to be employed in low-skilled elementary occupations (9% vs. 4%), and middle‑skilled plant and machine operators (10% vs. 6%) and craft and trades worker roles (15% vs. 8%). Overall, the occupational distribution of Arab-Israeli middle‑income workers resembles more that of low-income workers than that of Jewish middle‑income workers. While the available data on the incomes and labour market outcomes of specific ethno-religious groups do not extend far back in time, non-Jewish workers – 81% of whom are Arab Israeli – appear not to have benefitted from the same type of occupational advancement observed across workers at large.

1.2.5. Middle‑income workers have shifted out of manufacturing and into public services

Public services have become the cornerstone of employment in Israel even as middle‑income jobs remain broadly diversified across sectors. Over one‑in-three middle‑income workers are employed in public services, including as civil servants and workers in healthcare and education, whether in the public or in the private sector. Outside of public services, middle‑income workers are strongly represented in retail and hospitality, real estate and manufacturing, with shares of around 13%‑14% each. As most OECD countries, Israel has seen a relative decline in manufacturing employment, a trend that affected workers across all income groups to similar extents. Among middle‑income workers, several sectors have expanded their employment shares, including transport, storage and communications, public services, and real estate and other business activities.

1.2.6. Wages have risen for middle‑income workers, while the skill premium has shrunk

Middle‑income workers have benefitted from robust wage growth over the last two decades, with their real wage growth (+43%) since 2003 nearly matching that of high-income workers (+46%) and surpassing that of low‑income workers (+37%). These trends mirror the corresponding trends in disposable household incomes (see Section 0). The substantial rise in the skill level of the Israeli workforce was associated with a decline in wage disparities across skill levels, i.e. advancing on the occupational ladder pays off less than it did in the past. While in the mid‑2000s, professionals on average enjoyed wages that were around 60% higher than the median wage, this gap has fallen to just over 40% in recent years. This trend partly reflects broad occupational advancement: as a larger share of workers moved into high-skilled roles, median wages have mechanically caught up with those of high-skilled occupations. However, gaps in hourly wages have also narrowed relative to low-skilled elementary occupations. Other high‑income countries have experienced a similar decline in the skill premia since the global financial crisis, reversing three decades of widening wage disparities across occupations. In Israel, the expansion of tertiary education may have contributed to the decline, and Israel is among the OECD countries with a higher share of over-qualified workers. Still, holding a high-skilled job yields greater relative earnings in Israel than in most OECD countries. Among high‑income countries where recent data are available, Israel recorded the highest hourly wage gap between workers employed in professional occupations and the median worker, at 42%. This is broadly in line with other advanced OECD economies such as Ireland, Germany, and the United States, but significantly higher than in most other European countries. The relatively high skill wage premium in Israel overall again coincides with persistent inequalities between women and men, as well as between Arab Israelis and Jews, gaps which are especially large for high-skilled workers.

1.3. Consumption expenditures and savings patterns of the middle class in Israel

An alternative to the income‑based (or “resource‑based”) approach to measuring the economic well-being of the middle class can be to look at consumption-related indicators, i.e. to take a “standard-of-living” approach. While the two approaches can to some extent be considered two sides of the same coin, they can provide different perspectives of households’ short-term vs. long-term economic well‑being. Following the lifecycle hypothesis, individuals and households will attempt to smooth fluctuations in incomes to achieve a stable consumption path over their lives. While income‑based measures may reflect transitory changes in economic well-being, consumption-based measures can be more representative of long-term economic well-being. Analysis of household consumption and savings patterns can also help identify trends in what may be considered a “typical” middle‑class lifestyle, i.e. access to certain types of goods and services, such as homeownership, the ability to purchase consumer durables of a certain quality, and access to quality education and healthcare.

1.3.1. Consumption inequalities in Israel are relatively modest in international comparison and have declined over the last two decades

Inequalities in consumption expenditure are relatively modest in Israel compared to most OECD countries, with households in the middle parts of the income distribution accounting for a relatively large share of total consumption expenditure. The three middle‑income quintiles (Q2, Q3 and Q4), which in this part of the analysis are used as the proxy for the middle class (see Box 1.1), accounted for 57% of total consumption expenditure in 2015 – a little more than the average across European OECD countries (56%).2 Households in the top quintile (Q5) accounted for one‑third (33%) of total consumption, slightly less than on average across European OECD countries. Overall, inequalities in consumption shares across households are smaller than the corresponding inequalities in income shares.

Consumption inequalities have slightly narrowed in Israel over the last two decades, unlike in most European OECD countries with available data. Indeed, real growth in consumption expenditures since 2001 was twice as high for middle‑income households (+14%) than for high-income households (+7%), and highest for low-income households (+24%). As a result, the share of total consumption expenditure going to the low-income group (Q1) and – to a lesser extent – the middle‑income group (Q2, Q3 and Q4) increased, while the consumption share of the high-income group (Q5) declined. The decrease in consumption inequality in Israel coincides with a slight decline in income inequality over the last two decades (see Section 0). It contrasts with the trends observed in most European OECD countries, where consumption inequalities widened and where the middle‑class consumption shared decreased. The COVID‑19 crisis led to a steep drop in consumption spending in 2020, as discretionary travel and leisure activities were heavily restricted, a pattern that was somewhat more pronounced for high-income households.

1.3.2. Households in Israel spend a growing share of their budget on core necessities, notably housing and food, while spending on leisure has plummeted

Israeli households, as households in other OECD countries, allocate most of their consumption budget to core necessities, and spending on housing, food, healthcare and education account for a growing share of overall consumption expenditures in Israel. In particular, the expenditure share dedicated to housing increased between 2001 and 2018, by 3 p.p.; meanwhile, the budget share dedicated to leisure declined by 3 p.p. Nonetheless, spending on core necessities in Israel remains broadly in line with that in other OECD countries: housing, as the largest expense, makes up over one‑third (36%) of total consumption expenditure, compared to 35% on average in European OECD countries;3 food accounts for another 14% (16% on average in European OECD countries).

The shift in household consumption expenditures towards core necessities, and away from leisure, reflects increases in relative prices. Indeed, the prices for housing and food have risen well above the overall inflation rate over the last two decades, and also the prices of healthcare and education increased above overall inflation. These price increases remain relatively moderate in international comparison, but the overall price level in Israel is the second highest across all OECD countries, after Switzerland. According to the recent OECD Economic Survey of Israel (OECD, 2025[4]), different structural factors contribute to these high prices, including geopolitical and economic uncertainties, limited trade and supply chain integration with neighbouring countries, and the low housing supply because of administrative red tape and planning obstacles.

1.3.3. The savings rate has risen for most households in Israel, but low‑income households and ethno-religious minorities struggle to make ends meet

Despite rising expenditures, Israeli households have gradually increased their savings rate over the last two decades as income growth outpaced growth in spending. The rise in the savings rate was particularly pronounced among middle‑income households, while it was weakest for households in the bottom of the income distribution. This likely reflects the slower real income growth for low-income households, as well as their greater exposure to rising prices for core necessities, which make up a large share of their budget. Consumption data suggest that households in the bottom quintile of the income distribution spend around 40% more than their monetary income, though part of this gap may be filled through income from informal economic activity and through in-kind social transfers.4

Savings rate differentials across the income distribution have a strong ethno-religious dimension in Israel, reflecting the large disparities in employment outcomes and incomes between different population groups. Both the Arab-Israeli and the Haredi Jewish minority are heavily overrepresented in the lower parts of the income distribution, with 48% and 42% of people falling into the lowest income quintile, compared to just 12% of Non‑Haredi Jews. Consequently, their savings rates are much lower than for the Non-Haredi Jewish majority. Accounting for these income differences substantially narrows disparities in savings rates between the Arab Israeli and the Non-Haredi Jewish population, though particularly in the lower parts of the income distribution Arab Israelis tend to save less. A strongly negative average savings rate for Arab Israelis overall suggests that many struggle to make ends meet, let alone to build up wealth.

References

[4] OECD (2025), OECD Economic Surveys: Israel 2025, OECD Publishing, Paris, https://doi.org/10.1787/d6dd02bc-en.

[3] OECD (2025), OECD Income Distribution Database, https://data-explorer.oecd.org/s/3ry.

[2] OECD (2021), Is the German Middle Class Crumbling? Risks and Opportunities, OECD Publishing, Paris, https://doi.org/10.1787/845208d7-en.

[1] OECD (2019), Under Pressure: The Squeezed Middle Class, OECD Publishing, Paris, https://doi.org/10.1787/689afed1-en.

Notes

← 1.  Work on this review began prior to the terrorist attacks of 7 October 2023. The analysis presented covers data and developments before that date.

The statistical data for Israel are supplied by and under the responsibility of the relevant Israeli authorities. The use of such data by the OECD is without prejudice to the status of the Golan Heights, East Jerusalem and Israeli settlements in the West Bank under the terms of international law.

← 2.  Cross-country comparisons of consumption expenditure patterns in this review focus on the year 2015, because the results of the more recent 2020 wave of Eurostat’s Household Budget Survey were distorted by the COVID‑19 crisis.

← 3.  These values include imputed rent, i.e. the value that homeowners derive from living in their own dwelling.

← 4.  These numbers do not imply that the same households systematically spend more than the income they earn. The composition of the low-income group changes from one year to the next, as some households drop into the low-income group, e.g. as a result of job loss or changes in household composition, while others rise out of the low-income group into the middle, e.g. because they take up work or change jobs.