Civil Fights: Subsidizing the demographic war

The coalition negotiations are currently stalled over child allotments: Shas wants an NIS 1 billion increase, while Kadima considers this too much. Yet if Kadima’s vaunted concern over the demographic threat were genuine, it should not be arguing over the size of the increase. Instead, it should be arguing over how it is distributed.

Shas wants to restore the system in place from 2000-2003, when the per-child allowance was NIS 171 for the first and second children, NIS 343 for the third, NIS 694 for the fourth and NIS 856 from the fifth onward. This structure primarily benefited haredim and Muslims, the only communities where large families are the norm. And it had two adverse effects.

First, because a family with six children received NIS 3,091 a month in child allotments – roughly equal to the minimum wage at that time – shunning work became financially feasible. Unsurprisingly, therefore, workforce participation rates among haredim and Muslims were more than 25 percentage points lower than among the rest of the population.

Second, the low allotments for earlier children offered no financial incentive for having, say, two children rather than one, but the high allotments for later children did provide an incentive for having, say, seven children instead of six. Thus this structure encouraged demographic growth among non-Zionist haredim and Muslims, while discouraging it among the Zionist majority.

IN 2003, the government slashed all the allotments, intending eventually to equalize them at NIS 144 per child (though this never happened). The cuts had two main goals: saving money and encouraging haredim and Arabs to work. But no serious thought was given to using the allotments to influence demographics, as the popular wisdom held that allotments did not affect birthrates.

Since then, however, hard evidence has refuted this popular wisdom. In the two years following the cuts, the Muslim fertility rate plunged from 4.5 to four children per woman, then leveled off (it was 3.9 in 2007). Among the Beduin, the rate fell even faster, from nine children per woman in 2003 to 7.6 in 2005. Fertility rates also plummeted in haredi towns (the only available indicator, as the Central Bureau of Statistics does not report the overall haredi birthrate): In Betar Illit, for instance, it dropped from 8.9 children per woman in 2001 to 7.7 in 2006, while in Modi’in Illit, it fell from nine to eight during this period.

Moreover, a new study published last year by the US-based National Bureau of Economic Research on how child allotments affected Israeli birthrates between 1999 (just before the massive increase in 2000) and 2005, found that not only did cutting allotments lower birthrates, but increasing them raised birthrates.

UNSURPRISINGLY, THIS was primarily true for poor families: Among wealthy families, for whom child allotments constitute a minor share of total income, the effect was negligible. Fluctuating allotments therefore had the greatest impact on haredim and Muslims, the country’s two poorest sectors. Nevertheless, the impact was also significant among non-haredi Jews. Hence if properly targeted, higher child allotments could substantially improve Israel’s demographic balance.

The overall Jewish fertility rate was 2.8 children per woman in 2007, meaning that 65 percent of Jewish families have only one or two children. Thus providing financial incentives for families with one or two children to have a second or third could significantly increase the Jewish birthrate. Shas’ system, however, encourages parents with four or more children to have another child. And since only 15% of Jewish families fall into this category, its impact on the Jewish birthrate would be marginal.

In contrast, 39% of Arab families have four or more children, while only 38% have one or two. Thus structuring the allotments to encourage parents with one or two children to have another would increase the Jewish birthrate far more than the Arab one – whereas Shas’ formula, by encouraging families with four or more children to have another, would increase the Arab birthrate far more than the Jewish one.

Clearly, financial incentives would only persuade couples to have another child if they wanted one. But a major survey commissioned by the Jewish Agency in 2005 found that the average secular Jewish couple would like three children, while the average traditional couple would like three or four (religious couples wanted larger families). Thus in this case, higher allotments probably would produce higher Jewish birthrates.

IS IT acceptable to structure child allotments to influence the demographic balance? For anyone who wants this to remain a Jewish state, the answer must be yes. In 2007, Jews constituted 76% of the population – down from 80% in 1997, 82% in 1987, 84% in 1977, 86% in 1967 and 89% in 1957. In other words, despite massive Jewish immigration, the Jewish majority is being steadily eroded by the higher Arab birthrate. And that trend is liable to continue unless the Jewish birthrate is increased.

But what of Shas’ claim that higher per-child allotments for large families are necessary to reduce poverty? That, it turns out, is simply false. According to the Bank of Israel’s latest annual report, the haredi poverty rate averaged 52% in 2001-3, when Shas’ formula was in effect, compared to only 44% in 1997-2000. In other words, by encouraging higher birthrates and lower workforce participation, the higher allotments actually increased haredi poverty. Moreover, after initially rising when the allotments were slashed, the haredi poverty rate fell from 64% in 2005 to 59% in 2006/7, as haredim began adjusting by having fewer children and getting jobs.

DEMOGRAPHICS ARE ostensibly Kadima’s raison d’etre: Unlike parties to its left, which advocate leaving the territories to achieve peace, Kadima advocates doing so to secure Israel’s Jewish majority. But quitting the territories would do nothing to solve the demographic problem inside Israel. Thus Kadima ought to be the first to insist on restructuring child allotments to address this problem.

Instead, it has reportedly accepted Shas’s formula for distributing the money; it is merely haggling over the amount. And it has thereby opted to worsen the demographic balance rather than improve it.