Israel’s Middle Class Grows Stronger but Faces Inequality and Rising Living Costs

Israel’s middle class has grown with strong income gains and better jobs, but remains smaller than in most OECD countries and deeply unequal across age, education, and communities. Rising living costs, especially housing and food, are putting increasing pressure on households and threatening long-term stability.

Israel's middle class has expanded over the past two decades, but not quite in the way many might expect. A new OECD analysis, conducted with Israeli institutions such as the Ministry of Welfare and Social Affairs, the Ministry of Finance, and the Central Bureau of Statistics, shows that while incomes have risen strongly, the middle class still remains smaller than in most developed countries.

Between 2001 and 2021, middle-income households saw their earnings rise sharply, with median incomes increasing by nearly 45 percent after adjusting for inflation. This is a stronger performance than in many OECD economies, where middle-class growth has often stalled. Yet despite these gains, only about half of Israel's population falls into the middle-income group, below the OECD average.

Young People and Education: A Growing Divide

Not everyone has benefited equally from this growth. Young people, in particular, are finding it harder to reach the middle class. Even though they earn more than previous generations in absolute terms, their relative position has weakened. Rising income thresholds and demographic changes have made it more difficult to climb into the middle-income bracket.

Education has become a key dividing line. As Israel's economy shifts toward high-skilled jobs, those without higher education are increasingly left behind. Many young people without strong educational qualifications remain stuck in low-income positions, highlighting how crucial skills and education have become in today's job market.

Deep Gaps Across Communities

One of the most striking findings is the gap between different population groups. Arab-Israeli and Haredi (ultra-Orthodox Jewish) communities are far less likely to be part of the middle class. Only about one-third of people in these groups reach middle-income status, compared with a much larger share among non-Haredi Jews.

These differences are linked to several factors, including lower employment rates, education gaps, and larger family sizes. For many households in these communities, income must be shared among more family members, making it harder to reach middle-class levels. These structural challenges continue to limit upward mobility and widen inequality.

Better Jobs, But Not for Everyone

Israel's labour market has improved in important ways. More workers are moving into high-skilled jobs, especially in sectors like technology, healthcare, and education. This is a positive shift and sets Israel apart from many other OECD countries, where middle-level jobs have declined without enough high-skilled replacements.

However, this progress is uneven. Women, despite high levels of education, are still underrepresented in top management roles. Similarly, Arab-Israeli workers are less likely to enter high-skilled professions and often remain in lower-paying jobs. Wage gaps also persist, especially in high-paying occupations, where differences between groups are the largest.

At the same time, employment has shifted away from manufacturing toward services, particularly public services like education and healthcare. These sectors now play a major role in supporting middle-income jobs.

Rising Costs Are Putting Pressure on Households

Even as incomes have grown, the cost of living has become a major concern. Israeli households are spending more on basic needs, especially housing and food. Housing alone takes up more than one-third of household budgets, and prices have risen faster than overall inflation. Food costs have also increased significantly.

For middle- and high-income households, rising incomes have helped offset these costs, allowing many to continue saving. But for low-income families, the situation is much tougher. Many struggle to cover daily expenses and may even spend more than they earn.

This pressure is felt most strongly among already disadvantaged groups, deepening existing inequalities.

A Strong but Uneven Middle Class

Overall, Israel's middle class is stronger than before, supported by solid income growth and a shift toward higher-skilled jobs. But it is also uneven and under pressure. Access to the middle class depends heavily on education, background, and employment opportunities, while rising living costs are making it harder for many to maintain a stable standard of living.

The challenge ahead is clear: ensuring that growth is not just strong, but also inclusive. Without addressing inequality and cost pressures, the gains made by Israel's middle class may prove difficult to sustain.