Israel’s Labor Market Shows Deep Structural Flaw as Self-Employment Fuels Rising Poverty

A new economic report exposed a growing structural imbalance in Israel’s labor market, revealing that self-employment, once seen as a path to financial independence, is increasingly driving families into poverty rather than protecting them from it.

According to the report issued by the Histadrut (General Federation of Labor) and cited by Yedioth Ahronoth, households that rely on self-employment as their primary source of income face significantly higher poverty risks than those supported by salaried employment.

The findings show that child poverty rates among families headed by self-employed workers are 10.5 percentage points higher than those in households led by wage earners. The report warns that the deeper a family’s dependence on freelance or independent work, the greater its likelihood of falling below the poverty line, raising serious questions about Israel’s social safety net and the future of hundreds of thousands of households.

The data paint a troubling picture of economic resilience within the sector. More than one-quarter of households headed by self-employed workers (26.6%) were living below the poverty line in 2024, marking a deterioration in living standards compared with previous years.

Poverty among these households rose by 0.9 percentage points in just one year, from 25.7% in 2023 to 26.6% in 2024. By contrast, the poverty rate among families headed by salaried employees stood at 22.9%, underscoring a persistent and widening gap.

The report highlights that when a self-employed worker is the main breadwinner, the risk of poverty increases by five to six percentage points compared with households where freelance income is not the primary source of earnings.

While overall poverty levels remain high, some indicators showed marginal improvement. The depth of poverty among self-employed households declined slightly from 35.9% to 35.6%, while the severity of poverty eased from 18.3% to 17.9%. Nonetheless, the report stresses that these gains are limited and do little to offset the broader deterioration.

The most alarming figures relate to children. Child poverty among self-employed households reached 34.1%, compared with 23.6% among children in salaried households, a stark disparity that analysts say could have long-term social and economic consequences.

Government transfer payments and grants were found to be significantly less effective in reducing poverty among self-employed families, cutting poverty levels by only around 30%, compared with nearly 36% for wage-earning households. This gap suggests that Israel’s welfare mechanisms provide weaker protection for independent workers.

The report notes that self-employed individuals living below the poverty line are typically owners of very small businesses or solo freelancers, often concentrated in economically vulnerable sectors such as hospitality and food services, arts and entertainment, and education and training.

Commenting on the findings, Rami Beja, head of the Histadrut’s Forum for the Self-Employed, described the situation as “a bleak and painful reality that cannot be ignored.”

“A country in which those who drive economic growth are the most exposed to poverty is a stain on Israel,” Beja said, citing years of disruption from the COVID-19 pandemic and an ongoing war that continues to impose heavy costs. “The self-employed feel invisible.”

He added that the state’s safety net is either absent or insufficient, urging the Israeli government to change course. “It is impossible to continue austerity policies and freeze rights while small businesses are bleeding,” Beja said, calling for a reordering of priorities in the upcoming state budget.

“Rehabilitating the self-employed sector is a national interest of the highest order,” he concluded. “Without strong independent workers, there is no Israeli economy.”