The Writing on Jerusalem’s Walls: A Sober Glimpse at Israel’s Future

One doesn’t need complex econometric models or a crystal ball to foresee Israel’s economic and social future. Just look at today’s Jerusalem, and reality will hit you straight in the eye. Jerusalem is a demographic-economic portent for the State of Israel as a whole, and unless there is a dramatic change in government policy, this is what Israel will look like in three decades.

Thirty years ago, Israel’s capital was an average Israeli city, with the added charm of deep history and meaning. Certainly, it was marked by complexities and tensions then, but the demographic and socioeconomic picture was different.

Israel’s Central Bureau of Statistics (CBS) uses a 1-10 socioeconomic cluster scale (10 is the highest score) to characterize the country’s population centers. Three decades ago, Jerusalem was designated a cluster 5 – a middle-class city of government civil servants, academia and commerce. Today, Jerusalem is languishing at the bottom, in clusters 1-2, alongside the poorest localities in Israel’s social periphery.

Poverty in Jerusalem is not just a statistic in dry CBS reports. Its crumbling infrastructure is painfully evident in the streets of the Haredi and East Jerusalem neighborhoods.

This collapse is the direct result of demography and unsound government policy. The trends shaping the city over recent decades are a frightening looking glass for what is happening in Israel today. In the 1980s, the ultra-Orthodox (Haredim) constituted 16% of Jerusalem’s population, similar to the Haredi share in Israel’s population today. In the 1990s, they represented 20% of all Jerusalemites and 28% of the city’s Jews; by 2011, they were 27% of all Jerusalemites and 30% of its Jews. And today, roughly 30% of Jerusalem residents are Haredi, making up more than 50% of the city’s Jewish population, a result of the sector’s high fertility rates and migration into the city.

When we examine the education system – the most accurate predictor of the future – the figures are even starker. An overwhelming majority (67%) of Jerusalem’s Jewish first-graders study in Haredi schools; just 17% are enrolled in secular institutions.

Jerusalem has suffered from decades of “negative migration,” primarily of the Zionist, productive and liberal population. According to CBS data, thousands of young people and secular families leave the city every year for the Tel Aviv metropolitan area or the coastal plain, leaving behind a city whose engines of economic growth sputter and groan. Today, the share of secular residents in Jerusalem is only 20%. The share of the Arab population, incidentally, rose only very moderately over these years (by about 4%), so that is not what has changed the city’s circumstances.

The economic equation is simple and brutal: labor productivity in the Haredi sector is far below the national average, and the employment rate of Haredi men is still dramatically low (around 52%) compared with the general public (over 85%). The result is a shrinking tax base alongside expanding welfare needs.

The poverty rate in Jerusalem is alarming: 39% of families and 51% of children live below the poverty line. That is why a significant share of Jerusalem households are eligible for substantial municipal property tax (arnona) discounts with an annual value amounting to more than a quarter of the city’s potential revenue. This means that the residents who generate income and pay full taxes carry the city’s burden on their backs and pay the highest arnona rates in Israel.

So how is it that Jerusalem does not go bankrupt? The answer is “artificial respiration.” Jerusalem survives thanks to an annual infusion of billions of shekels from the state budget – through capital grants, balancing grants and earmarked budgets. Some of this is intended to fund the complexities of being the capital city. But a considerable portion finances the deficit created by Jerusalem’s demography. Put simply: high-tech workers in Tel Aviv, industrial workers in Haifa and service workers in Rishon LeZion are financing the entrenched deficit of Israel’s capital.

Jerusalem’s data profile from 1980s is eerily similar that of Israel in 2026 with respect to Haredi demography, the departure of an established and educated population, poverty, tax burden, the education system and more. Looking at Jerusalem today is looking at Israel in a few more decades. And herein lies the existential danger. According to demographic forecasts by the National Economic Council and the Central Bureau of Statistics, if current trends continue, in about three decades the share of Haredim in the general population will jump to around 30% – similar to the situation in Jerusalem today. Israel as a whole will become “Greater Jerusalem.”

By then the difference will be critical and irreversible: from whom will the “State of Jerusalem” receive its balancing grant? When the entire State of Israel presents a Third World socio-economic profile, there will be no “external purse” to rescue us. Tel Aviv, no matter how thriving, will simply be unable to subsidize an entire country of dependents.

And the implications go far beyond living standards. This is a matter of national security. You cannot maintain a modern army, procure squadrons of F-35 fighter jets, develop laser defense systems and sustain intelligence, cyber and technological superiority with a per-capita GDP that resembles Angola’s. The IDF – the people’s army – will not be able to maintain its qualitative military edge when half the eligible draft cohort evades service, and those who do enlist lack basic skills in mathematics and English. Economic collapse is an existential threat to Israeli sovereignty no less severe and no less immediate than the Iranian threat.

We are sailing, eyes wide open, into an iceberg. The Israeli public may look at Jerusalem with nostalgic longing, but it misses the glaring warning sign the city is raising. The current Jerusalem model is not sustainable at the national level. If there is no drastic policy change – full military service, full mandatory core curriculum studies, full integration into the labor market and active participation in Israeli life – Jerusalem’s fate will be the fate of us all.

Dr. Shuki Friedman is Director-General of JPPI – the Jewish People Policy Institute – and a senior lecturer in law at the Peres Academic Center.