Every Jerusalem Day brings the same set of speeches about a unified, eternal capital. Less commonly mentioned is the fact that, according to the National Insurance Institute’s most recent analysis, Jerusalem is Israel’s second-poorest large city (only Modi’in Illit ranks lower). The Jerusalem district’s poverty rate sits at 36.5% – well above the national figure of 21%. Median wages in the city are barely a third of those in Herzliya or Tel Aviv.
While the gap between Jerusalem and Israel’s coastal economy has widened over recent decades, the political appetite to do anything about it has shrunk. The conventional explanation points to demography: Jerusalem’s large haredi (ultra-Orthodox) and Arab populations have historically low workforce participation, and that drags the city’s averages down. But this description obscures more than it reveals, because it implies that the problem is the people, when the problem is more accurately the structure of the city’s economy.
Jerusalem is dominated by public-sector employment: government ministries, religious institutions, hospitals, and universities. These are stable, valuable, and essential institutions, but they are not engines of middle-class job creation. Unlike Tel Aviv, Herzliya, or Ra’anana, Jerusalem has very few private employers that typically turn entry-level workers into salaried professionals with mortgages and pension funds.
Few corporations are willing to open offices in Israel’s disputed capital. The city does now have a serious life sciences cluster, and Mobileye and Intel maintain significant operations here, but this nascent tech sector employs a few thousand people in a city of nearly a million.
The result is a missing middle class. A young Jerusalemite without security clearance, a medical license, or a tenure-track position has limited paths to a stable income in the city. Many ambitious young people leave.
Jerusalem has run a negative internal migration balance for decades, losing the secular and modern-Orthodox families it most needs to keep. Those who stay often find work in tourism, retail, or food service, but these sectors are catastrophically fragile whenever tourism wanes. The city’s income is increasingly dependent on the shoulders of its shrinking working population and on international donors.
One solution that is already working quietly in pockets around the city is direct support for entrepreneurs and small businesses. Because Jerusalem lacks a deep base of corporate employers, the small business is not a romantic side story. It is the primary mechanism by which a Jerusalemite without inherited capital or elite credentials can build economic stability.
The neighborhood bakery, the East Jerusalem accountant, the recent immigrant from France running a marketing agency from her living room, the haredi tech consultant taking on his first employees – these are not charity cases. They are the city’s middle class, building itself one business at a time.
Organizations that provide these entrepreneurs with capital, training, mentorship, and regulatory advocacy, including MATI Jerusalem (The Jerusalem Center for the Development of Entrepreneurship) and Jerusalem-based programs run by the JDA, the municipality, and others, are slowly shifting the city’s economic trajectory. By mentoring start-up businesses, they help them avoid rookie mistakes, guiding them through bureaucratic minefields that frequently destroy the entrepreneurial spirit.
The need to invest in people
After almost three years of war, there is clearly a need to invest in young men and women who have spent months in the IDF, defending our country, and in their partners who have been struggling in their absence to run homes and businesses.
At the same time, the grinding poverty of Arab East Jerusalem makes it vulnerable to radicalization. We ignore the economic struggles of young Arab men and women at our peril. Only by investing in their prosperity can we transform them into valued citizens of a truly unified city.
Jerusalem Day should be a day of celebration, but we need to be clear about what we are actually celebrating. A unified capital city that cannot offer its own working-age residents a viable path to the middle class is a city with a long-term problem.
Investing in entrepreneurs makes good business sense. I always feel that the city’s residents – particularly its new immigrants – project an infectious optimism that defies its economic plight. We need to support their dreams, recognizing Jerusalem’s small-business sector as the secret of its success as a diverse but united city.
The writer is a lawyer from New York City, a dedicated Zionist, and treasurer of MATI USA.