Is the coronavirus crisis going to bring an end to the trend of rising wages in Israel over the last few years?
Until now, it’s been impossible to draw conclusions from the figures issued by the Central Bureau of Statistics because the labor market has undergone such huge changes. However, new data from the National Insurance Institute show that even employers who did not downsize their workforces during the pandemic still lowered their wage costs – by about 3% between January and May.
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The number of employed people plunged by a third due to the pandemic from 3.7 million in January to 2.51 million in April at the peak of the lockdown, according to NII figures. In May, the last month for which there are figures, the number edged higher to 2.56 million.
The drop in the number of employed workers actually led to a rise in average pay, according to the statistics bureau. The reason is that workers who were laid off or put on unpaid leave were concentrated in low-paying sectors, such as restaurants, hotels and more junior employees in all industries.
“The data on changes in the labor market and wages leave no doubt that in the coronavirus crisis the main victims have been the most vulnerable segments of Israeli society,” said National Insurance Institute director Meir Shpigler.
However, research conducted by the NII’s head of research and planning, Mark Rosenberg, focused on employers who did not downsize or even increased their employee head count. Among them, the average wage fell in recent months.
The decline was due either to employers taking the initiative to lower wages or cutting work hours, especially overtime. In the case of the former, the cuts could be done by reducing basic pay or through the many salary supplements that Israelis get, such as travel costs from home to work.
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According to the NII, average pay among all employers in January-May jumped 7.2% to 10,859 shekels ($3,160) a month, but among those who increased the employee head count average pay dropped 2.9% to 13,318 shekels. Among those who maintained the same employee head count throughout the crisis wages fell 3.3% to an average of 10,808 shekels.
In contrast, among employers who reduced their payrolls, wages shot up 8.1% to an average of 9,990 shekels, the NII study showed.
It should be noted that the comparison was between head count in January – before the onset of the coronavirus in Israel – and the count in May. It didn’t take into account that many employees were laid off or put on unpaid leave during the peak of the pandemic only to be taken back in May. The NII study would have treated those employers as if they maintained the same payroll throughout.
Small businesses were hurt more by the pandemic and the lockdown than bigger ones. The number of workplaces at businesses that employed five or fewer workers plunged 24% between January and May. Among those with six to 100 employees, the drop was an even sharper – 26%. At employers with payrolls of 100-1,000, the decline was 20% but among the 280 surveyed companies that employed more than 1,000 the drop was just 8.7%, according to the NII.
Not surprisingly, the biggest payroll declines by industry were in hotels and restaurants where it dropped by 74% in March. In culture and entertainment, the decline was not far behind, with a 71% drop in employment. The recovery they saw in May was only partial, NII figures showed, with employment down 59% and 47%, respectively, compared to January.
As payrolls were being cut, average pay for those who remained at their jobs experienced sharp ups and downs, the NII found. Average pay dropped 29.3% in restaurants and hotels and 20.6% in culture and entertainment in March, but in April pay rose 60% and 97%, versus January, respectively, before dropping by 17% and 33%.
When the dust cleared, pay at hotels and restaurants was 91.3% of its pre-crisis level and in entertainment and culture it had risen to 103.3%, the NII said.
“The volatility in average pay has been artificial in a sense and didn’t accurately reflect the state of the economy,” the NII said.
It said the figures showed that government incentives to keep people at their jobs had to be more flexible. “The restrictions imposed on Israeli citizens and businesses affected employers unevenly and unequally,” said Rosenberg. “While there were employers who found ways to continue to operate, for example with work from home, other employers didn’t have this option and were hurt badly. Government efforts to support the economy through grants should have had more focus, in other words adjusted to the intensity of the damage.”