Analysis

Coronavirus Killed Israel’s Economic Triumph of the Decade: Low Unemployment

Unlike many countries, the government has let businesses put workers on unpaid leave and is paying them jobless benefits. So how many people will get their jobs back?

Sami Peretz
Sami Peretz
Send in e-mailSend in e-mail
A bar stands closed due to the coronavirus restrictions, Tel Aviv, April 12, 2020
A bar stands closed due to the coronavirus restrictions, Tel Aviv, April 12, 2020Credit: Tomer Appelbaum
Sami Peretz
Sami Peretz

Israel’s biggest economic achievement over the past decade has been its low unemployment rate, which was dropping consistently until it reached a low of 3.4 percent in February. A month later it had skyrocketed to a historic high of 26 percent, the sharpest spike in Israeli history and one that trampled years of effort.

0:00
-- : --
Bibi's got the perfect exit strategy - just not for the coronavirusCredit: Haaretz

This dizzying rise is to a great extent attributable to the government’s decision to put workers on unpaid leave and pay them jobless benefits instead of giving employers incentives to keep people employed. Many countries chose this second option – to compensate businesses for keeping workers on the payroll.

In both cases the state is essentially paying people’s salaries. But the big question is how many of the hundreds of thousands of newly unemployed will be taken back to work. The estimate is that between 20 percent and 30 percent won’t get their jobs back and will remain unemployed. This means it will take years to return to the low unemployment levels that Israel is accustomed to.

Israel’s achievement was no coincidence; it stemmed from moves that began 15 years ago. It started rather cruelly, when, as finance minister, Benjamin Netanyahu slashed entitlements. It wasn’t cruelty for cruelty’s sake but an effort to throttle the three-year recession that began with the dot-com collapse and continued during the second intifada. It cost Netanyahu in the 2006 election when Likud won only 12 seats in the 120-seat Knesset, but it pushed people into the workforce.

In the second half of that decade, Ehud Olmert’s government took another step when it instituted negative income tax – a grant to people with low salaries. If the cut in benefits was the stick, the employment grant was the carrot. Together they formed a policy that is in place to this day: It encourages people to find jobs and isn’t generous with those who don’t work.

Meanwhile, the growth of the economy, particularly in sectors like high-tech, telecommunications, media and finance, has created a lot of jobs over the past 20 years, and indirectly boosted other industries like food service and transportation.

The record employment rate and low unemployment came even though government efforts to integrate two population segments into the workforce – ultra-Orthodox men and Arab women – were only moderately successful. But in other cases, like ultra-Orthodox women, Arab men and for that matter the overall population, the achievement has been impressive.

One concern about the consistently low unemployment was the quality of the jobs being created – were they sustainable jobs that paid decently or were they short-term wonders?

That supplied a wealth of material for academic debates, but to answer the question we needed a shake-up of the economy. Nobody imagined that there would be such an upheaval that might make hundreds of thousands of jobs redundant.

Every day that the economy isn’t working at full strength puts additional jobs of all types and in all industries at risk. And this doesn’t even take into account the tens of thousands of self-employed whose businesses have been paralyzed and who aren’t counted in the unemployment statistics.

The past decade’s biggest accomplishment is at risk of becoming the biggest failure of the coronavirus crisis. The pressure that economic leaders are putting on the prime minister to reopen the economy as quickly as possible is the direct result of this concern.

Comments