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Israel’s Election Results: The Pain of the Covid Aftermath Economy

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Closed stores in central Tel Aviv during the third lockdown, early March
Closed stores in central Tel Aviv during the third lockdown, early MarchCredit: Hadas Parush

If there was an Israeli election that should have led voters to “throw the bums out”, it was certainly this one. The last year was a whirlwind of death and disease, economic distress and social tensions, all made worse by Prime Minister Benjamin Netanyahu’s chaotic and politicized coronavirus crisis management.

Yet the bums are still here. Likud is worse for wear but managed to hold on to 25% of the vote, a drop of less than five percentage points from its last showing. Benny Gantz’s Kahol Lavan, the junior partner in the Netanyahu government, came back from the polling dead to win a respectable eight Knesset seats. And the anti-Netanyahu opposition benefited little or nothing from the crisis.

So, as bad as it was, the coronavirus crisis didn’t spark political upheaval, as say the 2008 global financial crisis did in America and Europe. But then in Israel, the economic pain and suffering of the coronavirus so widely reported in the media was, to put it kindly, exaggerated.

The economy shrank mainly because consumers spent less – not necessarily because they were too hard-pressed to shop but because stores, restaurants and vacation options were unavailable due to COVID restrictions. The unemployment rate climbed as high as 22%, but most of those people were put on unpaid leave and expect to go back to work. Many are confident enough a job will be waiting for them that they aren’t bothering to return to work until their benefits run out in June.

The thing is that COVID’s aftermath may present the really big economic challenge.

As the Bank of Israel found, many sectors of the economy managed perfectly fine during the pandemic with fewer workers: In December, employment was down 12.3% across the economy while turnover was down just 1.7%. Many workers may now find their employer regarding their jobs as superfluous and, in fact, the official unemployment rate is already rising.

Just as critically, COVID has accelerated the process of digitization, meaning more work, shopping and learning are being done remotely.

That is happy news for Israel’s high-tech sector, but other Israelis face a period of upheaval. It isn’t that low-tech jobs will disappear, but their nature will change. There will be fewer store clerks and waiters and more call-center and warehouse workers. On the balance, though, there will be more high-tech jobs and fewer low-tech ones because digital economies are less labor-intensive.

The next government (when the day arrives that we get one) faces serious conundrums.

The first is that no one really knows how the post-COVID economy will develop. More digitization is likely in the cards, but in what areas it will grow the most, how deeply, who will provide the services and how quickly it will penetrate daily life, no one can say for sure. Government planners are almost certain to get it wrong because they usually miscall market, technology and social trends.

The second is that even if the government could predict where digitization is going, the remedies for adjusting the labor market will take time. There’s talk about professional retraining but the problem is a lot bigger than setting up courses in computer code or social-media marketing. The average Israeli worker, outside those in our vaunted high-tech sector, is poorly equipped with the numeric and other skills needed for an advanced labor market.

If you factor in the big and growing Haredi and Israeli Arab populations, with their low rates of education and high levels of poverty, Israel’s skills gap relative to the developed world is enormous.

At this point, I’m supposed to lay out the solution, but it isn’t so simple. The short-term fix of designing benefits to serve as a bridge until the jobless find a place in the new economy risks creating chronic unemployment, certainly if it isn’t integrally attached to retraining.

But that leads to a second problem: retrain for what? In that regard, it would probably be best for the government to hand over the responsibility to the private sector, i.e., let employers set up courses for the skills they need or think they will need.

As to the deeper problem of Israelis’ poor labor skills, it is the responsibility of the educational system to upgrade teaching and the responsibility of the politicians to enforce the core curriculum on Haredi schools. However, this has been an acknowledged problem for years, but the record of the schools and the politicians for addressing it is poor.

Maybe the shock of the coronavirus will change that, but on the oft-chance that happens, the results will take years to bear fruit. Until then, many Israelis will struggle to find a place in the new economy. Politicians beware: the good old days of full employment and contented voters is drawing to a close.

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