Analysis

New Lockdown Could Cost 300,000 Jobs. Has Israel Learned Anything Since March?

Unemployment has dipped below 10% for first time since crisis began – but there’s not much time to celebrate, as second lockdown will send the figure soaring upward again

Sami Peretz
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Jerusalem's Mahane Yehuda market in July, 2020.
Jerusalem's Mahane Yehuda market in July, 2020.Credit: Ohad Zwigenberg
Sami Peretz

Anyone following Israel’s unemployment figures can see that it resembles a game of snakes and ladders – with masses of Israelis climbing out of unemployment only to suddenly slip back down again.

On Monday, as the Central Bureau of Statistics published updated figures for the second half of August, indicating a small improvement, the Finance Ministry and the Bank of Israel were already calculating forecasts for how much unemployment would grow again given the government’s decision to launch a lockdown over the Jewish High Holy Days, including bans on gatherings and businesses receiving customers. Statistics bureau data show unemployment dropped to 468,000 by the end of August, which is a rate of 11.2 percent. This figure includes the unemployed, people on unpaid leave and people who haven’t been searching for jobs due to the coronavirus pandemic.

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If you remove the latter group of people who aren’t looking for jobs, the figure is 9.8 percent – just under a key benchmark of 10 percent, for the first time since the crisis began. But there’s not much time to celebrate, since the second lockdown will send the figure soaring upward again.

The Finance Ministry’s forecasts are very pessimistic, estimating that some 300,000-400,000 workers will be put on leave or fired from sectors including hospitality, restaurants, event halls, commerce and malls, live performances, movie theaters and more.

The Finance Ministry and Health Ministry are still drafting the precise list of which businesses will close, and the exact number of jobs at risk will be determined by the final list. In addition, the decision to close schools, which was moved up to Thursday only on Wednesday morning, will also hurt the workforce as parents are forced to stay home.

Over the last few weeks, the Finance Ministry conducted several forecasts for the estimated cost of the lockdown, with numbers changing at dizzying speed with every new proposal. On Tuesday the figure actually decreased, to 6.5 billion shekels, down from the 8 billion shekels forecast under a plan discussed last week.

But that improved forecast doesn’t apply to the workforce, which is predicted to go through massive layoffs, and not just in sectors being limited by government restrictions. The first question is how long the lockdown will last. During the holidays, the impact is likely to be a bit more limited than in usual times, although not for all sectors – the blow to hotels will be a bad one. But should the lockdown continue after the holidays end, the number of laid off workers will increase drastically.

When the first lockdown began in March, the number of unemployed shot up from 150,000 to 1.3 million, but after restrictions were eased and the government started rolling out incentive programs, the figure began declining, reaching 468,000 as of the end of August. The good news is that many people returned to work quickly. The bad news is that more than 300,000 people are still jobless due to the pandemic.

Now the question is how many more workplaces will be lost, given that many businesses are still in survival mode and haven’t recovered from the last lockdown. Bank of Israel Governor Amir Yaron told the cabinet on Sunday that a lockdown on par with the previous one would bring a worse outcome for businesses and households, which are entering it worse off this time.

The Treasury’s figures are shocking – maybe that’s the point. However, there are a few things we can learn from the first lockdown in order to prevent the unemployment rate from becoming so high, and primarily from preventing many of the newly unemployed from becoming chronically unemployed.

For instance, instead of encouraging employers to put workers on unpaid leave, the government needs to incentivize them to keep them employed and maintain the relationship, even if their hours are reduced. The Bank of Israel proposes compensating businesses and the self-employed if their revenues drop by only 25%, and not the 40% benchmark used until now, and to also ease VAT payments. A version of the bank’s suggestion to give discounts in municipal taxes was indeed accepted.

But the most important factor at the moment is the speed of execution. The moment the lockdown was announced, employers already started putting workers on leave. Between Sunday morning and Monday morning, there were 4,314 new jobless, the highest figure in weeks. That figure is likely only to grow.

The Finance Ministry is drafting plans that would enable employers to keep workers on payroll instead of putting them on leave or firing them, but the drafting and budgeting process requires knowing the duration of the lockdown. There’s a big difference between a lockdown for a three-week holiday period, and one that goes beyond that. “After the holidays” is traditionally when business gets done in Israel, and if the country enters mid-October with schools still shuttered and the lockdown still in place, the cost will skyrocket, as will unemployment.

Right now no one can say how long the lockdown will last, which brings constantly changing forecasts and complicates the Finance Ministry’s work. The Bank of Israel is pushing to compensate employers who kept a certain percentage of their workers during the first lockdown, with the goal of aiding in payroll expenses but not encouraging employers to keep workers they don’t need.

The bank is less enthused by the idea of compensating employers that put many workers on unpaid leave, in order not to encourage this course of action. Another proposal calls for enabling workers on unpaid leave to return to work part time and to keep receiving partial unemployment pay.

The Finance Ministry knows that every such incentive program is expensive, but it’s still less expensive than long-term unemployment pay, which is both costly and a recipe for a social crisis and high chronic unemployment. It’s clear that the second lockdown will be expensive for Israel, but this time the government has insights from the first lockdown that should enable it to use the money more wisely, and prevent the country from going back to astronomically high unemployment.

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