It’s bad enough that Israel’s unemployment rate stood at a stunning 12.1% at the end of August, by its broadest measure But a lot of people worry that elevated levels of joblessness are going to be with us for a long time. Indeed, they say Israel may even suffer the same chronic unemployment as Europe did for years after the 2008 Great Recession ended.
If so, it would be quite ugly. We’re not just talking about the heavy weight imposed on the economy by so many people not engaged in productive work, or the lost opportunity for the young to acquire skills and experience and for older workers to accumulate pension savings. Long-term joblessness goes hand in hand with hopelessness and can easily provide fuel for social turbulence and political extremism.
Israel has happily had little experience with that. Until the coronavirus descended upon us, the economy was a job-creating machine. Chronic unemployment was practically non-existent.
Does the pandemic mark the end of the good old days? I don’t think so, but it is worthwhile looking into what’s happening in the labor market right now to see why some people are worried.
At the peak of the coronavirus lockdown in spring, Israel’s jobless rate reached almost a quarter of the workforce, a level near to what the United States suffered in the Great Depression. When the lockdown ended in mid-May, the rate dropped quickly to below 12%. But since then it had stubbornly remained at about that level.
That number doesn’t reflect the classic definition of unemployment. It includes not only people who don’t have a job and are actively looking for one, which is the number statisticians customarily use, but a couple of new categories that would normally be excluded, most notably workers who have been furloughed due to the coronavirus.
They aren’t looking for work because the hope to be called back to their old jobs when the crisis is over. But, as the 12.1% figure shows, that’s not been happening so quickly. On the contrary, the classic jobless rate has been rising. It seems a lot of people who were furloughed have now been fired.
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Double-digit unemployment doesn’t seem to square with how the rest of the Israeli economy is faring. Large swathes of the job market have been little affected by the crisis, most notably high-tech and the public sector. Even the hardest-hit parts of the economy seem to be bouncing back – tourism, for example, enjoyed a summer surge because Israelis couldn’t vacation overseas.
Many suspect that a lot of Israel’s unemployment is artificial: that a lot of people are working off the books and others have decided to take an extended coronavirus vacation at the state’s expense. The government has pledged to keep paying jobless benefits till the end of June 2020 (although the level will of payments will start dropping when the unemployment rate falls below 10%). So why bother to look for a job now?
It’s hard to say how widespread a phenomenon this is. The media are filled with stories about jobs going begging, and economists usually assume that unemployment benefits deter people from looking for a job until they have to (meaning when their benefits are about to expire).
But the current reality of the Israeli job market tells another story. The number of job openings has started to pick from coronavirus lows, but as of July (the last month for which there are figures), it was still way down from pre-pandemic levels – just 52,500 jobs on offer, compared with 95,000-104,000 a month in 2017-2019.
Meanwhile, in July over 500,000 were unemployed up from about 150,000 in any given month in the pre-coronavirus days. There are no doubt people who are taking advantage of the government’s generosity, but the fact is the supply of jobs is far short of demand. The ratio of 1 job opening for every 1.5 unemployed has grown to 1 for every 10.
Many of the jobs going begging are probably low-skilled, low-pay jobs usually filled by young people. If you’re single and not planning a high-powered career, why not live on benefits? But if you older, have a family to support and don’t want your job history to have a big black hole of a year’s unemployment, you’ll be scanning the job sites.
Those who suspect there’s widespread loafing accuse the government of constructing a labor-market aid program that incentivizes people to stay unemployed with extended benefits rather than incentivizing employers to take on workers.
There’s a degree of truth to that, but given the urgency of the coronavirus crisis, more ambitious plans like infrastructure spending and worker retraining would have taken too long to be put into effect. The government needed to get the economy moving quickly, which as the crowded hotels and traffic-clogged highway show, it did.
If the coronavirus doesn’t go away, we and the rest of the world are going to have a chronic unemployment problem no matter what the government does. But assuming COVID does depart the scene, the Israeli economy remains dynamic enough for the jobs engine to rev up again. This is one instance where we should be glad we’re not in Europe.