Israel's Central Bank Chief Warns of Long-term Joblessness Even After COVID

Amir Yaron says 2021 budget and new labor policies needed to cope with problem

Nati Tucker
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Mannequins in a window of a closed storefront, with signs advertising the space for rent, in Holon, November 2, 2020.
Mannequins in a window of a closed storefront, with signs advertising the space for rent, in Holon, November 2, 2020. Credit: Tomer Appelbaum

Bank of Israel Governor Amir Yaron warned on Monday of the threat of long-term unemployment in Israel as the hundreds of thousands now on unpaid leave due to the coronavirus crisis end up joining the ranks of the jobless.

“When we examine the forecasts for unemployment and the labor market, there is evidence that the job market will take a long time to return to its former strength even if the economy recovers. Unemployment rates are very high,” Yaron told the annual Eli Hurwitz Conference on Economy and Society.

If the government is forced to impose additional lockdowns and other measures over the next few months, the jobless rate will be 14%, Yaron said. If Israel continues to exit from the second lockdown in a gradual, controlled manner through the second quarter of 2021, the rate will remain an elevated 8%.

Yaron cited figures that Israelis were returning to their old jobs after the second lockdown that ended in mid-October at a slower pace than they did after last spring’s first lockdown. The Central Bureau of Statistics reported last week that the broadest measure of joblessness fell to 14.6% in the first two weeks of November, compared with 11.8% at the equivalent time after the end of the first lockdown.

“The reasons could be that businesses that closed or suspended operations during the crisis won’t ever reopen, or alternatively employers have found ways to streamline their workforces. Alternatively, it could be that uncertainty has created temporary fears among employers about hiring during this period,” Yaron speculated.

He said another worrying figure was the fact that the number of unemployed had held steady at about 200,000 for four months. “These data raise fears that these unemployed people will have an especially difficult time returning to the labor market,” Yaron warned.

He proposed that in addition to technical and job training, other tools be introduced to make the Israeli job market more flexible and responsive to changing needs.

“For example, a worker who wants and is able to return to the job market half time should be able to qualify for half unemployment pay. His financial situation will be better and the government’s budgetary obligation will be reduced,” Yaron said.

He urged the government to approve the 2021 budget, a prospect that is growing less likely as the Prime Minister Benjamin Netanyahu’s coalition moves toward a snap election.

“The crisis has badly hurt the job market, including all segments of the population and all regions. The government’s role in addressing this and exiting the crisis is wide ranging and important like no other, hence the importance of approval of the 2021 budget, which serves as the government’s economic work program,” he said.

As for the budget itself, he said it must contain economic-growth measures and investment in areas that support growth of labor productivity, such as in human capital, reduce bureaucracy and regulation, and ensure greater efficiency in the public sector and more investment in physical infrastructure.