At the peak of the first coronavirus wave in April, there were 1.3 million unemployed Israelis, of which between 1.1 million and 1.2 million were newly unemployed. The latter were almost entirely workers who had been put on unpaid leave due to the lockdown.
Today, in the midst of the second wave, the number of jobless has shrunk to half a million. In the space of just three months, the Israeli economy was able to absorb some 800,000 people back into the workforce.
A huge success? Not really. We can breathe a sigh of relief that the number has gone down from an unfathomable amount – a third of the country’s total workforce. Still, the 511,000 who are still not working is cause for alarm. They constitute the hard-core unemployed, the ones who will struggle reintegrating into the labor market. They include most of 140,000 people who were unemployed before the coronavirus crisis.
The grim forecast released on Sunday by the Finance Ministry’s chief economist, Shira Greenberg, sees Israel’s unemployment rate ending the year somewhere between 10% and 15%. That figure represents the broadest definition of joblessness, including those who have given up looking for work. But even using the narrower definition counting only those actively seeking employment, the rate declines by just one percent.
The great majority of these are forcefully unemployed. Despite all the reports of young people who are opting to stay on unpaid leave and collect unemployment benefits, the statistics show that for every job opening there is there are 10 jobless Israelis ready to take it. Before the crisis, the rate was 1.4 per opening. The bottom line is that the young Israelis sitting around at home aren’t lazy so much as hopeless. They have good reason to feel that way; it may take years before they have any cause for changing their mind.
It could take years to bring that 10%-15% back into the labor market. The last time the unemployment rate approached that level was during the 2003 recession when it reached 12.9% just before the Second Intifada ended. A sustained period of rapid economic growth followed, but it took five years until the unemployment rate fell below 7%.
The rule seems to be that when an economy’s unemployment rate climbs into double digits the road back to a single digit is long. Europe learned that lesson after the 2008 financial crisis – for many, it took a decade to bring jobless rates down to normal levels.
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That lesson explains Europe’s response to the coronavirus crisis in contrast to Israel’s. In Europe, governments paid employers to keep workers on the job, even if only part-time and even if lockdowns kept workers at home. In Israel, employers were told to send their workers home and the government would pay them.
It’s too early to say which of the two strategies will prove to be more successful. The fact is that Israel’s policy on granting unemployment benefits to those on unpaid leave provided immediate relief to the 1.1 million people stuck at home under lockdown. The fact is that most of them returned to their jobs when it ended. However, there are 220,000 still on unpaid leave and another 84,000 unemployed and not actively seeking work.
Europe paid a steep price to keep its workers officially employed, but that’s understandable because the trauma of 2008 remains fresh. Officials remember the social unrest of that time, the growing income inequality and the political instability that high unemployment created.
In Israel, the last time unemployment was a serious problem was in 2003. Who remembers what it was like then? Well, now is our chance; it won’t be pleasant.
First of all, the odds are strong that it will take years to significantly bring down the unemployment rate because no one yet knows how the coronavirus is going to play out. This unprecedented crisis has left economists shrugging their shoulders about forecasts and policy solutions.
Nevertheless, it’s obvious that the worse the crisis gets, the more a traditional recession sets in – businesses taking on large debts they can’t repay, businesses collapsing and workers losing their jobs that in many cases will never return. The latter need to retrain but since many of them are in the lowest skilled, lowest paid sectors, the process is painful and slow.
Second, long-term unemployment could change Israel not only economically but also socially and politically. Since 2003, Israel has only known economic growth and employment. We entered the coronavirus crisis with record low unemployment and a rising labor force participation rate. No one remembers low growth and a difficult job market. The new reality will be a shock, although what kind of shock is hard to say right now.
Important structural reforms that were undertaken during the 2003 crisis enabled Israel to enjoy over 15 years of strong economic growth. Israel was lucky. With Benjamin Netanyahu as finance minister, the government took the right policy steps. Now, with Netanyahu as prime minister, it is doubtful history will repeat itself.
These days Netanyahu is preoccupied mainly with plots to bring down his own government, not with undertaking new policies and turning around the economy. Perhaps a vaccine will be discovered and suddenly the crisis will be over, but we shouldn’t count on it.
Without structural changes, Israel’s economy will struggle to cope with double-digit unemployment. Like Europe after 2008, Israel after 2020 will be burdened with years of joblessness, low growth and social distress. We must try and plan for something better.
An interministerial committee is working on a new employment program. It has three main components. The first is improved data to better understand the more complex jobless situation Israel faces. Some sectors face a bigger problem than others and need tailored solutions. The second is a revolution in Israel’s retraining programs to make them focused on the hard-core unemployed. The third is incentives for employers to take back workers. Practically, Israel should adopt the European model of keeping the employer-employee relationship intact.
How do we do this? Right now there are a lot of ideas being discussed, among them reducing labor costs by reducing employers’ contributions for social benefits and pensions or by reducing the minimum wage. Others suggest continuing to pay unemployment benefits to those working part-time
It’s uncertain these ideas will work, but the fact that they are being discussed testifies to the depth of the problem Israel faces.