Are Israelis Taking It Easy and Living Off Jobless Benefits? This Economist Says No

Prof. Momi Dahan says Israelis want to go back to work and predicts a jobless rate of up to 8% after the coronavirus crisis, asserting the labor market is flexible enough to deal with it

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People walking during a workday in Herzliya Pituah, central Israel.
People walking during a workday in Herzliya Pituah, central Israel. Credit: Eyal Toueg

Since the government promised to pay out unemployment benefits at least through June of next year in response to surging jobless numbers from the coronavirus crisis, many employers have been saying that recruiting new workers has become difficult. Even employees who were put on unpaid leave and are entitled to jobless benefits are refusing to return to their jobs.

The phenomenon has become so widespread that an interminsterial team examining the problem has recommended steps to discourage misuse of benefits for unpaid leave, while the National Employment Service supports cutting allowances for those on unpaid leave.

But Prof. Momi Dahan, who teaches economics at the Hebrew University in Jerusalem, begs to differ. He says reports of unemployed workers turning down job offers represent a marginal phenomenon. In fact, he asserts, the Israeli labor market has responded well to the coronavirus crisis.

“You have to put into perspective the stories of employers claiming that they haven’t succeeded in recruiting workers at a time when there are a million unemployed,” Dahan told TheMarker. “The moment that the administrative closure of the economy ends, we’ll see that workers on unpaid leave will return to the job market in droves. The data show large numbers are already returning despite unemployment benefits.”

The Central Bureau of Statistics reported that during the first coronavirus lockdown in March and April, between 30% and 34% of Israeli workers were absent from their jobs. But in the first half of May, the figure fell to 20% and by the first half of September – just before Israel entered its second lockdown – it was down to 3.9%.

Prof. Momi Dahan.Credit: Tomer Appelbaum

“People picked themselves up and returned to work the minute they could,” he said. “The low number of [labor market] absentees are in those sectors of the economy that remained closed even as everything else reopened, for instance, the entertainment business. Those who stayed at home were mainly people who wanted to return to the job market but had nowhere to go.”

When the second lockdown was imposed in the second half of September and first half of October, the rate of people absent from the labor force rose again to between 13% and 16%. However, Dahan noted, the rate was much lower than during the first lockdown because not as much of the economy was shut down. He also noted that lockdown restrictions were less widely obeyed due to a “lack of public trust in the government.”

“In the second half of October, the rate of absentees from the labor market fell to 11% and I believe that it will continue to fall to numbers lower than after the first lockdown,” Dahan predicts. “The moment that the market resumes complete activity, we’ll see a very small number of absentees in sectors that have crashed, even though the government is continuing to pay jobless benefits. People want to go back to work.”

Dahan argues that dropping out of the market has a cost. People who want to get pay raises and promotions have to remain in it. “If you sit at home, you’re not a candidate for promotion. If you’re unemployed or refuse an offer from your employers, you’re sending a very negative message about your motivation.

“Those staying unemployed have no choice, so creating a safety net for them is the best thing the government can do for them,” said Dahan.

As to what will happen if there’s a third lockdown, he said: “I hope it doesn’t happen, but I assume we’ll see the same phenomenon – an exit from the workforce due to technical-administrative reasons and a return the minute the market reopens. Because the level of [lockdown] observance and trust in government is falling, I assume that the number of absentees will be smaller than in the second lockdown.”

On the other hand, Dahan pointed to the problem of rising unemployment by the traditional measure – people without work who are actively searching for a job. That has risen to between 5% and 6% during the coronavirus crisis, compared with less than 4% before.

Because some business sectors could fail or are likely have difficulty recovering from the pandemic, such as advertising, restaurants, and leisure and entertainment, Dahan said he expected the jobless rate to remain high.

Even so, Dahan remains optimistic. “I think that the unemployment rate will be reasonable given the depth of the crisis we’ve suffered,” he said. “A jobless rate of 6% or 8% after a crisis of this scale is low and the Israeli labor market is flexible enough to deal with it.”

“The main damage from the crisis was suffered by the weakest parts of the population – people with low skills, residents of the [Negev and Galil] periphery, young people, Haredim and Arabs,” he said. “So, it’s important to develop the area of job training, in which the government is unusually laggard.”

That training should be adapted to the post-pandemic needs of the economy, for example, more remote services. “It’s important to make use of the time we have now, which is optimal for adapting to short- and long-term needs,” he said.

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