Employment Service Says Israel Isn’t Prepared for Long-term Joblessness

Labor market is recovering slowly and extended benefits have created disincentives for people to seek work. But government has no policies to cope

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Israelis protest against Prime Minister Benjamin Netanyahu and the Government's handling of the coronavirus pandemic, August 18, 2020.
Israelis protest against Prime Minister Benjamin Netanyahu and the Government's handling of the coronavirus pandemic, August 18, 2020.Credit: Tomer Appelbaum
Sivan Klingbail

More than four months have passed since the government began easing lockdown measures to fight the coronavirus, but the job market is recovering slowly, long-term unemployment is destined to grow and the government isn’t ready to cope with it, the National Employment Service said on Sunday.

In a report, it estimated that by the end of this year, some half a million Israelis would still be unemployed, equal to a jobless rate of 12% – more than three times the pre-coronavirus rate. Even though Israel lifted the first of its lockdown measures April 19, the labor market has been recovering slowly. It said after that date, about 227,000 people registered at the Employment Service.

“For a large number of them, the prospect of returning to work isn’t on the horizon. As more time passes, the odds of their becoming long-term unemployed and coming to rely on government allowances will grow,” it warned, adding that Israel did not have an adequate social safety net to help them.

“The rise in the number of infected people and renewed economic and social restrictions is bringing Israel closer to the most pessimistic scenarios,” the Employment Service said.

The Organization for Economic Cooperation and Development and the European Union have both warned about the risk of chronic joblessness, a situation where people are unemployed for so long that their jobless benefits run out and they become reliant on government allowances for the poor. The longer people remain out of the job market, the poorer their chances of finding work become.

A homeless person is seen leaning on a street curb as people with masks and gloves walk past, March 26, 2020.Credit: Rami Shllush

From 2007 to 2014, following the global financial crisis and recession, the number of long-term unemployed in the EU doubled. In some countries, they constituted half the unemployed at any given time.

“In [Israel], where a return to the labor market is taking time, many recipients of unemployment benefits may find themselves getting income support payments in the coming years,” said Dr. Gal Zohar, the head of research and policy at the Employment Service.

On the other hand, while the Employment Service recognizes the importance of income support, it also realizes that it undermines the incentive to work. Experience shows that most people will use their unemployment benefits until they run out.

“Under current conditions, when the unemployment benefit period has been extended 12 additional months, the incentive for many to work is reduced and the incentive to keep getting assistance grows, especially for low-wage earners,” said Rami Grauer, the Employment Service’s director. “In such a situation, too many people … could find themselves in a situation where their future return to the labor market will be a very difficult task.”

The Employment Service said that even while it was extending the term of benefits the government had to create employment incentives, such as subsidizing wages, allowing more flexible work conditions and developing infrastructure that will allow more people to work from home.

“Even when the supply of job openings was strong, people waited until the end of their unemployment-benefit entitlement period to find work. The decision to delay seeking work isn’t only due to insufficient labor demand. Even when there is demand, many don’t return to the job market, so the incentive issue is critical,” the report said.

It said that the coronavirus had created new categories of people in need of aid. In recent years, the focus of government employment policy has been on the ultra-Orthodox, Israeli Arabs and people living in the Galilee and Negev peripheries. The coronavirus unemployed includes these populations but also workers at the bottom and top of the labor market age spectrum. It said families in which both breadwinners are unemployed accounted for 17.9% of those registered as unemployed.

Zohar said that in all population groups a split has emerged between what he termed “strong” and “weak” segments. “The strong are integrating, while the gaps within the groups are growing,” he said. “In every population, we see a division between those that have skills and those that don’t.”

Closed shops are seen in Jerusalem, July 26, 2020.Credit: Eyal Toag

The report stressed the need for the government to come up with long-term policies to cope with what it said was going to be an extended period of high unemployment.

“When the number of jobless is more than 450,000, it will take several years before we go back down to the number we had before the [coronavirus] crisis. The most optimistic scenario is that it will take three years,” said Zohar.

The government’s extended benefits program for the unemployed runs until next June. “What will happen after June 2021? We need to know what to do and what to do in another year,” he said.

In addition to expanded social benefits and job incentives, the report said Israel needed to upgrade its human capital. But, it was highly critical of Israel’s existing job-training system, which is administered by the Labor and Welfare Ministry. It said the courses offered are “electric” and must be more systematic and designed to address the emerging job market.

Zohar said all three elements – additional social benefits, job incentives and training – were equally critical. “We can’t exit this crisis without looking at this triangle and the interfaces between the three. In all three areas there are good programs administered by different bodies, but there needs to be coordination between them,” said Zohar.

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