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Israel's strange case: Why did the economy survive the corona, but the labor market hurt?
A line of data shows that the Israeli economy coped better than many developed countries with the global crisis caused by the epidemic, while at the same time there was a more severe hit in the country compared to the OECD in the labor market - due to the Achilles' heel of the local economy.
How did this actually happen, how long will it last and what are the forecasts for 2021?
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The labor market
unemployment
Sonia Gorodisky
Saturday, 23 January 2021, 16:48
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In the video: The Comptroller's report on the treatment of the unemployed and the grants for the self-employed in the Corona crisis (Photo: State Comptroller's Office)
A review by the Ministry of Finance's Chief Economist Division clearly highlights the dissonance of the Israeli economy in dealing with the corona crisis: on the one hand, many data indicate that the Israeli economy coped better than might be expected with the global crisis - but this is severely hampered by the labor market.
According to data from the Employment Service, since the beginning of the third closure, 141,651 new jobseekers have been registered, 3,256 in the last day.
According to the service among the main casualties - 37,254 teaching, education and training workers were registered as job seekers.
We further noted that 57% of job seekers have registered since the decision to tighten the closure.
19% of registrants are not in the IDF, but have been fired or resigned since the closure began.
Despite the data and despite the three closures, the product shrank by only 3.3%, compared to an average of 5.5% in OECD countries; Has declined significantly, and despite the lack of a state budget, the three largest credit rating companies in the world have left Israel's rating unchanged, and with a stable outlook.These strengths of the Israeli economy are well reflected in the shekel, which serves as a kind of credit rating window Until last Thursday, when the Bank of Israel was forced to announce an unusual change in foreign exchange market policy.
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Severe harm to the labor market.
Employment Bureau (Photo: Flash 90, Yossi Zamir, Flash 90)
On the other hand, the Chief Economist's review confirms that the labor market is a kind of Achilles' heel of the Israeli economy, and is significantly more affected than the OECD countries.
Because there is an objective difficulty in comparing unemployment rates in different countries (each country has a different definition, and only in Israel there are three bodies that report the number of unemployed), the Ministry of Finance examined the rate of change in working hours.
The data show that the extent of the damage to the Israeli labor market was higher than the European average - 16.9% compared with 14.4%.
However, the extent of the injury was much more moderate compared to countries like Turkey (31%), Spain (27%) or Portugal (26%).
Why is this actually happening, and is it expected to change any time soon?
The explanations are in front of you.
Dissonance: Why was the harm to the product lower than in the labor market?
The first reason is that the industries most severely affected by the crisis are those with low labor productivity - mainly the services industry (ie restaurants, hotels, tourism, etc.), while the industries with high labor productivity continued to operate normally and even improved their results, such as high-tech and industry.
The second reason is that most of the people who were sent to the IDF worked on average less hours a week, some part-time. In other words, their contribution to the product of the businesses and employees affected by the crisis was low.
Were badly injured.
Restaurant demonstration in front of the Knesset, December (Photo: Flash 90, Olivia Fitoussi)
Why is the employment market in Israel more affected than in OECD countries?
The first reason for this is that stricter and longer-term restrictions have been announced in Israel than in most developed countries.
There is difficulty in comparing the data, but in general, it can be said that other countries have allowed more jobs to operate without receiving an audience even during periods of closure.
The second and more central reason is the Israeli Knesset policy - an inflexible model that did not allow employers to keep their employees part-time, as is the practice in many European countries. In Israel, compared to most developed countries, the Khalat model is binary: either the Knesset employee - or After many reviews, the Treasury's attempts to "flex" the model were unsuccessful. In the past, it has been argued that the more flexible "German model" cannot be implemented because the state has no ability to track the number of hours employed, and fears fraud.
How long will the unemployment rate remain high?
First of all, the current employment crisis is unprecedented in Israel, and when the unemployment rate rises significantly - it takes quite a while until it drops to the starting point, if at all.
Many employers already point to the difficulty of employing low-wage workers, because as long as the state pays unemployment benefits, it does not pay to go out to work.
The Ministry of Finance assumes that when the economy is fully opened, the unemployment rate will fall rapidly, but at some point it will "get stuck", and from there it will continue to fall slowly, when it is not clear if and when it will return to baseline.
The Treasury expects that there will be quite a few bankruptcies, and that quite a few businesses will become more efficient and learn to get along with fewer workers - which will hurt the recovery of the labor market.
The unemployment rate will fall rapidly, but at some point will "get stuck."
Queue to the Employment Bureau (Photo: Reuven Castro)
It is assumed that a significant proportion of those laid off will take a long time to return to the labor market.
Unemployment figures show that a large proportion are unpaid leave are poorly educated, some young people with little experience, and some populations in which the unemployment rate is high and the level of average education is low.
These characteristics of layoffs eased to a great extent, as stated, the impact on GDP and softened it in comparison to other Other developed, however because of them the economy will take longer to recover the labor market.
And what are the forecasts for 2021?
According to data from the Central Bureau of Statistics published this week, the broad unemployment rate in the second half of December was 13.7%, a high figure given the fact that this is the period before the closure in January. The Treasury expects that the unemployment rate will continue to be high in the coming year, and estimates that it will be 8.6%. For comparison, Israel entered the corona crisis with a particularly low unemployment rate, which stands at 3.8% at the end of 2019.
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