Coronavirus and Unemployment in Israel

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Daphna Aviram Nitzan, the director of IDI's Center for Governance and the Economy presents an analysis of unemployment in Israel in the wake of the coronavirus pandemic.

The scenario currently unfolding is one in which the Israeli economy gradually returns to almost full functioning by the end of the month (subject to limitations set by the Ministry of Health), with the exception of air travel, restaurants, hotels, movie theaters and other public events. The school system –on the other hand-will function only partially (with only grades 1—3, 11, and 12 in school). At the beginning of June, the remaining students (4th through 10th grades) will return to school, and there will be a gradual reopening of afterschool clubs, restaurants, tourism (including air travel), and leisure activities. This scenario will permit a gradual return to work of many of those who have been on unpaid vacation since the start of the crisis.

An analysis we conducted at the Israel Democracy Institute reveals that during May, we can anticipate around half a million of more then million workers on unpaid vacation, to slowly return to work (most of them-- on unpaid vacation since March). Thus, the unemployment rate (including those on unpaid vacation) is expected to drop in May to around 15.2% (from the current rate of above 27%), with the overall number of unemployed (including workers on unpaid vacation) estimated at 620,000. Most of these from the business sector, in particular- from the tourism, leisure, and culture branches. 

In June, with a return to full functioning, the situation in the labor market will continue to improve, with some 160,000 people expected to go back to work. Some sectors of the economy are likely to function at a more limited level, with lower levels of employment- compared to the pre-crisis era. Thus, the number of unemployed in June is expected to be around 460,000—that is, an unemployment rate of around 11.2%.

A two-digit unemployment rate was last recorded during the 2001—2004 crisis (caused by the dotcom crash and the second intifada), though even then- unemployment did not reach such high levels, and ranged between 10.3% and 10.7%. In fact, the last time Israel saw a similar unemployment rate (11.2%) was in 1992, caused at the time, by a “positive shock” to the Israeli labor market— a huge influx of working-age FSU (Former Soviet Union).

Assuming that Israel does not experience a second wave of the coronavirus epidemic, we estimate that towards the end of 2020, the unemployment rate will stabilize at around 9.5%, which translates into some 400,000 unemployed workers—dealing a severe blow to the Israeli economy.

To avoid a similar aftermath to that of the financial crisis of 2001—2004, when high rates of unemployment continued for several years, the government must now take decisive action to bring about a significant drop in unemployment rates in 2021. To this end, the government must immediately begin encouraging employers to bring employees back to work, and encouraging those laid off (rather than those on unpaid vacation) to undergo vocational training and retraining to meet the needs of the new labor market. This is a market which is increasingly anchored in technology and innovation, and in part has transitioned over the last two months to remote working.