The Israeli Labor Market and COVID-19: What Really Happened?

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A new study utilizes extensive data to offer a new understanding of the changes the labor market underwent during two years of Covid-19

Flash 90

The COVID-19 crisis was rapidly and continuously evolving and thus was characterized by a tremendous degree of uncertainty. Comprehensive, real-time data on developments in the Israeli labor market was in short supply, and thus the public discussion regarding the pandemic’s impact on the local labor market often relied on anecdotal evidence and on insights gleaned from developments reported in other countries. To what extent did claims based on these sources accurately reflect the reality of the Israel labor market? A new study utilizes extensive data to examine six conjectures that were prevalent over the past two years. The findings offer a new understanding of the changes the labor market underwent over this period.

The COVID-19 pandemic generated unprecedented turmoil in the labor market: nationwide lockdowns, over a million workers sent on extended furlough, businesses forced to limit the number of customers who could enter their doors, a wave of virus contagion, and then another wave, and another (and then, still another wave): the list is long. The magnitude and pace of this tumult meant that there was a great degree of uncertainty not only about the future, but also about the present. One result of this foggy situation was that the public discourse was frequently based on anecdote and speculation. “An unprecedented wave of dismissals”; “employers are exploiting furloughs to get rid of their older workers” – are just two examples of the kinds of rumors that filled the headlines. Some of them can be traced to what happened in other countries; others were the result of unique cases that drew media coverage. What these conjectures and rumors had in common, in addition to their prominence in the public discussion, was that few, if any, were tested systematically using Israeli data.

This document examines six such conjectures regarding developments in the Israeli labor market during the pandemic:

• The pandemic accelerated a wave of early retirement: We find no direct evidence to support the hypothesis that the COVID-19 pandemic led to a sharp increase in the number of people who opted for early retirement.

• Employers took advantage of the pandemic to let go of their older workers: Older workers were actually less likely to be sent home by their employers, as compared to younger workers. However, among those who did stop working, older workers were less likely to return to their jobs than were their younger colleagues. This phenomenon was consistent across a wide range of occupations.

• Employers took advantage of the pandemic to dismiss their highest-paid workers: The findings do not support the assertion that employers took advantage of the pandemic to dismiss those workers who imposed the heaviest salary burden on them. The decision to keep higher-paid workers on the job or bring them back when feasible can be attributed to the fact that in most companies, these workers tend to be the more productive, senior, and important employees.

• Workers in a stronger financial situation waited until their economic sector recovered before going back to work; those with lesser financial means had no choice, but to return to their job as soon as possible: The evidence seems to support this distinction, and especially the idea that higher-paid employees had more control over the timing of their return to work.

• The job market is experiencing an unprecedented wave of resignations, in part due to a change in people’s preferences: The backdrop for this hypothesis is the phenomenon in the U.S. referred to as “the Great Resignation.” Contra to this claim, the number of voluntary retirees during the pandemic years was on a par with the figures for 2012–2017. A significant deviation from the pre-pandemic period first appeared in September 2021, but it is still too soon to know whether this marks the start of a significant trend.

• The pandemic widened the gaps in the labor market between strong and weak workers: This contention has merit, and is especially notable among men.

Drawing on several large databases of administrative data, the Labor Force Survey (administered by the Central Bureau of Statistics), and supplemented with data from the national Employment Service, the document presents findings regarding each of these conjectures. Notably, most of the conjectures find little support in the data, while other conjectures are corroborated only in part.

What can we learn from the findings?

First, the analysis shows no increase in the correlation between older age and occupational vulnerability in Israel after the pandemic struck. In this regard, the government’s decision to extend the furloughs on the basis of age was a reasonable step, given older adults’ greater vulnerability to the impact of the virus as well as the greater difficulty they typically face in switching jobs.

Second, the fact that employers did not take advantage of the pandemic to make sweeping changes in their workforce—for example, by letting go of their costlier or older employees—indicates that Israeli labor law (and perhaps also the prevalent norms in this domain) does not impose severe constraints on employers in “normal” times. That is, employers did not feel that they had to exploit the pandemic as an excuse or opportunity to carry out dismissals they had not been able to carry out before. It also provided direct evidence of the relatively healthy state of the pre-COVID labor market, inasmuch as dismissals of workers seems to have mostly been a last resort rather than a case of employers taking advantage of the opportunity to make changes in personnel.

Third, the fact that the pandemic deepened disparities in the labor market serves as a reminder that an analysis of phenomena based on averages or aggregates is often insufficient and misleading. Averages may conceal complexity that can be detected only by running more detailed analyses, such as on a specific group, region, or economic sector. Such analyses depend to a great extent on the availability of quality and up-to-date individual-level data, another area in which government systems need substantial improvement.

Fourth, even though the Israeli labor market has made an impressive recovery by some metrics, it is hard to determine whether the country’s reliance on the rigid furlough model throughout the crisis yielded optimal results, or whether a better outcome could have been produced by adopting a flexible furlough model (as used in some European countries). Israel did not carry out a meaningful trial of this type of approach, nor did it set up the bureaucratic infrastructure necessary for adopting this mechanism in future crises.

Fifth, we should note the problematic nature of the penetration of popular theories into the public discourse, some of which we examined in this study. The unprecedented intensity of the pandemic and its arrival in waves generated especially great uncertainty, as compared with previous crises. In such a situation of uncertainty and unpredictability, there is a natural tendency to grab hold of incomplete information that may be anecdotal, or to make inferences based on reports from other countries where the pandemic did not necessarily develop along the same lines as it did in Israel. Our analysis shows that one should be extremely cautious about drawing conclusions regarding the state of the Israeli economy from such partial or unsuitable data sources.

Finally, we must bear in mind that some of the conjectures for which we found no support may become true in the future, as the result of newer strands of the virus and additional waves of contagion. These might augment the cumulative damage, leading to new developments and outcomes. Let us hope that this caveat will prove to be superfluous.