Operation “Roaring Lion” and the Need for a Safety Net for the Self-Employed in Times of Crisis
After already sustaining severe losses during the COVID-19 crisis and subsequently in the Swords of Iron War, Israel’s self-employed once again face economic uncertainty with the outbreak of the renewed war against Iran, as the economy has been shut down by government decision. It would be wise for the Ministry of Finance to adopt the proposal by IDI experts to establish a safety net for the self-employed that will provide a permanent solution for times of crisis, as is customary for salaried employees and as is used regularly in other countries.
Photo by Yonatan Sindel/Flash90
According to a special survey conducted by the Israel Democracy Institute, even before Operation "Roaring Lion" about half of the self-employed reported that their business income was still lower than its level on the eve of the Swords of Iron War, and 49% reported that the volume of their business activity had declined as a result of the war. Now the self-employed will be forced to absorb yet another blow, left without a social safety net in times of crisis.
This is a foreseeable scenario about which we warned nearly a year ago, and in response to which we wrote a study with detailed policy recommendations to correct the situation. Despite having had ample time to prepare, self-employed workers are once again left without protection. They have proven to be among the most vulnerable and exposed groups in times of crisis, particularly in the absence of a social safety net that provides an adequate response.
This situation severely harms small and micro-businesses and the freelance population—who constitute more than 13% of Israel’s labor market—and increases the likelihood that they will not be able to recover.
The self-employed population has been hit economically far more severely than salaried employees in each of the recent crises we have faced since 2020. These have been six consecutive years in which the self-employed have been left without orderly assistance mechanisms: from the COVID-19 pandemic, through the "Swords of Iron" war, to the events of the past week.
The assistance mechanisms provided to them by the government have always been “after-the-fact assistance,” amounting to a slow response to a challenging reality, thereby increasing the likelihood that self-employed workers and freelancers will face financial hardship.
In contrast to the unpaid leave (furlough) mechanism, which allows salaried employees and their employers to benefit from a mechanism that can be activated quickly and flexibly, assistance mechanisms for the self-employed are generally provided on an ad hoc basis, in an improvised manner, and are therefore less effective. The absence of a more regulated mechanism increases the uncertainty that the self-employed are already facing and thus causes them additional harm. It also undermines the effectiveness of the assistance that the state ultimately does provide the self-employed as crises persist.
As has been detailed in a study conducted by IDI experts Gilad Be'ery, Roe Kenneth Portal, Nadav Porat Hirsch, and Daphna Aviram-Nitzan, the two main reasons that the self-employed do not receive unemployment benefits in normal times are the concern that such a mechanism would create stronger negative incentives for the self-employed than for salaried employees, and that it could lead them to take disproportionate risks. However, when dealing with an external crisis that is unrelated to their conduct, these concerns are significantly reduced, and the harm resulting from the absence of a compensation mechanism may ultimately make the support required for those self-employed individuals who collapse more costly.
Thus, the Ministry of Finance should establish a permanent mechanism that will provide the self-employed with a social safety net in times of crisis, as exists in other OECD countries, which have internalized the need to respond to rising global instability and the increasing frequency of crises. Israel, where crises are particularly frequent and prolonged, does not have the privilege of remaining behind. Improving protections for the self-employed in times of crisis constitutes an important component in strengthening the overall governmental emergency preparedness framework.
This article was published in the Jerusalem Post.
