As employment rates rise, Israeli economists sound note of cautious optimism

Latest figures show August employment rate is the country’s highest in four years, but fears of a global recession remain.

VARIOUS ISRAELI banknotes are displayed for an illustrative photo. The economy is well on its way to the pre-pandemic standards of budgetary discipline. (photo credit: NIR ELIAS/REUTERS)
VARIOUS ISRAELI banknotes are displayed for an illustrative photo. The economy is well on its way to the pre-pandemic standards of budgetary discipline.
(photo credit: NIR ELIAS/REUTERS)

Israel reached its highest employment rate in four years, demonstrating that the country has fully emerged from the economic crisis brought about by the COVID-19 pandemic, Israeli economists have said. 

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Nevertheless, they also sounded a note of caution amid rising inflation rates around the world and the ongoing war in Ukraine. 

A manpower survey released on Monday by Israel’s Central Bureau of Statistics (CBS) showed that employment rates for Israelis ages 15 and over rose from 60.9% in July to 61.6% in August. The employment rate shows the percentage of employed people out of the total population. 

When the data for August is seasonally adjusted, the report stated, the employment rate for August stands at 61.5% (vs. 61.1% in July). The figure also marks a rise in employment rates from the COVID-19 pandemic, during which employment fell to 57.7%. 

The latest employment rate represents Israel’s highest in four years, when that number, seasonally adjusted, was 61.6% in August 2018. 

Illustrative photo of Israeli money (credit: MARC ISRAEL SELLEM)Illustrative photo of Israeli money (credit: MARC ISRAEL SELLEM)

At the same time, the unemployment rate also rose from 3.7% in July to 4.1% last month. The CBS defines the unemployed as people actively in search of work who do not already hold a job. 

Israeli economists appeared to be divided on the overall significance of the figures.

Professor Dan Ben-David, president of the Shoresh Institution for Socioeconomic Research in Jerusalem and an economist in the Department of Public Policy at Tel Aviv University, told The Media Line that, in general, Israel’s unemployment rates are low compared to the average for last year, which stood at roughly 5%.

“We’re doing well in terms of unemployment,” Ben-David said. “The issue is that when you dig a little bit deeper things are not quite as they appear. If you look at prime working age, which is 35-54, the most recent comparative data vis-a-vis the Organization for Economic Cooperation and Development (OECD) […] then labor force participation in Israel is low. The unemployment rate looks at something very partial: who isn’t working out of those who want to work.”

The OECD unemployment rate average stood at 5% in May, whereas the labor force participation rate for working-age population (defined as being between the ages of 15 and 64) hit 72.9% in the first quarter of 2022. By contrast, Israel’s labor force participation rate stood at 64.2% in August.

“In Israel, a lot of people don’t want to work,” Ben-David said. “We are doing better over pre-COVID and our improvement is better than OECD countries, but here too you need to take that with a grain of salt because it’s primarily due to the high-tech [sector]. Israel is much more dependent on high-tech than anyone else.”

“We are doing better over pre-COVID and our improvement is better than OECD countries, but here too you need to take that with a grain of salt because it’s primarily due to the high-tech [sector]. Israel is much more dependent on high-tech than anyone else.”

Prof. Dan Ben-David

Israel’s relatively lower labor force participation rate, he said, is due to large segments of the population not having the necessary skills or education to enter the workforce. Among these are members of the ultra-Orthodox and Arab sectors, as well as populations living in Israel’s social and geographic peripheries.

“Half the children in Israel today are getting a third-world education,” Ben-David asserted.

Dr. Gilead Fortuna, who heads the Center for Industrial Excellence at Israel’s Samuel Neaman Institute for National Research, told The Media Line that the CBS survey shows that Israel has fully emerged from the economic crisis brought about by the pandemic.

Employment v. Unemployment

“In terms of employment and unemployment [rates], we’re at the same place we were before the pandemic,” Fortuna said. “But many people have still not gone back to work.”

Israel’s inflation rate also appeared to be headed in the right direction, falling to an annual rate of 4.6% in August. The same cannot be said of other OECD nations, where the latest data showed that year-on-year inflation measured 10.2% overall in July. As central banks around the world hike interest rates in a bid to curb runaway inflation, the World Bank last week warned of the risk of a global recession in 2023.

Nevertheless, Fortuna remains optimistic.

“The Ukraine crisis has also disrupted markets but Israel is still in a good situation,” he said. “But if there is an escalation in Taiwan or some other part of the world then this would undoubtedly harm the global economy.”

Others stated that the economic forecast remains highly uncertain for now.

“We are definitely still coming out of the 2020 recession and it takes time,” Joseph Zeira, an emeritus professor of economics at the Hebrew University of Jerusalem, told The Media Line.

While most countries have emerged from the pandemic labor slump, he notes, there are growing fears of a recession fueled by the ongoing war between Russia and Ukraine.

“Since we are less dependent on Ukraine than other countries, if we have a recession [in Israel] it will happen because the world is also going through one,” Zeira predicted. “Then it might affect us, but as long as the world is not in a recession, we won’t feel it.”