How can Israel flatten its unemployment curve?

Employees at dozens of branches of the Israeli Employment Service have churned their way through over 900,000 new applications since the start of March, as the unemployment rate has exceeded 25%

POLICEMEN WALK past shuttered stalls at the Carmel market in Tel Aviv last week. (photo credit: CORINNA KERN/REUTERS)
POLICEMEN WALK past shuttered stalls at the Carmel market in Tel Aviv last week.
(photo credit: CORINNA KERN/REUTERS)
Just six months ago, in October 2019, Finance Minister Moshe Kahlon hailed newly published figures by the Central Bureau of Statistics showing a historic low rate of unemployment – a mere 3.4%. Today, that seems like a distant memory.
Employees at dozens of branches of the Israeli Employment Service have churned their way through over 900,000 new applications since the start of March, as the unemployment rate has exceeded 25% – an unprecedented figure for Israel.
The vast majority of new applicants - almost nine out of 10 claimants - are employees who have been placed on unpaid leave for at least one month. It is still anyone’s guess how many of those will return to their former workplace once the novel coronavirus crisis is over.
At the Employment Service's Ashkelon bureau, the number of jobseekers has jumped from 4,000 to 18,000 within a matter of weeks. The bureau staff – primarily young mothers working long hours – are tired but motivation remains high.
"In addition to finding work for jobseekers, we find ourselves wearing several hats: we are also mentors, social workers and offer practical support to claimants," bureau head Orit Zeneva told The Jerusalem Post.
"Standing on the frontline of this situation, I feel that our mission now is far greater than ever before. At the end of the day, the large numbers are people and parents, most of whom provide a livelihood for their households. Until recently, they had job security. Now, suddenly, the rug has been pulled out from underneath their feet."
Some applicants, Zeneva said, are eager to return to their former place of work once the outbreak subsides, while others are worried and simply want to earn a living immediately. A third group, she added, are interested in using the crisis as a turning point and opportunity to build a different career path.
Data published earlier this week by the Employment Service showed that more than 45% of applicants during March were 20 to 34 years old. Employees over the age of 55 constituted nearly 15% of new applicants.
Unskilled workers, education system employees, sales workers and hospitality staff are among the groups hit hardest by the measures taken to contain the pandemic. 
Many discussions have focused on "flattening the curve" in terms of infections and the likely recession. Flattening the curve of unemployment is also likely to pose a significant challenge. 
WHEREAS OTHER governments have opted to directly assist employees placed on unpaid leave, or alternatively, opted to funnel aid through employers, Israel has relied on existing support delivered via its Employment Service and the National Insurance Institute (Bituach Leumi). After 30 days of unpaid leave, employees fulfilling the necessary criteria are eligible to receive unemployment benefits.
"I am concerned that this is a very expensive system for the Israeli government, and that there are better policy alternatives, almost by definition. The system has the threat of severing the relationship between employers and employees," said Prof. Yotam Margalit, a senior fellow at the Israel Democracy Institute and a professor at Tel Aviv University.
"If we go down the current path, once recovery begins the default will be that you are unemployed and each business will need to decide whether to re-employ you. Some employees will be brought back and some won’t. I worry that with the current system, Israel will have higher rates of unemployment than the situation necessarily merits."
Those likely to be disproportionately hurt by "severing the relationship" between employers and workers, Margalit said, are older workers, who are generally perceived as the most vulnerable in the workforce.
Having accumulated years of salary increases, older workers tend to be more expensive to retain and are already often subject to workplace biases in favor of younger workers. Once they have been laid off, this segment will likely find returning to work especially difficult.
Margalit emphasizes that there are three different but connected timelines for the labor market: the period of the lockdown; the gradual emergence from the lockdown; and, finally, the make-up of the new market, which will have a huge impact on the future of the Israeli economy.
"We need to be clear that decisions made in the first and second phases will have a substantial impact also in the third phase," he said. "There are important reasons to focus on the short-term, but immediate solutions are going to heavily impact the longer-term trends that we're going to see, whether its industrial relations or long-term unemployment."
Israel's southernmost city, Eilat, has been the hardest hit by the outbreak, largely due to the city's year-round reliance on domestic and international tourism. Unemployment in the city soared from 3.3% in February to 69.3% at the end of March.
Other cities suffering most as a result of the outbreak include Beitar Illit, where unemployment jumped from 3.3% to 52.1%, primarily due to school closures, and Nazareth, where unemployment increased from 6.3% to 46.6% within the month.
In a paper published on Monday, based on assumptions that restrictions will be lifted gradually by the end of June, the Bank of Israel's research department forecast the unemployment rate to be 8% among prime working-age employees during the second half of the year. The labor market is only expected to return to pre-crisis levels at the end of 2021, the bank said as it cut its benchmark interest rate to 0.1%.
"There is a sizable number of people – one million or so – that temporarily have a dramatic drop in income, with some receiving unemployment benefits," Gil Bufman, chief economist at Bank Leumi, told the Post. "In most cases, benefits will not fully compensate for the wages that they do not have right now."
LOOKING TOWARD the "day after" the crisis, Bufman warns that some businesses might have been too quick to put employees on unpaid leave, without dedicating enough time to thinking about the retention of employees.
"When the solution for the outbreak arrives and economic growth returns, companies who severed their ties with employees will find it difficult to find new employees to rehire. There could be a lot of human capital lost along the way," said Bufman, echoing Margalit's comments.
"To some extent, this is also the result of economic policies by the government. It might have been a wiser choice to better compensate Israeli businesses so that they would be willing to keep employees on the payroll, spending the same amount of government money in a more efficient way of dealing with this transitory situation."
Referring to the government's NIS 80 billion financial assistance plan announced last week, Bufman said authorities are "really coming up short" in terms of efficient steps to deal with the financial fallout of the COVID-19 outbreak. 
The package does not have the "same depth of fiscal aid" as measures implemented by other governments, he said.
Except for automatic stabilizers, such as the provision of unemployment benefits, Bufman says the government has "not done a lot so far." Even modest grants provided to the self-employed require the fulfillment of a lot of criteria.
"We are looking for a much more proactive role for the government to take but it doesn't look like that will be the case," Bufman said. "There are a lot of headline numbers, but when you start to see the actual money flowing, you don't see anything close to the 80 billion."