The Israeli Labor Market Under the Coronavirus Crisis: An Overview
Author: Noam Zontag, Gil Epstein, and Avi Weiss Policy Research

Prior to the outbreak of the coronavirus pandemic, the labor market in Israel was tight, resilient, and characterized by full or near-full employment. However, the Israeli labor market, as well as markets around the world, experienced substantial disruption in 2020 with

the outbreak of the coronavirus pandemic and the implementation of social distancing.

Breaking down the employment effects of the crisis

The data show that the decline in employment was not uniform and the effect varied significantly across groups and at different points in the “waves” of the outbreak.

  • At the beginning of the crisis, 38% of women were unemployed or on unpaid leave compared to 30% of men. In June, the trend reversed and the rates were somewhat higher among men. Unemployment then rose again among women and was 3 percentage points higher than men in October.
  • A breakdown according to level of education shows that the main victims of the crisis, particularly during the lockdowns, were individuals with low levels of education.
  • The impact of the crisis was particularly severe among young workers (18-29) and among older workers above retirement age (65-74), even between the lockdowns.
  • The unemployment rate of Haredi men reached 48% in April, compared to 28% among non-Haredi men, and remained high through the second lockdown.
  • Unemployment rates in the Arab sector were high at first but then declined and, since June, have been lower than those of non-Haredi Jews during some months.
  • The effect of the crisis, even once restrictions lifted, was particularly notable in the business sector where 14% of those employed in June 2019 were not employed in June 2020, compared to 5% not working in June 2019 out of those employed a year earlier. Among the self-employed the respective rates were 11% in June 2020, compared to 2% in the previous year.

The impact of the crisis is not confined to the share of workers who left the labor market; it also affected the average number of hours worked. Average workhours in Israel declined substantially during the first wave of the crisis – April 2020 workhours were about 14% lower than workhours in February 2020 and 9% lower than in April 2019 – but were actually higher during the second wave in October than during the same time the previous year (likely for reasons unrelated to the pandemic).

The wage paradox during the coronavirus period

Between February 2019 and February 2020, wages rose by about 3%. In March, with the imposition of the first lockdown, there was a drop in the average real wage and in April it increased by an exceptionally high rate, though this increase is misleading.

  • The calculation of the average wage relates to workers who actually were working at the time, and is therefore affected by changes in the mix of workers in the economy. The spike in April is likely due to the fact that many of the workers who were on unpaid leave in that month were relatively low wage earners and/or tended to work fewer hours, on average, than the workers who continued to work.
  • Real wages have declined since April, but still remained higher during the second shutdown than they were prior to the crisis, particularly in the business sector.
  • The exceptional increase in the average wage has significant budget implications, as both the minimum wage and wages of certain senior employees are linked to the average wage.

Labor graph EN

Changes in the workplace in the wake of the crisis

Workplaces have had to cope with the crisis by making strategic decisions and adapting ways of working. Some companies also took advantage of the crisis in order to implement efficiency measures that do not necessarily relate to the crisis itself.

  • Companies and industries in which flexible wage contracts are common were able to undertake wage adjustments.
  • Small businesses employing 5–10 workers reported that since the beginning of the crisis they had dismissed over one-fifth of the workers they had employed prior to the crisis.
  • In industries that can switch more easily to working from home, such as hi-tech and finance, a much smaller percentage of workers were fired or sent on unpaid leave.
  • A CBS survey of businesses showed that 16.5% of employers who allowed their workers to work from home were interested in continuing to do so after the crisis.
  • Work from home reduces the need to commute, makes high-quality employment more accessible in the periphery and for the handicapped, and provides flexibility in workhours. However, it has also resulted in a drop in productivity in some businesses.

The relationship between unemployment and job vacancies

The Beveridge Curve describes the relationship over time between the share of job vacancies in the economy and the unemployment rate. A tight labor market is characterized by low unemployment and a high number of job vacancies, and a loose labor market, the opposite.

  • Between February and March 2020, there was a large decline in the rate of job vacancies in the economy, from 2.2% to 1%.
  • The rise in the rate of unemployment began in March and continued until August, in parallel to the increase in the rate of vacancies.
  • The simultaneous increase may reflect the gap between the skills of workers who were laid off in industries that were particularly affected by the crisis and the skills required in industries that were less affected and are looking for workers.