'This could backfire onto the state'

Health largely OK, but job prospects for the young on life support amid pandemic

Previous crises have shown economists that if young unemployed men and women don’t get back to work quickly, they could get stuck on the margins of the labor force for good

Shoshanna Solomon is The Times of Israel's Startups and Business reporter

People wearing face masks as they shop at the Mahane Yehuda Market in Jerusalem on July 3, 2020 (Yonatan Sindel/Flash90)
People wearing face masks as they shop at the Mahane Yehuda Market in Jerusalem on July 3, 2020 (Yonatan Sindel/Flash90)

Ran is a 25-year-old Israeli who spent two years studying to become a civilian pilot in Barcelona, Spain. His dream was to work for a European airline and as he completed his studies, he sent out his CV to a number of carriers with the hope of landing a pilot job. Then the coronavirus struck, grounding planes and scrambling all of his plans.

Now Ran, who did his army service in the Israeli Air force, is living in his parents’ apartment in Ramat Hasharon and planning to start studies in computer science at the Hebrew University of Jerusalem when new academic year starts. Meanwhile, he is taking two online courses in math.

“It sucks,” he said in a phone interview from his parents apartment. “I really want to be a pilot. I wanted to study too — but not just yet, only after working for a few years. Now, though, the best thing I can do with my time is to study.”

Another Israeli student who was with him in Barcelona is also stuck without a job and “is looking to find something to do with himself,” Ran said.

Self-employed, small business owners and activists participate in a rally calling for financial support from the Israeli government in Tel Aviv, May 2, 2020. (Miriam Alster/Flash90)

As the coronavirus wreaks havoc on economies, causing businesses and stores to shut down and leaving millions without jobs, there is one segment of those out of work that is most worrying economists and policymakers: young people, aged 18-35.

They fear, based on previous crises, that if these young unemployed men and women don’t manage to get back to work soon, they might forever be on the sidelines of the labor force or remain hobbled by low pay, even when they do find a job.

“Giving young people the skills and tools to find a job is not only good for their own prospects and self-esteem, it is also good for economic growth, social cohesion and widespread well-being,” said the OECD secretary general Angel Gurría in a report on youth and the response to COVID-19. “That’s why investing in youth must be a policy priority the world over.”

Noam, a 21-year old young Israeli who finished her army service in November, is also on the hunt for employment. She has applied for many jobs posted online but has not heard back. Until the beginning of February she worked in an ice cream shop, but left because the terms were not good. Unfortunately, the pandemic hit immediately after that, shutting down the economy in March, and now she is stuck.

The situation is “appalling,” she said in a phone interview. “You finish your army service and you want to start doing something else and saving some money, but now I can’t.” She has to pay rent on the apartment she shares with her sister, as well as insurance on the car she recently bought.

“I know that if I get stuck, I will have some financial support” from her family, she said, “but there is a limit. The pandemic is putting our lives on hold, we can’t plan anything and we don’t know how long it will take and when it will end.”

Israelis wearing protective masks ride the light rail train in Jerusalem on June 28, 2020. (Menahem Kahana/AFP)

Even with eased restrictions, unemployment rates that were below 4% before the start of the pandemic were still estimated at a whopping 20.9% on July 5 according to the National Employment Service data, with 847,207 people looking for jobs, 584,819 of them furloughed.

Since April 19, when the economy began opening back up, 385,020 people have  returned to work, the data showed. Worryingly, though, between July 2 and July 5, more new people registered to look for a job than declared they had gone back to work: 466 people said they were back at work, while 850 people registered as unemployed, the data showed.

Israel’s economy is expected to contract in 2020 by some 6.2%, or by 8.3% if there is a second wave of the virus, compared to last year, an OECD report said last month. And high unemployment may prove the biggest obstacle on Israel’s road to recovery, experts fear.

Aftermath of a meltdown

Almost 1 in 10 jobs held by workers under age 30 in developed countries were “destroyed” during the crisis, the OECD report shows. These were largely part-time or temporary jobs in the fields that were most affected by the pandemic: restaurants and bars, catering businesses, hotels, leisure and tourism.

The current crisis comes after European nations like Spain, Greece and Ireland saw the number of employed youths halved between 2007 and 2014, with the young shouldering a significant share of the social and economic consequences of the 2008 financial crisis. The number of unemployed young people rose by 20% in that period, leaving one in eight people age 18-25 in poverty, the OECD report said.

Many of the young people who lost their jobs after the 2008 financial meltdown never really got them back even after economies recovered. Indeed, across the OECD, the youth employment rate has stagnated since 2010 and is still below pre-2008 levels, the report said.

A salesman sweeps the pavement in front of his shop in the central vegetable market “Kapani”, in northern Greek city of Thessaloniki on June 2, 2014. Greece’s trade federation said Monday that some 31 percent of all shops in the city center remain unoccupied as a result of the country’s acute financial crisis that has seen unemployment hit record-high levels amid a six-year recession. The federation said the number of closed shops was slightly down compared to its last survey about six months ago. (AP Photo/Nikolas Giakoumidis)

About 40 million young people in OECD countries, equivalent to 15% of those aged 15-29, are so-called NEETs: not in education, employment or training. Two-thirds of them are not even looking for work. And while up to 40% of all youth experience a period of inactivity or unemployment over a four-year period, for as much as half of them this period will last a year or more, and may lead to “discouragement and exclusion,” the report said.

“Being unemployed at a young age can have long-lasting ‘scarring effects’ in terms of career paths and future earnings. Young people with a history of unemployment face fewer career development opportunities, lower wage levels, poorer prospects for better jobs, and ultimately lower pensions,” the OECD report said.

“The economic effects of the pandemic risk aggravating the existing vulnerability of young people in labor markets, as they are more likely to work in non-standard employment, such as temporary or part-time work, facing a higher risk of job and income loss,” the report added.

‘This could backfire’

In Israel, the coronavirus pandemic has caused a surge in young people, defined as up to the age of 34, signing up with the Employment Service, which is the government placement body in charge of helping people find jobs. Its figures serve to keep track of what is happening on the ground regarding people out of work.

Israelis outside a closed restaurant on the beach in Tel Aviv, on May 25, 2020. (Olivier Fitoussi/Flash90)

According to a data compiled by the Employment Service, during the coronavirus pandemic crisis, the number of young people on its books accounts for 47.6% of the total, up from 41.7% pre-crisis.

The data, released in a June 30 report authored by Ofri Eichel and Gal Zohar for the Employment Service, also showed that since the lockdowns were eased in April letting vast sectors of the economy get back to work, just 20% of workers age up to 24 had returned to work by the end of May, the lowest rate among all age groups, which were 22%-25%.

The crisis has thus not only hit young Israelis hard, it has also exacerbated a trend: 2018 OECD data shows that Israel’s rate of NEETs was 13.3%, slightly higher than the OECD average of 13%, although still lower than the number in Italy, Spain, Greece and France.

Yaniv Bar, research economist, at the economics department at Bank Leumi Le-Israel Ltd. (Kfir Sivan)

And while employment levels at all ages in Israel rose over the years, from 2012 to 2017, unemployment rates among those aged 18-34 were still the highest of all the age groups, as of the end of 2017, the Employment Service data shows.

The young people “increasingly become disconnected from the work market” and don’t develop “the simple daily skills” needed to fit into the workforce, Yaniv Bar, a research economist at Bank Leumi Le-Israel Ltd., said in a phone interview. These skills could be as basic as learning to operate office software or developing the interpersonal skills a workplace demands.

The more these skills are eroded, research on European youth has shown, the harder these young people will find it to enter the job market later, he warned.

If immediate steps are not taken, the concern is that a pattern similar to that seen in Europe in the wake of 2008 will develop in Israel. “This could cause us to stay with unemployment levels that are much higher than what we knew before the crisis hit,” Bar said.

Higher unemployment levels would mean “a loss of future tax revenue for the nation,” Bar said, as well as the possible burden of supporting the unemployed through grants and benefits.

Being young and idle could lead to risky behavior like drugs and drinking, Bar said, “the cost of which the government will have to shoulder.”

“This could backfire onto the state.”

Young Israelis drinking alcohol mixed with energy drinks (photo credit: Kobi Gideon/Flash90)
Young Israelis drinking alcohol mixed with energy drinks. (Kobi Gideon/Flash90)

Israeli army buffers some of the impact

Israel’s workplace has two significant differences from those of other OECD nations, the Employment Services’ Yechiel and Zohar wrote.

Army service postpones the entry of many young people into the workplace. “Without the army we’d see many more” new people registering at the Employment service, they said.

Those signing up now during the pandemic likely stem from populations generally exempt from mandatory military service, such as Arab and ultra-Orthodox Israelis, or youngsters from a low socioeconomic standing who either weren’t drafted or didn’t finish army service, they said.

Another feature that differentiates Israel’s young workforce is its lower skill set compared to their peers in other OECD countries, according to previous international tests, which will likely make it even harder for them to get back into the workforce.

Daphna Aviram-Nitzan, director of the Center for Governance and the Economy at the Israel Democracy Institute (Courtesy)

In a crisis, “the first thing you do is to let go of the youngest and the weakest,” said Daphna Aviram Nitzan, director of the Center for Governance and the Economy at the Israel Democracy Institute, a think tank.

The government should offer vocational training and retraining programs for the hundreds of thousands of jobless , either directly or via their former employers, she said.

Employers should be encouraged to rehire those they furloughed and get government subsidies to retrain them for jobs that they actually do need to fill, she said, and the state should offer fully funded courses for basic skills essential in the labor market.

As part of a NIS 100 billion ($29.1 billion) rescue package to combat the economic impact of the virus, the government has allocated NIS 200 million for vocational training programs, said Leumi’s Bar. But almost nothing of it has been actually spent yet, he said.

In addition, as part of the 2020 budget, the Finance Ministry is dusting off an existing work plan that set out an employment roadmap to 2030. But the reality on the ground is vastly different today — the roadmap was set up when unemployment was at record low levels — and the ministry has not yet defined what the budget for the vocational training plans will be, TheMarker financial newspaper reported on Monday.

“We see it to be of utmost importance that young people return to the employment cycle, and for this purpose giving grants to employers has been approved” for  hiring employees, the Finance Ministry said in an email on June 28 to The Times of Israel.

Israel is in the midst of a second wave of the pandemic, with daily infections spiking to record highs. This is leading the government to reconsider its rollback of virus restrictions, which saw almost all limits on gatherings rescinded.

The virus has killed 332 people in Israel, and almost 30,000 have been infected. Younger people have so far remained largely unscathed by the health consequences of the pandemic, but the economic toll is a different story.

Not addressing the special needs of this age group will “affect their future course in the workplace,” the authors of the Employment Service report, Yechiel and Zohar, wrote.

“The return to work will impact the reintegration of these young workers into society and the workforce,” they wrote. “Those who get into the unemployment cycle, and later into long term unemployment, could be absent for too long a time from the workforce.

“But just getting them back to work is not enough, as there is a need to strengthen their skills as well. Only a good mix of getting them back to work, on one hand, and providing them with skills, on the other hand, will allow these young people to survive this crisis and be ready to cope with the changing workplace.”

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