Work hours lost in Israel due to virus exceed EU average, Finance Ministry says

Ministry sees jobless rate in 2020 at 15.4%, compared to 3.8% in 2019

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

Self-employed Israelis protest the lack of financial support from the government during the coronavirus pandemic, on Rothschild Boulevard in Tel Aviv, July 7, 2020. (Miriam Alster/Flash90)
Self-employed Israelis protest the lack of financial support from the government during the coronavirus pandemic, on Rothschild Boulevard in Tel Aviv, July 7, 2020. (Miriam Alster/Flash90)

The furlough model adopted by the Finance Ministry in Israel, in which workers are put on unpaid leave and are eligible for unemployment benefits, has proven to be more detrimental to the job market that the Short-Term Work (STW) programs or more flexible furlough programs implemented by other developed economies, such as Denmark or the Netherlands.

This is shown by the greater number of work hours Israel lost in 2020 compared to European countries, according to data published by Israel’s Finance Ministry on Sunday.

Israel experienced a drop of 16.9 percent in work hours in the second quarter of 2020 – the latest data available – compared to the same quarter in 2019, compared to an EU average of 14.4%. In Turkey the drop was 31%, in Spain 27% and in Portugal 26%, the statement said. Denmark dropped a mere 3.75%, and for Holland it was 6.5%.

The Finance Ministry on Sunday laid out two alternate forecasts for growth in 2021 – one for an optimistic scenario in which the pandemic is brought under control via a massive inoculation campaign in the first half of 2021, and one for what it called a more unlikely pessimistic scenario that envisages that illness and economic lockdowns will continue throughout the year.

In the first, the ministry foresaw a GDP jump of 4.6 percent this year with unemployment at 8.6%, and in the second, the economy will grow by just 1.9% this year with unemployment at 11.6%.

The ministry said it expects the economy in 2020 to have contracted by 3.3%, better than the 4.15% originally forecast by the OECD, and below an average contraction of 5.5% for developed economies. This is due to the strong position with which Israel entered the coronavirus crisis, the structure of its economy — which is tech-heavy, with tourism accounting for just a small part of its activities — and the monetary and fiscal steps undertaken that “brought about a limited hit to the domestic product in comparison with other countries,” the ministry said in a statement.

Israel entered the crisis with a growth rate of 3.4% in 2019, record low unemployment of an average 3.8%, and a debt to GDP ratio of some 60%.

Earlier this month, Bank of Israel forecast a GDP contraction of 3.7% for 2020, and a 6.3% growth in 2021 assuming a rapid rate of inoculation continues.

The impact of the virus on exports, which accounts for a significant component of the economy, was light, the ministry said, as the high-tech industry flourished in the crisis, with foreign players investing in the sector and as the export of tech services grew.

The main impact of the pandemic, however, has been on the job market and local consumption, both of which have been hit more than in OECD nations, the statement said.

The broad unemployment rate in 2020 is expected to be 15.4%, compared with 3.8% in 2019, the statement said, and private consumption for the first three quarters of 2020 declined 10.2%, as lockdowns were imposed on the economy and citizens spent less, also due to the high unemployment rate.

The broad unemployment rate surged to a record high of 36.1% during the first lockdown, in April 2020 – including the unemployed, the furloughed, and the newly unemployed who are not seeking work.

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