COVID-19 recovery: Israel's economy hangs in the balance

Balance is the key element in Israel’s economy recovering from its fall due to COVID-19, according to Economy Ministry director-general Dr. Ron Malka.

When the pandemic hit almost two years ago, economies around the world suffered with Israel’s among them. When the country went into lockdown, only essential businesses could remain open if employees couldn’t work from home, which meant that shops, restaurants, hotels and the like had to close. Meanwhile, the tourism industry was brought to a standstill as the skies remained strictly closed, blocking incoming tourism from entry to Israel. These, among other restrictions, greatly harmed the economy.

As COVID dragged on and Israel entered two more lockdowns, it became clear the country needed a way to live alongside COVID and enable lives and the economy to continue as normally as possible. Vaccines helped toward that end, but new variants have forced people to keep being careful, and created the need for tightening of restrictions. This is where balance has been essential.

“The challenge is to find the right balance between the will, on one hand, to look after the health of the public and reduce the contagion as much as possible; and on the other hand, allow the economy to keep developing with minimum restrictions,” said Malka.

“The fact that we’ve managed to prevent going into another lockdown up to this point has allowed the economy to flourish, which has not happened in other places around the world yet. The [vaccine] booster and the delicate restrictions that allowed the economy to advance are a major success.”

Malka explained that they used the number of hospitalized COVID cases as a point of reference for restrictions. When the cases rose, restrictions were tightened, but when cases were down, fewer restrictions were needed.

He added that with the fifth wave of COVID brought on by the Omicron variant, a lockdown may also be avoided.

“It’s not easy at all,” he said. “The economy is very dramatic. When you impose a lockdown, recovering from it is very difficult.”

Citizens who couldn’t go to work during the lockdowns needed to receive compensation; as a result, the halat program (unemployment payments for people who were put on leave) was created when the first lockdown began. Employees whose jobs were shut down registered with the National Insurance Institute and the Israel Employment Service, and were given 70% of their earnings every month while on leave.

“We have learned a lot of lessons from the whole system of compensations and support for the market,” said Malka, noting that changes are needed to the halat program, should it be reinstated in the event of another lockdown. “All the support we gave to the different industries was done in an unbalanced way. Now [the government compensation programs] are asking for refunds for [the financial] support people were given that wasn’t justified.”

As the market reopened after the third lockdown, there also became a problem of human resources.

“Our biggest challenge right now is human resources,” said Malka. “All the balance in the labor market is gone. On the one hand, we are seeing unemployment, but on the other hand, we are seeing so many available jobs, and we’re talking about low-skill jobs.”

Malka explained that this is a challenge because if the problem was in high-skill jobs, it could be more easily solved by training more people to fill the empty slots. But when the jobs that need filling are low-skill and there are plenty of unemployed people, it creates a problem.

So where is this imbalance coming from?

“It’s possible that [human resource problems] stem from the way halat was handled, but we are still looking into it,” said Malka. “There is also a problem of motivation. We know that at least some of the unemployed can work but are choosing not to for all sorts of reasons.

“Is it because they think their salary is too low? Is it because halat enabled them to amass some money? Is it because they changed the balance in their lives and have a different perspective because someone they knew died of COVID, so why bother? We don’t know. It can be all of the reasons together. It can be that halat is responsible for creating a change in motivation.”

Israel Democracy Institute (IDI) vice president Prof. Karnit Flug has a different theory.

“People are looking for jobs,” she said. “But when we recover from a crisis like COVID, people are likely to take the chance to leave their jobs and look for something better. A lot of people didn’t go back to work at the same place.

“Another problem has been that the government wasn’t effective in helping people retrain for different jobs in 2020,” she added. “Attempts are now being made to help subsidize training for people who want it, while helping them financially while they’re being trained, but it’s not enough considering the large number of people who want this.”

SWITCHING JOBS

Stories from people who quit or changed their jobs during COVID show various reasons for doing so.

Nathan is an example of someone who left his minimum-wage job in retail for a better-paying job because of COVID. “I worked in a mall, and I would only go to work once a month [to pay into] the National Insurance Institute,” he said. “It wasn’t worth the anxiety and risk that I might catch COVID from working in a mall for what I was being paid. I also didn’t get paid halat because I was abroad for a few months before COVID hit, and I was told the payments were calculated by an average of your salaries for the last six months, which meant mine was zero.”

Maya also quit her minimum-wage job for a higher salary. “I had to pay rent and buy essentials, but they messed up with my halat and paid me too much in the first lockdown, so they made up for it in the next two lockdowns by paying me barely NIS 1,000 a month. No one can live off that. My part-time minimum-wage job was barely keeping me afloat. I had to get a better-paying job in order not to go broke.”

Saul was forced to quit his job as a bartender between the first two lockdowns because he wasn’t getting enough shifts. “I couldn’t pay rent and had to move back in with my family for a bit.” He found new work as a bartender, but his place of work relies on tourists to stay open, and Saul had to quit again when the borders closed due to Omicron. He is now trying to find a new job but doesn’t think he’ll go back to bartending: “I’m trying to find something that isn’t affected by COVID.”

Gal, on the other hand, did not want to leave her job. “I was a waitress in the same restaurant for seven years before I was sent out for a very long halat. I thought I would go back to the same role when things went back to normal, but they decided not to take me back to the same job, and what they offered me instead wasn’t right for me so I left.” 

After a short stint as a waitress in another restaurant, Gal left because she wasn’t satisfied with the pay or the hours. She is not currently looking for a job because she is a student and is facing exam period, but when she begins looking again, she is not sure she will look for work as a waitress. “If something more interesting or connected to my field of study comes up, I’ll be likely to go work there.”

Yelena was a travel agent for 13 years before COVID hit, but found herself looking for another job after sitting at home for nine months. “I could have done so longer but I saw that it wasn’t going anywhere,” she explained. “I’m divorced, so I keep a household on halat alone. Someone offered me a position in special education, so I looked into it, and I’ve been there since.” Yelena would have preferred to stay in her old position if she could. “I loved being a travel agent. I was optimistic, but then I saw nothing was happening.”

Nathan and Maya did what Flug suggested and took the opportunity to find better jobs. This could be why low-paying jobs are struggling to find employees. Higher-paying areas like hi-tech and biomed have continued to be stable with good levels of employment, and have succeeded during the pandemic because people were able to continue work at home.

The IDI conducted a survey of people who have left their jobs, finding a rise in the last few months of people who had resigned their positions and are now looking for new jobs; and a reduction in those not looking for jobs. It also showed that while most people have returned to work at the same place in the same role, almost half preferred to change their jobs entirely.

TOURISM TRIBULATIONS

One area that has struggled greatly during COVID is tourism, which has been greatly harmed economically and unable to supply work to a large number of its employees.

The travel bans imposed at the beginning of the pandemic and reimposed with every wave caused suffering to tourism industry employees. Many travel agents placed on halat never returned to work, and tour guides struggled to find work since there were no tourists who required their services. Last month, tour guides organized a protest outside Ben-Gurion Airport to object to the travel bans that prevented incoming tourism.

A few days after the protest, a plan to assist the employees of the tourism industry was agreed on by Prime Minister Naftali Bennett, Finance Minister Avigdor Liberman, Tourism Minister Yoav Razbozov and Economy and Industry Minister Orna Barbivay. (Liberman created an outcry earlier in December with this statement, “As for travel agents and tour guides, it should be said: Start changing professions.” He later apologized.)

According to the plan, tourism industry employees such as tour guides and travel agents will be eligible to receive training in a different industry of their choosing, with the government funding up to NIS 20,000 of the program. They will also receive a monthly payment of up to NIS 10,000 for up to four months for the duration of their training.

At the same time, to assist the tour guides, the government will arrange for some 25,000 free tours throughout Israel to be given by the country’s tour guides. The guides will be paid NIS 1,000 for every tour they give.

“We are not giving up on tourism,” said Liberman. “We are looking forward while at the same time, continuing to manage a responsible policy of living alongside COVID.”

While this plan may help many of those suffering in the tourism industry, recovery is still a long way away. According to Malka, if the industry recovers at all, it will take a long time.

Whereas things are still looking down for tourism, Malka is optimistic about the recovery of the economy at large.

“We will surpass the level of advancement we were at,” he affirmed. “If we were at $40,000 GDP a year [before COVID], I think we will pass that. We are now starting a quick economic recovery and the strengthening of the shekel reflects that. There are a lot of investments pouring into Israel from around the world. The world understands the Israeli talent and abilities and I expect that if we manage things in the right way, the development will be far ahead from what it was.”

According to Flug, the recovery rate is faster than expected. “We surpassed pre-COVID levels in the second quarter of 2021, and some countries haven’t gotten there yet.”

She warned that this improvement may not be consistent. “We are living in unpredictable times, and we might see a regression. We need to be careful because we’re at the height of a new wave.”

But while the economy is recovering well nationally, the socioeconomic situation is different.

“Yes, the economy is recovering, but it isn’t balanced,” said Malka. “One of our biggest and most difficult challenges is how to make the [improvements] permeate and spread out more equally, and it’s not an easy challenge. We are at a point where we cannot put more taxes on the higher-earning people. The tax is already high, so we need to see how we reduce the gaps from the bottom by easing things for the weaker levels. It’s a long and complicated process.

“A big part of it is in raising productivity, creating quality jobs, because the better quality the job and the better trained the employee, the higher the salary – and that reduces the gaps with those in very high-earning jobs like hi-tech. And of course, there are other mitigations according to economic capabilities to try and keep the advancing economy balanced and benefiting everyone.”

INFLATION CONCERNS

Another phenomenon we have been witnessing lately is inflation, with prices rising in various areas of the economy.

“I definitely think COVID has affected inflation. We are seeing a global wave of inflation that didn’t exist before COVID. It’s a result of two things. Firstly, in order to help people survive the pandemic, governments did cause a positive flow of money. They printed money, which in itself causes inflation. 

“On the other hand, after the lockdowns, we had a rise in demand. There was demand for a lot of products, but in a lot of places, the shelves are empty. And when we don’t have the ability to import enough, the higher demand causes higher prices. It’s a global phenomenon.”

Malka also explained that in Israel prices are rising less than around the world because of the strengthening of the shekel. Because it is stronger now in relation to the US dollar, anything imported is cheaper when you convert it to shekels.

“In the US we are seeing an inflation of 6%, and in Europe it’s over 5%,” he said. “Here it’s somewhere around a little over 1 [%], so our situation is relatively good.”

Here too, balance is key. “We’re always checking that the rising prices are justified and not because some manufacturer or importer has exaggerated. That’s our job. We are always making sure that the prices are really balanced.”

Yet Flug cautioned that it is sometimes hard to know what the good balance is in a time as unpredictable as COVID.

“We definitely want balance, but we need to find the right balance. For instance, you want to give a good enough of a security net to help people but at the same time, not give people negative motivation for working. This was key in the decision to stop halat. It’s a matter of crisis vs. encouraging people to go back to work.”

The bottom line is that while the economy is recovering and there is room for optimism, there is still a long way to go – and the key going forward will be maintaining a good balance at every step of the way. ■