Chief Economist: Job Market Recuperating at Slower Pace

YERUSHALAYIM -

​​In a briefing to the Knesset’s Finance Committee on Monday, Chief Economist at the Finance Ministry Shira Greenberg said Israel’s strong high-tech industry has helped the country withstand the corona crisis reasonably well, compared with other countries around the world.

The meeting was held as part of the preparations for the deliberations on the state budget and the accompanying Arrangements Law.

Addressing a question from Committee Chairman MK Alex Kushnir (Yisrael Beitenu), Greenberg said, “Even without [high-tech], we would be in a reasonable place in an international comparison. The fiscal and monetary expansions that have been carried out here have also given the economy the possibility to exit this crisis successfully. High-tech brings us to a much better place.”

The restrictions applied to industries and to economic activity in the market due to the pandemic “translate to [do] harm to the job market,” said Greenberg. “The firms send employees on unpaid leave or unemployment. This is what has been happening simultaneously around the world. Growth and global trade are declining, and this reduces demand for our exports. It causes a demand shock, which we are assessing. We see that the most significant shock is the supply crisis, more than the demand crisis.”

As far as the structural changes to the economy are concerned, Greenberg said “the whole digital issue, remote consumption and remote work – the crisis led to very swift changes that have been imposed on the economy, and some will remain in place.”

Greenberg noted that 2020 ended with a 9.5% drop in private consumption. “In this regard, we were hurt more, even in an international comparison, in light of the fact that there have been more restrictions on the market here,” she said. According to the Israel Export Institute, Israeli exports maintained their high volume in 2020, compared with the global trend. The analysis shows that after increasing by 5% in 2019 Israeli exports decreased by only 1% in 2020 to a total of $112 billion.

Excluding exports of tourism and transportation services that were affected at the global level due to the epidemic, Israeli exports increased by 4% in 2002 compared to 2019.

“A lot of this is the exporting of services of the high-tech industry, but not exclusively. Also, in the export of goods we finished [2020] with +4.4%,” Greenberg explained.

The job market, she told the committee, is recovering at a slower pace. The employment rate in mid-July stood at 58.2%, an improvement compared with the lockdown months, but still 2.7% lower (by some 184,000 workers) than the employment rate before the pandemic began in Israel.

Prior to the pandemic, the economic growth was positively affecting the weaker echelons of society, mainly with regard to employment, “but during the crisis, it was these populations that were removed from the job market,” Greenberg said. “Companies took workers with less productivity out of the job market. This shows that the weaker populations were harmed more, and this increases inequality,” she stated.

Looking ahead, Greenberg said that the integration of Israel’s Arab and chareidi populations into the job market in the coming years will bring about, in the long run, a significant increase of nearly 1% in GDP per capita and a significant decrease in economic inequality. Greenberg further noted that state revenues from taxes have “recuperated quickly” and returned to pre-pandemic levels.

MK Kushnir summed up the meeting and said, “Even in your most optimistic forecast ahead of 2025, we will plateau at a growth rate of about 3%. This means that GDP per capita is steadily declining, alongside the growth in population. We are not dealing with the situation. I am glad that the state budget and Arrangements Law deal with the structural changes that are meant to adjust the new job market that has been created to the qualifications of the workers. Another thing that has to be done is the integration of additional populations into the job market. The committee would also like to receive material on the crisis in the real estate market, as well as a more extensive study that you have on the job market.”