Israel may well be heading for one of the most disastrous summers in its history. The government’s plan to allow emergency unemployment support to expire over the next couple of months is expected to leave hundreds of thousands without financial support amid the one of the worst unemployment crisis Israel has ever seen. Unlike most other OECD governments, Israel has been slow to expand unemployment benefits to those workers who have lost their jobs due to the coronavirus.

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Many have been calling on the government to prolong emergency support to furloughed workers, but the government has adamantly refused to do so. A key claim is that the labor market is still far from a full recovery, and that workers are expected to remain furloughed for months to come. The consequence of allowing eligibility for support to expire would therefore be that many Israelis may be left with no income whatsoever.

According to statistics published both by Israel’s Social Security Institute (Bituach Leumi) and the government itself, allowing the government’s unemployment support scheme to expire will lead to 134 thousand Israelis losing eligibility for support in June alone. Over the course of July this number is set to rise to 262 thousand, reaching 369 thousand by the end of August. According to Bituach Leumi, this includes many older Israelis with families to support. Over the course of August, 33 thousand Israelis aged 45 and over will lose their eligibility for support.

Why are so many Israelis losing eligibility?
In mid March, when Israel first entered coronavirus lockdown, the government passed a law extending eligibility for unemployment support to those workers who had been furloughed. However, since unemployment benefit eligibility in Israel is limited to only a few months a year, workers rapidly began depleting their eligibility.

As an interim solution, the government decided that the 35 days of full lockdown would not be subtracted from workers’ overall days of unemployment benefit eligibility. However, as the unemployment crisis persists, many workers have found themselves facing an end to their eligibility once more, with no employment prospects in sight.

Bituach Leumi, together with several politicians and union leaders have called on the government to further extend support to those who have lost their jobs due to the crisis. However, the government, spearheaded by the Ministry of Finance, has been claiming that since the economy is slowly recovering, those workers will soon be able to return to the labor market, and will no longer need government support. The MoF has also claimed that extending support risks harming the incentive to search for work, causing employees to prefer living off support rather than returning to work.

The unemployment crisis is here to stay (at least for a while)

Unfortunately, the idea that the quite unprecedentedly large number of unemployed workers might soon be able to return to work simply doesn’t match the economic data. As of this week, 737 thousand workers, or 18 percent of the workforce, remain unemployed. Unemployment rates have been slowly reducing since the end of the lockdown, but the future seems highly uncertain. Just this week, health experts have warned that Israel may be edging towards a second wave, with a fresh set of restrictions having to be put in place. This would be devastating for unemployment, setting back any improvement we might have seen over the past month.

But even without a second wave, prospects still seem grim. According to government statistics published last week, job vacancies are still at an all-time low. In fact, in May, only 42 thousand jobs were available on the market at all. In many industries demand for workers has plummeted: In the telecoms industry demand is 55% lower than it was before the crisis, and in retail the demand is 64% lower.

On top of that, a staggering 22% of businesses expect revenues to fall by half in the near future, and do not expect to be expanding or recruiting new employees. According to the same government report, retail businesses, which have a total of over 46 thousand workers furloughed, said that assuming the best case scenario, only 34% of those workers might return to work next month. Under the worst case scenario they expect a return of only 10% of their furloughed workers.

A looming social crisis

Unless the government backtracks on its intention to let emergency support expire, August may see the rise of a new social class in Israel: the coronavirus poor. Households with some savings may be able to get by, but many of those who are expected to lose support are the poorest Israeli households. Unless further support is offered, the most vulnerable households in Israel might reach the desperate situation of having no income, and nowhere to turn for help.

This has been understood by many other governments around the world. New Zealand and Australia have extended support till September, Britain has extended it till October, and support in the US will only expire in November.

This is because other governments have let go of the illusion of a V-shaped recovery, which forecasts a quick bounce back to growth after the crisis. It has been largely accepted by governments, as well as international financial institutions such as the IMF and OECD that recovery will be slow, likely taking many months. In the meantime, governments will have to continue to support their citizens in order to avoid a social and economic meltdown. For some reason, this widely recognized truth continues to elude the Israeli government.