What happens when unpaid leave program ends?
Israel’s unpaid leave program for unemployment benefits has provided an economic safety net for hundreds of thousands of unemployed Israelis throughout the pandemic. But with the program scheduled to end June 30, what’s next?
Israel’s unemployment rate averaged about 16% over the course of the pandemic and reached as high as 22% during the first lockdown last April, with more than one million people out of work at that time. As of this week, more than 547,000 people are still out of work according to Israel Employment Services, a bit less than 10%, despite the reopening of the economy.
Since the state has committed to unpaid leave benefits through the end of June, economists are concerned that many free-riders have put off returning to the workforce to enjoy what is for some a paid vacation. Last month, the Knesset Labor and Welfare Committee approved a plan to offer a package of benefits worth thousands of shekels to people who return to work by the end of April. However, it seems, many are waiting until the last minute to go back to work, and companies are finding that the pool of lowskilled workers available for hire is small. About 20% of those currently unemployed are young and single, according to reports.
Israel’s challenge for July 1 and onward is twofold: A safety net must be provided for the many households that legitimately need the help, while weaning off freeloaders and getting them back to work.
In an interview this week on 103FM, National Employment Services Director Rami Grauer provided details of a plan his office would recommend to the government to update unpaid leave benefits. Among the plan’s main points would be shortening the eligibility period for receiving benefits, and reducing payments based on one’s age and marital status. Those under age 25 would no longer be granted benefits, and people over age 45 would be limited to 140 days of unemployment, compared to the 175 currently on the books. Benefits could also be reduced by 10% a month until it reaches 50% of the original salary. Grauer also suggested that people would have to prove that they are actively looking for work or undergoing professional retraining in order to receive payments.
That last point is crucial. Economists have noted that the pandemic exposed deep gaps in technical training within Israeli society. The roughly 10% of Israelis working in hi-tech and other lucrative fields did well this year, while many in low-trained fields suffered. As part of the back-to-work plan suggested by Grauer, Employment Services will help facilitate professional training programs and courses by offering grant and benefit packages as well.
Grauer noted that approval of the plan would require a functional government, something that still seems a long way off. “If there won’t be any decision by July 1, many people will be left without a safety net,” he said.
Meanwhile, Finance Minister Yisrael Katz seems to see things differently. While the original unpaid leave legislation stipulated that benefits would be reduced by 10% in the event that unemployment drops below 10%, Katz said last week that no such cut will be made, despite Israel’s improving position. It is not yet clear how that will play out.
A report by BDO Israel chief economist Chen Herzog published Monday found that Israel’s public companies recorded an average 8% decrease in salary expenses in 2020, mostly due to employees released for unpaid leave due to the pandemic. The results reflect the negative incentive the unpaid leave program created for employees and employers to adapt productively to the situation. “The result, paradoxically, was that unpaid leave also harmed the companies that were able to grow during the economic crisis,” because it encouraged them to reduce operations, Herzog said.
Looking ahead, the government must replace the unpaid leave method with mechanisms that encourage growth and productivity instead of unemployment and increasing artificial wage costs, the report concluded.