Israel's labor market resilience in the wake of COVID-19

Despite the challenges posed by the COVID-19 pandemic, Israel’s labor market displayed remarkable resilience from January to September 2023, with a historic low in unemployment rates and encouraging growth in various sectors.

In a recent study, Taub Center researchers Michael Debowy, Prof. Gil Epstein, and Prof. Avi Weiss delved into the intricacies of Israel’s labor market, exploring developments following the tumultuous period of the COVID-19 pandemic. Their findings present a nuanced perspective, highlighting positive trends in employment, low rates of unemployment, record-breaking labor force participation rates among women, growing employment in the periphery, and notable advancements in higher education.

As of September 2023, Israel experienced a historic low in unemployment, with rates standing at a mere 4%. This is a substantial improvement from the 5.1% recorded in 2022 and a significant drop from the 11.3% observed in 2021. The researchers attribute this achievement to a resilient labor market, seemingly unaffected by global inflation, changes in the Bank of Israel’s interest rates, or political uncertainties surrounding judicial reforms.

However, the researchers caution against complacency, asserting that despite the low unemployment rate, there is still untapped potential in the workforce. A comparative analysis with OECD countries reveals areas for improvement in both labor force participation and employment rates, particularly among the 25–54 age group.

The wage landscape in Israel also displayed remarkable resilience, with a 1% increase in real monthly wages observed from January to September 2023 compared to the same period in the previous year. This contrasts sharply with the global trend, where most high-income countries witnessed declines in wages between 2019 and 2023.

A complex picture

The hi-tech sector, a cornerstone of Israel’s economy, presents a complex picture. While the overall labor market is thriving, the hi-tech sector is experiencing a noticeable slowdown in hiring and an uptick in layoffs. Between April 2022 and February 2023, jobseekers in hi-tech surged by 74%, with a doubling in the number of those laid off.

Concerns linger about the potential disproportionate impact on individuals from weaker socioeconomic backgrounds, those with lower-quality formal education, college graduates, and members of the Arab community.Geographic disparities persist, albeit against the backdrop of overall positive employment trends. Efforts are needed to address these regional imbalances, ensuring equitable opportunities across different parts of the country.

On a positive note, the researchers highlight a consistent increase in the employment of Arab and Haredi men over the past two years, reaching employment rates of 76% and 56%, respectively, by the second quarter of 2023. Women in Israel have also achieved historic highs in employment rates, with Jewish non-Haredi women maintaining an impressive 83% employment rate during the first half of 2023.

Higher education in Israel has witnessed encouraging developments. The number of Arab students has grown, accompanied by an increasing share of students in technology majors. Despite concerns about the hi-tech sector, the researchers express hope that it will recover swiftly and be capable of absorbing the growing number of students entering technology fields, particularly among women and Arabs.

“The developments in the labor market during the first three quarters of the year are positive overall. We saw an increase in the employment rate and a drop in the unemployment rate, employment among Haredi and Arab men increased, and that of women in all population groups continued to grow. Even in the periphery, employment increased – and, in some places, it surpassed its 2019 level,” Epstein concluded.

“Nevertheless, it is important to note the slowdown in the hi-tech sector, which is seen in a drop in hiring and an increase in the number of layoffs. In higher education, the situation is still positive and the number of students has grown consistently. In particular, the proportion of students in the technology fields continued to grow, and particularly among women and Arabs,” he added. “It is hoped that the hi-tech sector will recover quickly and will be capable of absorbing the students who have chosen these professions.”