The Labor Market In The Coronavirus Crisis

This review summarizes a paper given at the Israel Economic Association conference held in mid-June 2020. It presents an index for the severity of the lockdown and restrictions imposed immediately after the onset of the crisis by the Israeli government in comparison to other countries, and a snapshot of the labor market in Israel since the outbreak of the pandemic, based on various data sources. These include the unemployment rate and characteristics of the workers cut off from their work place and the patterns of employers’ responses in various economic sectors. It was found that, in international comparison, Israel’s lockdown and restrictions policy was stringent. The percentage of workers cut off from their work place in May ranged from 18 percent to 22 percent, based on the source of the data, with the adverse impact on the weaker segments of the labor market being all the more evident. The high-tech sectors reacted with greater flexibility and a more diverse mix: they had many employees working from home and, relative to other sectors, were less inclined to place employees on involuntary unpaid leave, but were more likely to reduce wages and even lay off workers. At the other end of the scale was the retail sector, especially the food and beverages industry, which was hard hit by the restrictions placed on the public sphere. These were highly likely to use unpaid leave as their almost exclusive response, though also layoffs, and they reduced pay for many of their employees. Against the backdrop of the almost exclusive use of the unpaid leave mechanism by employers, a discussion is dedicated to the Israeli unpaid leave scheme and alternative employee retention schemes implemented by advanced economies, as well as of the role of unemployment insurance in the coronavirus crisis. The discussion underscores the advantages of an unpaid-leave scheme under which the government compensates all workers cut off from their work place as a uniform percentage of their pay rather than according to the eligibility conditions for unemployment benefits, through the employers, and the flexible unpaid-leave scheme, which allows the combination of part-time work with unemployment benefits.