Unemployment keeps rising despite end of unpaid leave

Unemployment office Credit: Unemployment Service
Unemployment office Credit: Unemployment Service

Ministry of Finance: Mismatch between job vacancies and workers' qualifications is slowing labor market recovery.

The unemployment figures for the first half of July have proved a disappointment. The government's unpaid leave scheme was discontinued at the end of June, but the broad measure of unemployment rose to 9% in the first half of July from 8.9% in the second half of June, according to Central Bureau of Statistics data released today.

The figure includes some 383,000 people who are not participating in the workforce, who stopped working when they were laid off or their place of work shut down because of the coronavirus pandemic. This compares with about 150,000 unemployed people before the pandemic broke out. The figures could however be revised later, so that it is too early to draw conclusions about the ending of the unpaid leave scheme.

The Chief Economist's Department at the Ministry of Finance explains that the rate at which employment recovers slows to the extent that the match between the qualifications of the unemployed and jobs available declines, raising the cost to firms of finding recruits, and the cost to the unemployed of finding jobs. Firms respond by cutting job vacancies, while the unemployed respond by reducing the intensity of their job search.

The end of the unpaid leave scheme gave an extra incentive to find work, but 130,000 jobs remain unfilled. According to the Bank of Israel's Monetary Policy Report, "Streamlining by firms is likely to make some jobs lost as a result of the crisis unnecessary, so that some of the unemployed will need to retrain. But this takes time, and acts as a drag on the recovery of the labor market, which lags behind the economic recovery."

Governor of the Bank of Israel Amir Yaron said, "The Israeli and global economies are have been recovering from the coronavirus crisis in the past few months, and the rate of employment in Israel has risen appreciably. Nevertheless, the recovery curve is not smooth, epidemiological developments have caused temporary slowdowns in recovery and in the rate of the return to work, and there are wide differences between countries.

"Moreover, the recovery is still reliant on expansionary fiscal and monetary policies, and the speed at which they are restored to normality has to take these risks into account. In Israel, the recovery is to a large extent dependent on the high-technology sector and its manifestations on global markets, which is contributing significantly to the current growth in tax revenues. The risk must be considered that, in the way of financial markets, these trends could stop, or even be reversed."

"Low employment recovery"

The expansion of economic activity in recent months has led to increased demand for workers, but in some industries employers are encountering severe shortages of labor. This is particularly true of the hospitality industry, where the proportion of unfilled vacancies rose to an exceptional 14% in the second quarter. Unfilled vacancies are especially numerous in Tel Aviv and the center of the country.

Bank Leumi chief economist Dr. Gil Bufman said, "The ratio of the number of unemployed to the number of job vacancies has doubled since the pandemic started, and policy makers will have to find a solution to that. The economy is recovering from the coronavirus crisis, but the current rate of job creation is not sufficient to absorb the whole of the extra growth in unemployment caused by the crisis.

"This is a 'low employment' recovery, and it represents a challenge for economic policy makers, who will have to find a solution via massive and effective aid for training unemployed people and adapting their qualifications to those that the market requires, and also through stimulation of economic activity, to make the labor market recover as early as possible."

Published by Globes, Israel business news - en.globes.co.il - on August 2, 2021

© Copyright of Globes Publisher Itonut (1983) Ltd. 2021

Unemployment office Credit: Unemployment Service
Unemployment office Credit: Unemployment Service
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