An unprecedented year for Israel’s social welfare system

26.01.2021

A new calendar year has only just begun, but the third lockdown in a year threw Israelis into an all too familiar reality. The question of how to support the most vulnerable members of Israeli society, including the many newly unemployed, allows us the opportunity to look to past lockdowns to understand the challenges faced by Israel’s social welfare system and how it adapted to address them.

After two years of stability with no major initiatives in social welfare policy in Israel, the year of the coronavirus crisis has led to a dramatic change in the response to social problems. First of all, expenditure increased greatly in this area – spending on social welfare in Israel grew by about NIS 58 billion in 2020, NIS 50 billion of which came from budget additions to specifically address the coronavirus crisis. This is a 47% increase in welfare spending, compared to a 6% increase the year before.

Secondly, Israel, like most other welfare states, has responded to the crisis primarily through “social protection” policy measures, which provide direct assistance to those experiencing economic insecurity. In the wake of the crisis, Israel’s social protection responses have included expanding the coverage of the social safety net (primarily through unemployment insurance), increasing disability benefits, assisting the self-employed, and expanding work grants.

The National Insurance Institute (NII) increased access to unemployment insurance in the early days of the crisis by altering a number of requirements to receive these benefits. For example, the maximum payment period was extended through June 2021 (rather than the usual 50-175 days). In addition, the length of time one must have worked prior to unemployment in order to qualify for the benefit was shortened from 12 to 6 months, and an individual receiving other government cash benefits was allowed to receive unemployment insurance at the same time.

As a result of the economic toll of the crisis and the new eligibility rules, there was a 13-fold increase in the number of unemployment insurance recipients during the first lockdown — from a monthly average of about 70,000 in recent years to about 900,000 in April 2020. This, naturally, also meant that government spending on providing unemployment insurance increased substantially; the total cost of unemployment insurance payments to eligible individuals during the first half of 2020 reached NIS 9.2 billion, such that spending in the month of May 2020 alone exceeded spending during the entire year of 2019.

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In addition to these changes in unemployment insurance, the NII implemented two rounds of universal one-time grants to a large share of the population in Israel, a rare practice for confronting the coronavirus crisis internationally.

At the same time that these social protection policies were expanded, the government allocated NIS 4.7 billion to “social investment” measures, policies designed to invest in people’s skills and encourage their participation in the labor market. However, in practice, these funds were not widely used. For example, the budget allocated for professional training and expanding employment programs for special populations was barely utilized. All told, by the end of October 2020, less than a third of the funds allocated – NIS 1.5 billion – had been implemented. Nevertheless, towards the end of the year, there are indications that labor market programs are beginning to be expanded.

Other social welfare responses to address the crisis have included cash grants for the self-employed, an increase in the negative income tax, and one-time coronavirus grants to social workers and to non-profit organizations requiring support.

All of these measures have eased the economic burden on Israeli society somewhat, yet many Israelis are suffering greatly from the economic implications of the pandemic. Findings indicate that the harm caused by the crisis in its early stages was particularly notable among Arab Israelis and young workers. A July 2020 survey by the Central Bureau of Statistics shows that nearly half of Arab Israelis reported their economic situation is worse or much worse than their situation before the crisis, compared to about 40% of Jewish Israelis.

With respect to young workers, about 44% of the workers who were fired or furloughed in April, which saw a peak in unemployment, were young adults up to the age of 34, while the same age group constitutes only 38% of the total labor force. In addition, many of the young people who did not lose their jobs experienced a drop in their wages. Of all age groups, the group with the highest share of earners experiencing a drop in their wages was 18-24-year-olds (53%).

It is still too early to know the full cost of the coronavirus crisis to Israeli society and the extent of the burden this will place on Israel’s social welfare system. Though initial data indicates that social protection spending has managed to prevent an increase in poverty, we can expect that in the coming years (due to planned cuts in social spending), poverty and inequality in Israel will increase. It is imperative that Israeli decision-makers prepare for this now through the adoption of creative policies to ensure the welfare of Israeli citizens.

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