COVID-19’s Ongoing Impact on Israel’s Economy and Welfare System

While primarily a health emergency, the COVID-19 pandemic has had rippling effects on every aspect of Israeli society, underscoring the importance of creating relevant government policies to address challenges to the economy and welfare system. One of the Taub Center’s leading publications, A Picture of the Nation 2021, provides key insights into how the pandemic and efforts to address it have impacted Israeli society in the short term, and their impact on Israel’s ability to recover from the pandemic in the long term.

The most significant test of Israel’s social welfare system arose when the Israeli government began to implement restrictions on businesses and movement as COVID-19 cases skyrocketed in March of 2020. As a result of job losses and closures, there was a thirteen-fold increase in unemployment assistance recipients, from a monthly average of 70,000 throughout the past few years to over 900,000 in April of 2020. In addition to unemployment assistance, the Israeli government responded quickly to expand social security and disability benefits, child subsidies, and assistance for the self-employed.

As a result, the immediate short-term consequence of these protections was a huge increase in the government’s welfare spending – an addition of NIS 53 billion in 2020 alone.

The massive increase in welfare spending in 2020 through the expansion of social protection programs, such as unemployment benefits, reflects the government’s effective response to minimize the pandemic’s harmful short-term effects on the public and to set the foundation for recovery. Yet it is important to note that the pandemic still disproportionately affected low skilled workers with lower incomes, creating challenges for these recipients as the benefits end, with some low skilled workers more likely to be discouraged about the prospects of employment and exiting the labor force entirely. As a result, it is unclear when Israel’s population that is now dependent on the welfare system will be able to completely recover from the pandemic’s effects.

Just as the pandemic has had a large impact on Israel’s welfare system, it has also created long term uncertainties relating to Israel’s economy. Throughout the pandemic, the Israeli government increased its deficit spending, due both to the high increase in unemployment benefits and healthcare expenditures. Although this would appear to be a short-term reality caused by the public health emergency, since 2018 Israel has been increasing its deficit spending beyond the government’s set targets, placing it in an inferior budgetary position to recover from the economic crisis caused by the pandemic than it could have been had the country acted in a more fiscally responsible way in recent years.

In addition to the deficit, Israel has also placed itself in a disadvantaged position for long term economic recovery due to its underutilization of the budget for important initiatives, such as ensuring businesses could remain operational despite COVID-19 lockdowns. Out of a budget of NIS 137.3 billion initially allocated by the government to combat COVID-19, only 80% of the funds were utilized by the end of 2020. Although the NIS 17 billion allocated for the healthcare system were near-fully utilized, NIS 18 billion of the funding budgeted by the government to keep businesses afloat during the pandemic was not used. With many businesses closing, this has made it more difficult for the economy to quickly recover from the pandemic.

In many ways, the Israeli government’s policies in response to the COVID-19 pandemic have allowed the country’s economy and its people to stay afloat during a period of crisis and immense distress, yet they have also created more questions regarding the timeline for recovery. The government’s welfare programs provided critical relief for those who needed it most, but an ongoing trend of deficit spending and the impact of the pandemic on labor force participation may delay full economic recovery. Despite a highly efficient vaccine campaign, concerns about new variants and a recent increase in cases creates further uncertainty about when Israel will be able to truly declare victory over the pandemic.

To understand more about the current state of Israel’s economy and welfare system, explore the Taub Center’s A Picture of the Nation report on our website as well as the content shared on our Facebook and Twitter pages. The report additionally features updates on the Israeli healthcare system, early childhood, the labor market, and education.