The October War and Its Impact on Israel’s Society and Economy

In this chapter, Taub Center researchers review the impact of the October 7th war on each of the Center’s policy research areas. They highlight actions that can be taken while the war is still ongoing, as well as steps that are important to take once the conflict ends to restore the situation. They also argue that in some areas, the situation can even be leveraged to build a better reality and improve preparedness for similar situations in the future.

The welfare system

In a single day, tens of thousands of residents needing a range of material and emotional responses were added to the population of those typically relying on welfare services, including 126,000 evacuees in about 220 different facilities across the country. The void created by the slow organization of the public welfare system in the first two weeks of the war was filled by more than 1,000 civilian initiatives and tens of thousands of volunteers, including more than 30,000 high-tech workers. It was only in the second week of the war that the presence of teams from the Ministry of Welfare and Social Affairs began to be felt. While the Ministry focused on providing services to evacuees, the Ministry of Defense dealt with the wounded and the families of fallen security forces, and the National Insurance Institute began identifying the wounded and the families of hostages and murdered civilians to provide immediate financial assistance and cover other needs.

The researchers suggest several steps that could strengthen the system, including streamlining the process of transferring information about residents from the central government to local authorities; establishing a coordination mechanism for actions and support for civil society organizations assisting populations affected by the war; significantly improving the working conditions and wages of social workers; and expanding the professional workforce in local social service departments.

Early childhood

During the war, many young children in Israel were exposed to stress due to frequent air raid sirens and the sound of explosions in their communities. This emotional upheaval, accompanied by extreme disruption to routines, could affect normal childhood development. Beyond the clear harm to quality of life and immediate well-being, exposure to high levels of stress and a lack of positive stimuli can damage a child’s cognitive and emotional development. According to the researchers, it can be assumed that the accumulated disruptions caused by the war will manifest as developmental delays and emotional and educational difficulties in the future, making it essential to expose young children to as many positive and enriching experiences as possible.

The education system

The population of evacuees and those who voluntarily relocated includes about a quarter of a million people (about 2.5% of Israel’s population), including about 50,000 preschool and school students. The researchers propose several policy alternatives for the education system: expanding individual support in schools, especially in communities on the front lines, to help students struggling to catch up due to the war; strengthening the support network in schools, including counselors, truant officers, social workers, nurses, and psychologists; and considering alternative models for Bagrut (matriculation) exams in the coming year.

The healthcare system

Since the start of the war, over 7,500 people have been injured, with more than 1,450 arriving at hospitals on Saturday, October 7^th, alone — numbers unprecedented in the past. Most of the injured were admitted to hospitals in the South, far exceeding their capacity. For example, Soroka Medical Center admitted about 700 injured, including about 120 in serious condition, whereas the worst-case scenario for a mass casualty event that the hospital had prepared for involved no more than 100–200 injured.

The mental health system has suffered from prolonged neglect in terms of both personnel and infrastructure, especially since the COVID-19 crisis. The current crisis could serve as a turning point for the mental health system, leading to its rehabilitation and strengthening, with an emphasis on expanding the circle of therapists in the public system and building a trauma-informed system that ensures trauma awareness at all stages of care.

Labor markets

The temporary absence of about 20% of the labor force (more than 900,000 workers), especially young workers, many of whom work in high-tech sectors characterized by high productivity, alongside the direct expenses of the war, has impacted all of the country’s economic systems and will continue to do so for some time. In October, about 144,000 workers from areas near the Gaza Strip and the northern border were prevented from working due to evacuation from their homes, about 310,000 parents of young children were absent from work when the education system ceased to function, and about 135,000 workers were out of work due to “economic reasons” such as damage to their work places. In November, the number of workers absent from their jobs dropped from 900,000 to about 500,000.

According to Central Bureau of Statistics data, 75% of businesses employing more than 100 workers reported reserve duty call-ups among 1%–20% of their employees. This is a significant figure, considering that in 2019, these businesses employed 56% of all workers in the economy, or about 70% of employees in the business sector. Particularly notable is the high percentage of high-tech businesses that reported 1%–20% of their employees being called up for reserve duty. As expected, there was an increase in the rate of working from home, which is more prevalent in this industry, especially in the service sectors.

The integration of the Arab population into most parts of the Israeli economy, which had been improving over the years, was significantly impacted by the war. It also highlighted the mutual dependence of Jewish and Arab Israeli citizens in the context of employment, particularly in the construction industry, whose activities have almost completely halted.

The economy

The Israeli stock market reacted strongly to the crisis. From late August to October 6, its performance was similar to that of the US stock market, but with the outbreak of the war, Israeli stocks lost about 5% of their value, and since then, a gap of about 10% in returns has remained unfavorable for Israeli stocks compared to the US market.

Growth forecasts for the Israeli economy for 2023 have been revised downward. The Bank of Israel lowered its annual growth forecast from 3% to 2%, and other agencies, such as the Aaron Institute and S&P, gave growth estimates for 2023 as low as only 1.5%. However, assuming the war remains confined to the southern front and the government adjusts its budget policy to the urgent needs arising from the war, the Bank of Israel predicted that the economy would grow by 2% in 2024 (compared to the original forecast of 3%). Other forecasting agencies were much more pessimistic — the S&P predicted growth of only 0.5%, and given population growth, this would mean negative per capita GDP growth.

The decline in growth and the expected increase in the government budget deficit are reflected in Israel’s debt-to-GDP forecast. The debt-to-GDP ratio, which had been rapidly declining since the COVID-19 crisis, was expected to reach 60.5% in 2023. Due to the war, this ratio is expected to rise significantly, with estimates ranging from 63% (Bank of Israel) to 64.2% (S&P). In 2024, when the debt-to-GDP ratio was supposed to drop to 59%, it is now expected to reach 66% according to the Bank of Israel’s estimates, and even 67.6% according to the Aaron Institute’s estimates.

The environment

Due to the need to ensure a steady supply of electricity during the war, the government took steps that could potentially harm the environment, including issuing permits for the use of diesel and coal to generate electricity, despite the heavy air pollution they cause and their contribution to increased morbidity and mortality. Other factors that could endanger public health include increased emissions of carcinogens into the air due to relaxed enforcement of illegal waste burning during the war and soil contamination with toxic metals that could seep into agricultural crops and reach the population through them.

Demography

The war between Israel and Hamas will impact all three parameters commonly used to measure demographic changes — fertility, migration, and mortality.

Fertility: The short-term effects of the war on fertility rates are still unclear, but there is anecdotal evidence of increased marriage activity: it seems that unmarried soldiers are getting engaged or married at an accelerated pace. Since over 90% of births in Israel occur within marriage, it is reasonable to assume that any temporary increase in marriage rates will lead to a temporary increase in birth rates and a slight rise in the proportion of first births relative to total births. Additionally, there is some expectation of the classic phenomenon of a baby boom following the war, with soldiers returning home.

Migration: The short-term impact of the war on migration will be felt immediately. The sharp rise in anti-Israel protests and antisemitism worldwide, including in countries whose governments actively support Israel, has made these countries much less attractive to Israelis considering emigration and made Israel more attractive to Jews in those countries considering immigration. Therefore, it would be reasonable to expect a relative increase in the number of immigrants and immigration rates to Israel in 2024 and 2025. However, if the internal disputes that clouded Israel’s social climate throughout most of 2023 resume, and if a state of conflict and attrition persist in Gaza and the West Bank, Israel will almost certainly become a less desirable destination for potential immigrants.

Mortality: From a narrow demographic perspective, the increase in mortality around the October 7 attack and the subsequent war is of little significance. However, since these deaths are concentrated in younger age groups, the expected decline in Israel’s average life expectancy in 2023 will likely be larger compared to the decline in life expectancy during the COVID-19 pandemic (when deaths were concentrated among the elderly).

This chapter includes a list of detailed policy alternatives proposed by Taub Center researchers.