Israel’s Tight Labor Market: January to September 2023

This chapter highlights the changes and developments in Israel’s labor market following the COVID-19 crisis. Taub Center researchers, Michael Debowy, Professor Gil S. Epstein, and Professor Avi Weiss, point to a consistent increase in employment across economic sectors, low unemployment rates, record-high employment rates among women, and rising employment rates in the periphery, alongside a slowdown in the high-tech sector.

Unemployment, employment, and wages

Between January and September 2023, the broad rate of unemployment rate (during the COVID crisis the definition was expanded) averaged 4%, lower than the average rate in the same months in 2022 (5.1%) and significantly lower than the average in 2021 (11.3%). This period was characterized by a tight labor market, similar to the previous year, with employment rates remaining unaffected by risk factors such as global price increases, the Bank of Israel’s interest rate hikes, and political shocks caused by the current government’s proposed judicial reform.

Israel’s low unemployment rate, both historically and internationally, is encouraging in terms of optimal use of the workforce. However, the economy has not yet fully tapped into its potential labor force, and both labor market participation and employment rates can be increased. At the beginning of 2023, the employment rate among those aged 25‒54 was similar to the OECD average but 6‒8 percentage points lower than in countries such as Slovenia, Czechia, Hungary, the Netherlands, Iceland, and Switzerland.

In 2022, the wage gains from the COVID-19 crisis and the subsequent recovery were eroded, partly due to sharp price increases following the crisis and the outbreak of the Russia-Ukraine war. In the first half of 2023, this trend reversed, and wages began to rise again. Overall, between January and September 2023, the average monthly wage of salaried workers in real terms was about 1% higher than that measured in the same period the previous year and about 9% higher than in the corresponding period in 2019.

In most high-income countries, real hourly wages eroded during and after the pandemic, particularly in the past year. Between 2019 and 2022, the average wage in OECD countries fell by 2%, and between 2022 and 2023 — by 4%. In contrast, Israel was the only country where real wages increased both between 2019 and 2022 and in the past year.

The high-tech sector

The growth rate in the high-tech sector slowed in the second and third quarters of 2023, similar to trends observed worldwide. However, while the slowdown in other countries was moderate, Israel experienced a particularly sharp slowdown in recruitment (although large and established companies continued to expand). Although downsizing in parts of the Israeli high-tech sector leads to increased efficiency, it is not expected to benefit Israeli workers, and those likely to be affected first are workers from weaker socioeconomic backgrounds, those with less formal education, college graduates, and workers from the Arab sector.

Between April 2022 and February 2023, there was a sharp increase in the number of job seekers in the high-tech sector — 71.4%, compared to just 10% among other job seekers. During those months, the number of layoffs among high-tech job seekers nearly doubled, while the number of layoffs among job seekers in other fields increased by only 15%.

Employment by sector, gender, and region

Over the past two years, there has been a consistent increase in employment among Arab and Haredi men, bringing their employment rates to 76% and 56% (respectively) in the second quarter of 2023. These are impressive achievements compared to the lows of early 2021 — 61% and 50% (respectively).

Among Israeli women, employment rates in 2023 reached their highest levels ever for the second consecutive year. In the first half of 2023, non-Haredi Jewish women maintained a high employment rate of about 83%, the employment rate among Haredi Jewish women was 79%‒82%, and Arab women reached a historic high of 45%.

In the first half of 2023, for the first time since the outbreak of the COVID-19 crisis, employment levels in the geographic periphery of the country exceeded those in the corresponding period in 2019. Between January and May, the employment rate in the Jerusalem district was one percentage point higher than that measured in the same period in 2019. A similar pattern was observed in the Northern district, while in the South, the employment rate remained similar to its 2022 level and slightly lower than in 2019. Additionally, the employment gaps between the Jerusalem and Northern districts and the Central and Tel Aviv districts returned to their pre-crisis levels, while the gap between the Southern district and the Central and Tel Aviv districts remained similar to that measured in 2022.

Higher education

In the 2021/2022 academic year, the percentage of undergraduate students remained significantly higher than its projected level based on the previous decade’s trend, reaching its highest rate since 2014. Additionally, the number of Arab students pursuing bachelor’s, master’s, and doctoral degrees increased by 5%, 9%, and 3%, respectively, compared to the previous academic year. In contrast, the number of Jewish and other students in each of these degrees did not grow significantly, and in some cases, it even decreased. From the 2011/2012 academic year to the 2021/2022 academic year, the number of Arab students pursuing bachelor’s degrees increased by 85%, master’s degrees by 141%, and doctorates by 113%.

Between the 2014/2015 and 2021/2022 academic years, there was a significant increase in the percentage of students studying mathematics, statistics, and computer science — 29% among Jews and Others, and 23% among Arabs. In contrast, there was a significant decline in the social sciences, humanities, education, and the arts: 15% among Jews and others, and 21% among Arabs.

The findings also show a clear tendency for men to study mathematics, statistics, computer science, engineering, and architecture: in the 2021/2022 academic year, 40% of male students chose these fields, compared to only 15% of female students. The situation is reversed in the field of medicine and allied health professions: 12% of female students chose to study these professions, compared to only 4% of male students.