The government’s lack of action and long-term vision are harming Israel’s economy, State Comptroller Matanyahu Englman said at the Israel Democracy Institute’s Eli Hurvitz Conference on Wednesday.
He was speaking at a session on the challenges that the Israeli labor market is facing amid the Israel-Hamas war, which caused significant shocks with widespread repercussions to this market.
Englman focused especially on the potential impacts of Artificial Intelligence and climate change on the future of Israel’s labor market.
Both of these fields required planning and foresight in order for Israel to be better well-positioned to handle their impact on global and local economies, but Israel’s government did not have an appropriate long-term strategy for them, he said.
Instead, the government is focused on investing in the short term, and even when it does set long-term goals, it fails to meet them, he added.
Israel's AI investment, activity dropped
Further, between 2019 and 2023, Israel’s world ranking in terms of investment and activity in the field of AI dropped, he said.
While Israel is still in the top third globally in terms of this investment and activity, this is partially due to private sector investment, he explained.
Englman also said that not enough is being done to address climate change and its economic repercussions. The Bank of Israel has not yet taken an ESG approach to its investing, he offered by way of an example. Notably, ESG –“environmental, social, and governance” – investing is an approach that takes these factors into consideration.
“The day after is already here,” warned Englman, adding that Israel needs a long-term, well-defined national strategy to prepare for it.
This is all the more important in the shadow of the war, he explained, saying that a strong economy is vital to cover not only the costs of the war but the anticipated increased security costs.
DEPUTY DIRECTOR of the Budget Department at Israel’s Finance Ministry, Kfir Battat, also spoke about the future of Israel’s labor market but focused on demographic changes that will have significant impacts on it.
Bringing the Arab and ultra-Orthodox sectors into the workforce is the most significant challenge Israel faces, he said.
The war will cost around 200 billion shekels, but it will also come with the expenses of an increased security budget and a higher interest rate. This will force the county to address the existing challenge of bringing these sectors into the workforce sooner than anticipated, he explained.
The overlap of people who both work and serve in the IDF will force the country to determine if this is a sustainable economic reality over time, as the security needs of the country will increase but so will the need for these same individuals to contribute to Israel’s economy.
The government has the tools to address these things, he said. There are currently incentives that prevent haredim from entering the workforce that the government can change.
While the government will continue to fund programs to bring haredi men into the workforce, these micro solutions cannot solve macro problems, according to Battat, who said that bigger solutions are needed.
The war has had a massive impact on the workforce in the North and South, as tens of thousands were forced to leave their homes, workplaces, or both.
Data from the disengagement from Gaza suggested that evacuees may have a harder time reintegrating into the workforce, make lower wages for years, and be more likely to retire early, said IDI (the Israel Democracy Institute) researcher Dr. Itamar Yakir.
This impact could be especially significant for people in the North, where education and wages tend to be lower and there are many freelancers, he added.
THE PANEL also focused on additional, direct impacts of the war on the labor market: The massive reserve duty call-up that took many workers out of the workforce; the large number of evacuees; Palestinian workers not being allowed to work in Israel; foreign workers leaving; and reduced productivity, as schools were closed and people were afraid to leave their homes.
Many speakers touched on labor shortages and the impact of this lack of workers on their industry.
Partially due to this shortage, there is not a single day where all orders are filled and all production lines are working, said Osem-Nestlé CEO Avi Ben Assayag, who is also chair of the Economic Committee at the Manufacturers Association of Israel.
He cited reducing the bureaucracy involved in bringing foreign workers to Israel as a possible way to contend with shortages. He also highlighted the fact that Arab society is a critical part of Israeli industry and that this should be expanded.
The shortage in workers is part of what Israel Builders Association President Raul Srugo called the construction industry’s “deepest crisis since the founding of the state.” Some 40% of construction sites are closed, he pressed.
This crisis could have a large impact on Israel’s economy since around 14% of Israel’s production is based on this industry, he said. The deficit is growing not only because of the direct costs of the war but also as there is no income from such a central sector in Israel’s economy, he added.
Impacts on this market will cause apartment prices to rise as well, he said.
'There is no economic leadership in Israel'
Srugo laid the blame for this situation on the government, saying that the Finance Ministry was not involved in what was happening.
“There is no economic leadership in Israel. [Bezalel] Smotrich has failed in his job as Finance Minister,” he added.
“How can it be that in eight months, Israel has only brought 5,000 foreign workers out of the 50,000 they wanted to bring?” he asked.
Israel could bring workers, it just needs to manage this undertaking correctly, he said.
Srugo praised the work of Palestinian, Israeli-Arab, and Jewish workers alike in his industry, saying that this form of work should be allowed to continue.
ANOTHER SIGNIFICANT impact of the war on Israel’s labor market is the impact of the war on freelancers who do not have the safety net and rights that employees have, said Rami Beja, chair of Self Employed Forum.
He also said that the government is at fault, stressing that “there is no Finance Ministry at all.”
A number of speakers in the session focused on a lack of training and retraining programs for workers who wanted or needed to acquire new skills for new roles.
CEO of the nonprofit 121-Engine for Social Change, Tali Nir said that this is partially because the Israeli Employment Services has no budget to address this.
There is no ability to match job seekers to the many open jobs in the market, she noted, adding that there needs to be an investment in infrastructure and a redefinition of the needs that exist on the ground.