Treasury’s unpaid leave policy: State as babysitter or a responsible solution?

The professional echelon and the political echelon were shocked by the Coronavirus crisis, its power, consequences, and the confrontation for its treatment by extinguishing the fires without a long-term plan and deep thought.

Over the past few months, there have been calls from employers and industries to repeal the unpaid leave policy and demands to implement another solution to the unemployment problem. They suggested adopting the “German model” or a flexible unpaid leave model, allowing employers to recruit workers back with partial state subsidies. Still, these demands did not change the Minister of finance’s position and extended the original unpaid leave model until this coming June. Now that the clock is ticking and the deadline of the current model is approaching by leaps and bounds, the Treasury is working on the “day after.” Professionals in the Ministry of Finance are in close contact with different factors in the market – including employers, industries, workers’ organizations, labor economists, and more – to formulate lines to help the labor market emerge from this crisis.

It will be worthwhile for employers to keep employees and enjoy the flexibility and reduced costs. The government’s expenditure in this model will be small compared to the spending on regular unpaid leave. Social Security (Bituah Leumi) supported a similar proposal. It is a governmental program that allows companies in financial difficulties to temporarily reduce the working hours of the employed while at the same time receiving government assistance that will fund the wage difference for hours deducted.

According to the Central Bureau of Statistics, as of April 2021, the unemployment rate among young people (up to 34) stands at 47.4%, constituting about 50 percent of all the unemployed. This is despite the almost complete opening of the food, commercial, and leisure hospitality industries, where young people are employed at a high rate. This raises serious concerns about creating chronic unemployment among young people from the weaker sections, especially in the Arab population. Many students used unemployment payments during this school year as a subsistence scholarship. These payments are very close to the level of wages, which makes the job less lucrative. Thus, it is likely that many young people will return to work starting in July both because of the end of their unpaid leave and because by then, the exams in higher education institutions will be over.

Firstly, the current unpaid leave model does not encourage employment; it is a barrier. It gives a safety net to everyone, but not everyone needs this safety net. There are many people among the job seekers who are therefore held back from returning to the work cycle. Israel’s Central Bureau of Statistics also reports a substantial workforce demand in the restaurant, trade, and hotel industries. In addition, it should be announced very soon what the new outline will be after July first; it is impossible to remain without a safety net.

Moreover, a long-term unpaid leave model weakens the employer-employee relationship. This erodes the employee’s skills (learning curve – especially relevant for new employees) and causes psychological stress associated with unemployment (lack of clarity about the future and insecurity in abilities). In addition, many workplaces may take advantage of the shortage of workers to become more efficient in the long run.

Opponents will argue that the payment of social security is state insurance for the benefit of the citizens, a kind of “protection” of the citizens in times of emergency. Citizens pay monthly to have the state stand by them in times of crisis, and therefore the desire for increased assistance in times of crisis can be understood. Nevertheless, all citizens should be helped to do so in a graded manner when the citizens who most need the assistance will get the most help.

Therefore, the following solutions can be offered:
In the first place, continue to create professional training for job seekers as the employment service did this year (located over 52,000 jobs for job seekers). Secondly, provide incentives for employers to train employees. Thirdly, start reducing unemployment payments by 20% every month. Lastly, reduce benefits in line with improved labor market indices.

To sum all of the above, in the current situation, the Ministry of Finance must act with discretion while making difficult decisions that are not populist. The Treasury must accept the solutions that benefit the entire population, but smartly, while providing maximum help to the citizens who need it most.