March 21, 2021
Israel came into the pandemic without any institutional knowledge about handling this type of crisis. Mistakes were made along the way, but that was to be anticipated. Now, with a year of experience under its belt, Israel has essentially built a manual for handling the next crisis.
Of the 14,000 restaurants in Israel that existed before the pandemic, an estimated 4,000 have shut down permanently. As is the case with most of the (economically) developed world, Israel has a service economy. Most Israelis work in a service industry rather than in manufacturing. These businesses have been hit the hardest because they entail direct contact with clients – a contact that drives the spread of a virus. The government’s policy has been to shut down most of these services in an effort to protect the general public. But doing so has been a death sentence for many businesses and employers, and has forced many of the surviving businesses to take on debt that may eventually push them to bankruptcy.
What could have been done differently? First, Israel needs business interruption insurance, a form of insurance that will compensate a business if its operations are interrupted due to the inability of a supplier to perform and/or physical barriers or events that prevent customers from reaching the business. The government needs to encourage insurance companies to offer such policies to Israeli businesses.
Second, the government doled out a large amount of money to both businesses and individuals in an effort to keep the economy going. The rationale behind payments to individuals was to encourage spending. But since Israel was in lockdown, many forms of spending were not an option. These funds are better spent supporting the business sector. Israel should pass legislation stipulating a property tax suspension in the event of a national disaster such as a pandemic. Businesses were shut down by government order but were simultaneously expected to pay property taxes on properties not generating income. The funds paid out to consumers should be redirected to cover the loss of property taxes to the local authorities.
Third, Israel needs to again redefine the legal term “unemployment.” During the crisis, the Bank of Israel initially redefined the term to include those on unpaid leave, which was referred to as “broader unemployment.” If an employer fires or lays off an employee, a chain of events is generated that makes it difficult to bring the same employee back to work with the same employer – events such as severance pay, informing pension funds of a stop in payments for that employee, loss of seniority at the place of employment, and so on. Unpaid leave is a way of avoiding these events. The Bank of Israel’s expanded definition of unemployed should be invoked in the same legislation referenced above. This would allow those on unpaid leave to qualifying for unemployment during the pandemic and would be a better way of providing the public with financial support.
There are two advantages to this third initiative. The first is that the newly “unemployed” would have the funds necessary to pay their rent or mortgage, car loan, and more, avoiding a domino effect as broader employment reaches 25 percent of the labor force. The same individuals would not need to go further into debt to make those payments – a debt crisis that may be awaiting Israel once the pandemic subsides. A second advantage is that this approach would avoid a problem that seems to be emerging as Israel starts exiting the crisis: some workers have found that the current welfare payments they are receiving (conceived by decision-makers at the last minute) offer them a paid leave and are reluctant to come back to work. A formal definition of broader unemployment would include terms for eligibility for unemployment compensation and for termination of such compensation.
Israel must assume that there will be another crisis, whether or not it is related to coronavirus. The lessons of the past year should inform how the country tackles that future crisis.