Israel’s economy is expected to shrink by 2% as workers remain on the sidelines of the war

Israel’s economy is expected to shrink by 2 percent this quarter, with hundreds of thousands of workers displaced by the war with Hamas or drafted as reservists, according to a leading research center.

About 20 percent of Israel’s workforce was missing from the labor market in October, down from 3 percent before the fighting began, according to a report by the Taub Center for Social Policy Studies, a nonpartisan think tank in Israel.

The spike in unemployment reflects the fact that about 900,000 people were drafted to fight, stayed home to care for children because schools were closed, were evacuated from towns near the borders with Lebanon and Gaza, or were unable to work due to physical damage to their industries.

Since October, some students have been able to return to school, and some displaced Israelis have been able to work remotely. Yet the economic consequences of such a major disruption could be significant, especially with no end in sight to the war.

Growth forecasts for next year are lower than previously estimated, but margins vary. Some analysts say the economy could grow by just 0.5 percent. The Bank of Israel has probably given the most optimistic forecast of 2 percent, citing Israel’s faster-than-expected recovery from previous wars and from the Covid-19 pandemic.

“The wide range of projections we see comes from some of the different assumptions about how long and how intense the fighting will be,” said Karnit Flug, the vice president of research at the Israel Democracy Institute and a former governor of the Bank . of Israel.

As of Sunday, 191,666 people in Israel had filed for unemployment benefits since the war began on Oct. 7, with the vast majority saying they had experienced forced unpaid leave, the Taub Center said.

About 360,000 reservists were cleared for duty in October, the largest mobilization since the 1973 Arab-Israeli war, also known as the Yom Kippur War, when 400,000 reservists were deployed to repel a surprise attack from Egypt and Syria. According to a Taub Center estimate, the actual number of reservists called up this time was between 200,000 and 300,000, of whom 139,000 were withdrawn from the labor market.

As a result, many Israelis suddenly had to lay down their lives to wage war, leaving many employers in the lurch. And while the Israeli government has provided some financial support to many affected individuals and businesses, promised additional subsidies remain slow to arrive. Some reservists are self-employed and say their own businesses are going bankrupt while they wait.

The Taub Center said that up to a fifth of employees in medium and large companies were on reservist duty as of October, citing data from Israel’s Central Bureau of Statistics. These companies – defined as at least a hundred employees – employ more than half of Israel’s workforce.

Labor shortages are particularly acute in the tourism, construction and agriculture sectors. The latter two industries rely heavily on Palestinian workers, who have been largely barred from entering Israel since October 7.

Since no one can pick fruits and vegetables, many Israelis have done so voluntarily on farms in the center and south of the country.

Isabel Kershner reporting contributed.