Unemployment just won't budge

Should unemployment not be increasing in Israel if there is an economic slowdown – as there is? Unemployment is certainly increasing in other developed economies, often sharply (for example, in the US). And yet according to the latest figure on the trend rate of unemployment in Israel, for October 2008 (published on 17 December), the rate remains "stubbornly" stable at 6%, where it has been since May this year.

Can policy makers in Israel claim – on the basis of the latest unemployment data – that the current slowdown in Israel is less serious than elsewhere? Or that the slowdown is still not affecting the labor market in Israel? Or even that there is really no slowdown to speak of in Israel? Are there other indicators that show that the labor market is being affected?

Firstly, based on past experience, it seems that the unemployment rate in Israel lags other labor market indicators when the economy enters a slowdown period, so that the present stability of the rate does not have any particular significance when it comes to interpreting current economic trends, Secondly, yes – there are other indicators showing growing labor market weakness, besides all the references in the economic media in recent months to companies firing employees.

One indicator, from the "family" of unemployment indicators is the number of job seekers at Employment Exchanges in Israel: the number increased by 13% from April to October 2008, and we are now waiting for the November figure (to be published towards the end of December) to see if the upward trend in job search is continuing, and even possibly accelerating.

Equally important, there are indicators of the demand for labor that clearly show the effect of the economic slowdown on the labor market. One such indicator is a quarterly Employers' Survey, published by the Ministry of Industry, Trade and Employment. It just so happens that together with the October 2008 unemployment rate published on 17 December by the Central Bureau of Statistics, the Ministry published preliminary 4th quarter survey results on the number of job vacancies reported to the survey by employers.

The number of vacancies has in fact been declining since final quarter of 2007, but the speed of decline has quickened dramatically since mid-2008: in Q4/08, the total number of vacancies (exc. construction and agriculture) has shrunk to 25.1 thousand, compared to 59.5 thousand a year earlier. The new survey also reports an increase in the number of layoffs to some 151 thousand in Q4/08 compared to 119 thousand a year earlier.

Why is this weakness in the demand for labor not yet reflected in the unemployment rate? The answer may be connected with the way the data on unemployment are constructed and also – as already mentioned – with the fact that unemployment tends to lag other labor market indicators.

There is no doubt, however, that we will soon see – either in the full 4th quarter of 2008 or in the opening quarter of 2009 – an upturn in unemployment.