Trending downward: How low can the job market go?

The data on the decrease in the number of vacancies published this week by the Israeli Central Bureau of Statistics combined with the unpromising unemployment and employment data make it possible to state clearly: the Israeli employment market is on a slowing down trend.

It is true that some of the data would be considered very good if they were part of an improving trend or even a stable one, but that is not the case. In the current situation, the main question that preoccupies the experts is how deeply the employment market will deteriorate, or if we phrase it in the terms of the parallel debate going on in the United States - will there be a soft or hard landing?

According to new data, the number of vacancies fell from a record of 151,400 in April to 141,200 in November. The rate of vacancies among all jobs in the economy fell for the first time since March 2021 below 4.5%, this after reaching a peak of 5.06% of vacancies in November 2021. 140,000 vacancies is a great figure. The norm before the pandemic crisis was about 100,000. The problem is, the number will probably continue to decrease.

A similar situation exists in two other employment data. The unemployment rate in November was 4.1%, a very low rate by any standard. The problem is that in April it was at 3.1% and it seems that it is not going to return in the near future to the level we have become so accustomed to of 3%-4%, which is considered the absence of actual unemployment.

The figure that indicates more than the others the scope of activity in the economy is the employment rate, that is, the percentage of employed people of all ages 15 and over. In August, the employment rate (excluding 0.3% of people placed on unpaid leave) reached a peak of 61.3%. What is special about this figure is that it was the only month in which the labor market exceeded the employment rate in February 2020, before the pandemic crisis, which was 60.9%. In October, the rate hit 60.2% and in November there was a slight increase to 60.4%.

Perhaps the most difficult statistic published by the CBS was the demand for software engineers - which dropped from 14,000 last March to only 7,700 in November, a drop of 45%. The good news is that software engineers are still being sought. The less good news for the unemployed is that today the high-tech companies have their choice of candidates. The rate of vacancies in high-tech in general (not just software engineers) dropped from a record high of 8.8% in February, which is 21,500 jobs, to 5.7% in November - 14,600 jobs. However, it cannot be ignored that even after the decrease, the rate of demand for high-tech jobs is the same as it was in December 2019 before the pandemic hit.

When the Bank of Israel repeatedly raised the interest rate, it was based, among other things, on the excellent state of the labor market and rightly so. However, because of the interest rate hikes, the job market's condition is no longer excellent, but more like "very good", when it is clear that a large part of the effects of inflation and interest rate hikes are still ahead of us. For example, the employment service notes that there is a clear trend of an increase in the number of unemployment benefit claimants. Now that it is clear that the job market is in decline, the big question is how much further it will deteriorate.

Israel has an image of a country that ends crises with soft landings. It was created first and foremost as a result of it relatively easily going through the great financial crisis of 2008. For example, unemployment that year was only 6.1% - an excellent unemployment rate for a severe crisis. Israel also ended the coronavirus crisis quickly and with impressive growth. The big question is whether this will also apply to the post-corona crisis.

Of course, if the demand for high-tech jobs continues to decrease, this will have serious consequences. One of them is unemployed people with an original salary that is way higher than the amounts that the National Insurance pays out. Unemployment benefits have a ceiling - NIS 11,000 - which is well below average high-tech salaries, and they are also linked to age. All workers in Israel have very partial unemployment insurance, but the young high-tech workers have zero insurance. The second implication is that as more high-tech workers become unemployed, and more startup companies will close, the demand for jobs in related industries from design, through office furniture to coffee shops will decrease.