Bank of Israel Research Department Director Prof. Michel Strawczynski participated yesterday in the Bar-Ilan University Marcoeconomic Forum dealing with the economic ramifications of the COVID-19 crisis.  The following are the main points of his remarks:


·         The COVID-19 crisis has had an adverse impact on the income of the self-employed and salaried employees.  The economic shutdown was focused on industries with a high proportion of self-employed individuals such as tourism, cultural performances, and events.  The adverse impact on this group was therefore relatively high.

·         The second wave of the pandemic has led to an increase in the impact on household income, with a retreat from the improvement that was experienced in June, such that the impact in July returned to the rates that had been seen in May.  However, this level is less than the impact recorded at the height of the crisis in April (Figure 1).

·         Households that suffered from the impact of the shutdown generally include self-employed individuals from the low income deciles (1–4).  The percentage of households with a sole wage-earner who is self-employed, who remained without income, declined from 45 percent at the height of the crisis to 22 percent in July.  The safety net moderated the adverse impact these families suffered.

·         The closure measures recently adopted by the government, which are intended to cut off the contagion chain, are expected to cause a further negative impact to household income.  The fact that the economy is better prepared for working from home, and the planned vacation during the holiday season, are expected to moderate the impact to economic activity.


Prof. Strawczynski opened his remarks with an explanation of a simulation carried out at the Bank of Israel, which examined the percentage of households adversely affected by the economic shutdown and the chances that a household would remain without a wage-earner.[1]  In this context, he showed that the second wave of the pandemic that is currently hitting the Israeli economy has led to an economic retreat and a repeat impact on households’ income.  According to the simulation, which is based on the characteristics of the shutdown by industry, the impact to household income was most noticeable in the low income deciles (1–4), where the average impact declined from about 24 percent at the height of the crisis (April) to about 4 percent in June, and then increased back to about 7 percent in July, similar to the level observed in May (Figure 1).  While on average, the percentage of households that remained without wage-earners in the lower deciles was estimated at about 11 percent, the average in the highest deciles (8–10) was estimated at about 7 percent of households (Figure 1).




Prof. Strawczynski also discussed the adverse impact of the shutdown on the self-employed and on salaried employees.  The impact was partly offset by government support in the form of unemployment benefits to salaried employees on unpaid leave, and grants and municipal tax discounts to the self-employed.  While the likelihood of a household in the lower deciles (1-4) with a self-employed single wage-earner remaining without work was estimated at about 45 percent at the height of the crisis in April, this likelihood declined to about 22 percent in July. For a household belonging to the highest deciles (8–10), the likelihood declined from 38 percent in April to 22 percent in July (Figure 2). 


In contrast, in households where the main wage-earner is a salaried employee, the rate of those remaining without income declined from 34 percent in April to 15 percent in July among households in the lowest deciles, and from 24 percent to 14 percent among those in the highest deciles.




Prof. Strawczynski emphasized that the second wave involves a reduction of economic functioning, and that it is decisively important to adhere to the purple badge regulations and healthcare instructions set out by the government.  In particular, the closure decisions recently made are intended to cut off the contagion and reduce the impact to households following the closure.  However, during the closure period, we can estimate that there will be an increase in the percentage of households that will be adversely impacted compared with the situation in July.  At the same time, the fact that the economy is better prepared for working from home, and the fact that the holiday period generally brings with it vacations from work, are expected to moderate the impact.  According to Strawczynski, it is vitally important to activate an improved employment program that will include flexible unpaid leave and an employment grant for firms that will help moderate the unemployment rate—which in its broad definition currently stands at about 12 percent (about 500,000 unemployed).