The labor market continued to slump in 2003 as the recession persisted. Labor input in the business sector was flat, the unemployment rate climbed to 10.7 percent, and unemployment intensity worsened. Employment of Israelis in the business sector expanded by 2 percent after no change in 2002. Employment of foreign workers decreased steeply and perceptible numbers of foreign workers in the construction industry were replaced by Israelis. Labor input in the public services contracted slightly after many years of uninterrupted increase due to vigorous measures to reduce the share of government in economic activity.

Nominal wage per employee post declined by 2.1 percent and fell more rapidly in the public services, where a collective agreement stipulating a progressive wage cut was concluded. Labor productivity increased by 1.5 percent after two years of uninterrupted declines. As a result of this factor and the 2.4 percent real wage decrease in the business sector, unit labor cost fell steeply, attesting to greater business efficiency.

Labor relations in 2003 deteriorated in view of the pension-fund arrangements, the raising of the compulsory retirement age, and plans for far-reaching changes in the public services and government-owned companies. The effects of legislative changes that slashed transfer payments and toughened citizens’ eligibility for them were perceptible during the year. The stringencies, although prompted by the need to reduce government expenditure and raise the participation rate, dealt the welfare of needy families a severe blow.

 The Labor Market - PDF file