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Taub Center: Impact of COVID-19 on all aspects of Israel's future

The coronavirus crisis will affect nearly all aspects of Israel’s future, from health to macroeconomics, welfare, the labor market and education, the “Picture of a Nation 2020” report released Wednesday by the Taub Center for Social Policy Studies in Israel showed.

“Coronavirus is the most economically disruptive global event to have taken place since WWII,” wrote Prof. Avi Weiss, Taub Center president, who authored the report. “Although we do not yet have enough historical distance… to evaluate its full impact on Israeli society and its economy, there are some early indications that Israel’s experience with this pandemic, and pathway through it, is somewhat different from those of most of its developed country peers.”

The challenges of the health system in Israel were known before COVID-19, Weiss said: “From a resource perspective, Israel entered this pandemic in a relatively precarious position.”Shortages in budgets, infrastructure and manpower posed a risk in fighting coronavirus.For example, the report showed that public health expenditure is low relative to other OECD countries, including those with similar healthcare systems – about 7.4% GDP compared to 8.9% to 11% – which translates to “a real risk of significant indirect collateral damage from the pandemic.

”Similarly, Israel suffers from a low number of acute hospital beds per 1,000 people (2.2 as opposed to 2.6 in OECD and 4.1 in countries with similar healthcare systems), and a high rate of bed occupancy (94% vs. 75% in OECD and similar countries).The report highlighted that the percentage of those admitted to the hospital who spent more than five hours in the emergency room continues to increase and that the country’s cost-for-care is structured in a way that harms community care, nursing homes and home hospitalization.

One of the biggest challenges of the coronavirus crisis was managing senior living facilities; around 30% of Israeli deaths were geriatric center residents.Ronni Gamzu, CEO of Sourasky Medical Center in Tel Aviv – who developed the “Protect our Fathers and Mothers” plan during the crisis – reported that the nursing homes are diverse, ranging from geriatric rehabilitation centers to medical and mental institutions to sheltered housing, and that the manpower in these institutions is often very diverse and can be weak.

As the country prepares for a second wave, including developing policies to contend directly with the virus, the Taub Center recommended that Israel likewise “take actions to reduce indirect mortality because of delayed regular screening and treatments,” which could involve improving all aspects of the healthcare system.Moreover, Weiss wrote that, “Israel’s education system is in a deep crisis following the coronavirus outbreak,” and that it may be “undergoing a serious revolution… Digital resources will become essential teaching tools, while the classroom and school playground will be focal centers for social contact.

”However, this revolution could present a number of risks, including widening gaps between the haves and have-nots and between Arab and Jewish students. It could also lead to a loss of “safe space” for some children.Although the education budget has increased since 2010, the gap in the average budget between Arab and Jewish sectors is still close to 30%. Additionally, while for students in Hebrew education, PISA exam scores rose between 2006 and 2012 and stabilized from then until 2018, for students in Arab education, there was a sharp decline between 2015 and 2018.Moreover, the gap between what Israel spends on secondary school education compared to the OECD average is large.

Teachers are paid too little in Israel, the report showed: a starting elementary school teacher makes $21,000 compared to $32,000 in the OECD and a secondary teacher about $23,000 compared to $36,000.Taub Center also showed that children growing up in poverty during the first two years of life suffer from very low educational achievements.Israel’s fiscal deficit at the outset of the coronavirus outbreak stood at more than 4% of GDP, higher than the targeted level set by the government. While the deficit is expected to reach approximately 11% in 2020, the Taub Center notes Israel’s low debt-to-GDP ratio – approximately 60% – which will enable the government to turn to capital markets to secure funding for the growing deficit.

The debt-to-GDP ratio is expected to increase to around 75%.While the economy was in a strong position prior to the crisis, and the decline in GDP in 2020 is expected to bounce back next year, there has been a steady decline in GDP per capita (productivity) growth over the past decade – averaging only 1.5% between 2017 and 2019. The slowdown in productivity growth in the early 2000s is attributed to the entrance of low-skilled populations into the labor market.

The lack of private investment in physical capital is expected to “continue for a long time” due to the coronavirus outbreak.Doubling public capital investment in sectors including infrastructure, transportation and communications could “erase the gap in productivity per worker.” Unlike the private sector, Weiss believes public investment is likely to accelerate following the crisis, especially in the health system and transportation.In addition to the coronavirus outbreak leaving more than one million Israelis out of work - either on unpaid leave or laid-off - the crisis has also put a spotlight on required skills for the future labor market. This was especially the case for computer literacy, with many employees asked to work from home.

“Many businesses and workers without computer skills were left behind,” said Weiss. “It is still too early to assess how the crisis will affect workers from different sectors and different population groups, but it is likely that the harm to workers who have not acquired computer skills will be more severe.”As Israel’s population is forecast to grow from about 9 million today to approximately 12.8 million by 2040, the working-age population is also expected to increase significantly – from 4.8 million in 2017 to 7 million in 2040.

The sharp increase will pose a challenge to Israel’s higher education, employment and housing sectors. Should current enrollment rates in higher education continue within each population sector, the number of students will increase by 53%, from 51,000 today to about 78,000 in 2040. The supply of learning spaces will need to increase substantially more should policymakers achieve their goal of accelerating enrollment rates within certain population sectors, including the Arab-Israeli community.