Israel's unemployment hits historic low in December 2024 amid tight labor market; easing expected in 2025

ISRAEL - In Brief 21 Jan 2025 by Sani Ziv

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In December 2024, Israel's official unemployment rate dropped to 2.6% from 2.7% in November (seasonally adjusted). The broader measure of unemployment, which includes individuals temporarily out of work due to the war, fell to 4.0%, from 4.4% in the previous month. Consequently, the annual unemployment rate reached a historic low of 3.0% (average for the year), or 4.75% when accounting for those absent due to the war. Remarkably, the economy added 88 thousand jobs in 2024, outpacing the 47 thousand person increase in the labor force. What drove these changes? Several factors contributed to this trend 1. Reduction in Palestinian workers: Prior to the war, Israel relied heavily on Palestinian workers, with more than 100 thousand from the West Bank and Gaza employed in sectors like construction and agriculture. Following the outbreak of war, this number sharply decreased to just 15 thousand. The significant reduction in Palestinian labor created a massive shortage in sectors such as construction and agriculture, leading Israeli firms to hire local workers to fill these positions. 2. Reservist mobilization: Due to the war, the Israel Defense Forces (IDF) called up many who were previously employed in various sectors, and their mobilization led companies to recruit new employees. 3. Evacuation and labor demand: The conflict led to the evacuation of certain areas, resulting in some workers leaving the labor force. This absence from the labor force created additional demand for workers. The chart below illustrates the unemployment rate as a percentage of the labor force. The green bars represent the classic unemployment rate, while the yellow bars depict unemployment caused b...