Israel's Persistent Labour Market Imbalances Derail Recovery, Threaten Dwindling Economy

Ever since it was established, Israel has faced a labour market crisis. Due to its settler colonial nature, the state relied heavily on foreign labour to sustain the economy and act as soldiers in times of conflict. As the state grew, its labour market continued to experience shifts and turmoil. Most recently, as a result of the conflict in Gaza, Israel mobilised 360,000 soldiers from the reserve, pulling them out of their active jobs in the economy. This led to a sharp decrease in available labour in key sectors such as technology and construction. Initially, this decline did not cause severe economic damage due to the reduction in economic activities caused by the war. However, as the conflict dragged on, the labour market imbalances became more pronounced, with direct and indirect costs on the economy now and in the future.

At the government level, it became clear that policy changes were needed. This included inviting foreign construction companies to work in Israel with their foreign staff rather than relying on Palestinian labour, which had been banned from entering Israel. The government also broke a societal taboo by drafting religious Jews who were historically not expected to serve. Additionally, new schemes to import foreign workers were met with limited success. An economic incentive program was launched to encourage more Jewish immigration into the country, aiming to build a larger standing military force to address existing and future security risks. In its desperation, Israel even allowed more non-Jews to immigrate in exchange for military service. Tax cuts were offered to Americans to encourage them to fight in the Israeli army.

The shortage of soldiers for a prolonged war means that Israel's reliance on foreign labour and mercenaries will have to increase. Nonetheless, in the long term, the Israeli economy is likely to shrink permanently as it becomes less attractive to immigration and investment and faces high-security risks. A smaller economy will necessitate even greater reliance on outside forces for survival and make the cost of maintaining the military unfathomable. Furthermore, refusing to recognize Palestine means that Israel will not be able to hire Palestinian labour in the future, resulting in financial and monetary issues that will significantly impact state income. As the conflict becomes a multi-year and multi-front war, labour market imbalances will be a key factor in determining the future of the country and its Jewish identity.