Israeli Economy Hit Hard by War
Industries from entertainment and hospitality to agriculture and high-tech have been affected by a workforce shortage caused by the war, costing the Israeli economy an estimated $600 million per week
As the war in Gaza enters its third month and the death toll continues to rise, Israel’s economy is also paying a price.
Many businesses have suspended operations, including those forced to shut down due to a lack of workers.
According to a recent Labor Ministry report, more than 760,000 Israelis—nearly 18% of the Israeli workforce—are not working due to the war. Most of those 760,000 are serving as military reservists or were evacuated from their homes and are therefore out of work. Some are taking care of children whose childcare was affected by the war, while others are out of work because their industries, such as tourism and entertainment, have taken a hit.
Many sectors in Israel, including construction, technology, agriculture, and textiles, have been affected by the labor shortage. The labor shortage in high-tech is especially worrying since that sector accounts for nearly 20% of Israel’s gross domestic product (GDP) and almost half of the country’s exports.
The construction sector was hit hard by Israel’s cancellation of work permits for Palestinian laborers. The decision not to allow Palestinians from the West Bank or Gaza to work in Israel led to a shortage of workers, forcing many construction companies to put projects on hold.
I had to bring workers from other projects … so that we could finish the project with the least cost and financial damage
Yahya Natour, owner of Natour Engineering, told The Media Line about a project for which the company had been relying on 35 permitted workers from the West Bank. “I had to bring workers from other projects that I had closed, and I placed all of them here so that we could finish the project with the least cost and financial damage,” Natour explained.
According to Palestinian figures, some 140,000 Palestinians from the West Bank work in Israel, in addition to about 18,500 from Gaza.
The tourism and entertainment industries are also suffering from the effects of the war.
Israeli officials say a third of restaurants in major cities have not reopened since the Oct. 7 attack, due to a lack of employees and sometimes a lack of customers as well.
At this time of year, restaurants and hotels in the Jaffa neighborhood of Tel Aviv-Yafo are usually packed with tourists. These days, the streets are empty, and many restaurants have shut their doors.
Tourism is dead, and so is the hospitality sector because people don’t necessarily like to go out under the circumstances
Economist Benjamin Bental, professor emeritus at the University of Haifa, told The Media Line, “Tourism is dead, and so is the hospitality sector because people don’t necessarily like to go out under the circumstances.”
Israel’s central bank says that the shortage in workers is costing the economy a staggering $600 million a week.
The government is also spending millions to pay reservists’ salaries and to compensate businesses that were affected by the war, which is also putting a strain on the budget.
Short term this is quite devastating. … 2023 will end with no growth per capita. In 2024 there will be a little bit of growth per capita.
Prof. Bental said he expects the economic impact of the war to be “very grave” and unlike anything Israel has experienced in decades.
He explained that GDP is growing at only 1.5% this year rather than 3%, which he attributed to the reduced workforce.
“Short term this is quite devastating,” he said. “We are going to lose a lot of income, so probably again 2023 will end with no growth per capita. In 2024 there will be a little bit of growth per capita.”
Israel has now borrowed more than $8 billion since the start of the war with Gaza, causing the budget deficit to balloon to $6 billion.
