Israeli Finance Minister Bezalel Smotrich’s announcement approving unpaid leave of absence (chalta) for one parent, as long as educational institutions remain closed due to the war with Iran and its proxies, was received by the Israeli public with a sigh of relief. The decision was formulated in coordination with the Histadrut labor federation and the business sector’s presidency, and is presented as a solution to the predicament of many parents caught in a bind: a partially functioning economy facing a completely shuttered education system.
But the economic reality is far more complex than slogans about worker welfare. Any policy hammered out in back rooms with representatives of the country’s most powerful unions sins at the same point: an exclusive focus on workers’ rights, with complete disregard for the infrastructure that sustains them—employers and free-market mechanisms.
The new unpaid leave arrangement grants the right to leave de jure, but de facto provides workers with immunity from dismissal while rolling the full cost of the crisis onto business owners.
Instead of allowing managers critical flexibility during a crisis, the state compels them to maintain unstaffed positions, continue making partial social contributions and absorb severe operational damage. Business owners struggling to maintain a production line, provide service to customers and survive economically find themselves shackled. They are barred from hiring permanent replacements or carrying out necessary streamlining, and forced to watch their businesses collapse while employees stay home under the protection of unpaid leave.
When I analyze public policy in professional forums, this is a classic example I cite of government intervention that creates a dangerous distortion of incentives—one that will ultimately benefit mainly shrewd labor lawyers filing wrongful dismissal suits.
The absurdity is especially glaring in light of macro-economic data. The Israeli economy is currently at near-full employment. Skilled workers who lose their jobs today will find new positions relatively quickly.
The unpaid leave mechanism, designed to serve as a temporary safety net for extreme cases, becomes in the current reality a negative incentive to work. An employee who might be able to find creative solutions—from remote work to alternative childcare arrangements—will prefer the comfort of unpaid leave that provides legal protection and state-subsidized income. The employer, by contrast, is left without recourse and without workers.
Examining who benefits from the arrangement reveals the real picture. The primary beneficiaries are government employees and those enjoying tenure and protection from powerful unions.
In the private sector, an employer may dismiss an employee who fails to report to work, subject to labor laws, regardless of the arrangement. In the public sector, by contrast, unpaid leave functions as a get-out-of-jail-free card. Government clerks, service providers and municipal workers will be able to absent themselves from work while retaining all their conditions.
The true cost of this move is borne by the ordinary citizen. Precisely now, in a time of war when efficient and swift public service is required, the government sector receives permission to go on vacation under the finance minister’s auspices. At a time when all citizens are called upon to rally to the national effort—whether in reserve duty or by maintaining economic continuity—the government sends a problematic message: Stay home, we’ll finance it.
This is the wrong message at the wrong time. When I work with members of parliament in efforts to reduce harmful regulation, I emphasize that such a policy weakens us from within.
The Israeli Finance Ministry needs to provide solutions that do not amount to distributing public funds or extravagant benefits. Rather than yielding to the Histadrut’s demands, it would have been wiser to build positive incentives that allow employers to flex operating hours, encourage work-from-home models and establish community frameworks for children.
Blanket unpaid leave may be a politically convenient solution, but it harms employers, empties the state coffers and projects weakness at moments when the State of Israel needs stability, resilience and productive work.
