Multi-national corporations boosts wages, productivity says Finance Ministry

The study found that MNCs had substantial effects on productivity in Israel, a measure where the country tends to lag against its peers.

August 1, 2016 17:24
2 minute read.

Shekel money bills. (photo credit: REUTERS)

The presence of multinational corporations (MNCs) such as Apple, Microsoft and Intel in Israel boosts the economy, wages and productivity, according to a Finance Ministry study released Monday.

According to the ministry’s chief economist’s office, which conducted the study, people who worked for MNCs for two years earned 4 percent more than their industry peers, even if they moved back to domestic companies. Workers at MNCs earned 10% more than similar domestic competitors. In hi-tech, the contrast was starker. In 2010, the average salary in the field was NIS 18,410 a month for domestic companies, and NIS 28,768 for MNCs, an increase of 56%.

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The overall boost to Israel’s economy was 0.9% of GDP.

The survey, which examined 450 leading companies in Israel in the years 2005-2010, was undertaken in part to evaluate whether government incentives for investments from MNCs were worthwhile. In 2013, for example, the government offered Intel a NIS 1.1 billion grant in order to attract a NIS 22 billion investment, the report said.

But parsing out some of the specifics was more difficult.

For example, the study could not account for benefits such the creation of business relationship between multinational companies and local suppliers. On the other hand, it was difficult to evaluate the effect such boosts had to Israel’s economy writ large. Some left-leaning economists, such as Yaron Zelekha, have argued that such incentives only produce benefits for the high-skilled, educated work force, and don’t lift the whole economy. Companies such as Intel argue that their activities create secondary and tertiary employment effects, as vendors, suppliers, and small business pop up to serve their needs.

Data from the Central Bureau of statistics showed that in 2011, 190,000 Israelis workers were employed by MNCs, accounting for about 5.8% of employees in the economy.

An OECD measure, which used different definitions of MNCs, put the figure at 8%. But the OECD also said that was a smaller percentage than most OECD countries, where the average was 19%. That figure, of course, included MNCs in a variety of fields, from hi-tech to agriculture to retail sales.

If most of the benefits accrue to largely to those employees, argue economists such as Zelekha, the schemes amounts to a subsidy for corporations and the rich. The issue comes up in popular discourse every so often, particularly when government incentives leave big companies with very low tax bills.

Still, the study found that MNCs had substantial effects on productivity in Israel, a measure where the country tends to lag against its peers.

In MNCs, it found, labor productivity was 40% higher on average than their counterparts. While that figure was pulled up by hi-tech, the trend was also clear in agriculture and various wholesale and service sectors.

That upward pull increase productivity per capita in the economy by 14%.

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