(photo credit: MARC ISRAEL SELLEM/THE JERUSALEM POST)
Goals set by the Finance Ministry and the man who is seated at its helm, Finance Minister Moshe Kahlon, are at cross purposes.
On one hand the Finance Ministry announced last month that it was setting as its most important objective for 2016 the reduction of income inequality. Income gaps in Israel are among the highest in OECD countries. The gap between the highest paid and lowest paid workers in Israel is similar to the situation in the US, Mexico and Turkey.
Kahlon also announced his intention to improve productivity.
At the same time, he has set a target of increasing the number of annual housing starts from about 50,000 to 60,000 to lower prices and rents. To this end, Kahlon is calling to increase the number of foreign workers in construction, particularly in areas that are the most physically demanding and that require a high level of skills. There is always a dearth of construction workers who know how to lay floor tiles and prepare the concrete frames.
By calling to increase the number of foreign workers in construction, however, the minister is undermining the goals of reducing income inequality and increasing productivity.
Construction is one of the few fields in which relatively uneducated workers can hope to earn high salaries.
Physically demanding and high-risk work that requires a long training period rewards workers around the world with relatively high-paying jobs. In Israel, about 200,000 people work in construction. Integrating uneducated Israelis could cut income inequality by raising the average income of the least educated.
But since 1967, integration of Israelis into construction has been notoriously difficult, particularly for the most physically demanding jobs. Cheap Palestinian workers pushed down salaries in the late 1960s, the 1970s and the 1980s. During the first and second intifadas they were gradually replaced by foreign workers from Romania, Moldova, Bulgaria and China. Since 2006, the number of Palestinian construction workers increased alongside a decrease in foreign workers. Now things are changing again, with pressure building to import more foreign workers, in part due to concern that the present Palestinian violence will lead to more curfews and roadblocks that will hinder the flow of workers from Judea and Samaria to Green Line Israel.
Reliance on cheap labor has not only pushed down salaries, it has hurt productivity. Contractors have refrained from investing in technologies that speed up the building process because they have been able to offset the higher cost of later completion times with cheap labor. As a result, it takes significantly longer on average to finish a house in Israel compared to other developed countries.
And Israeli construction firms lag behind their counterparts abroad when it comes to new technologies.
Under pressure from building contractors who are once again clamoring for the government to allow the import of more foreign workers, the finance minister plans on taking advantage of the additional 20,000 permits for Chinese construction workers already decided upon by the government. He also plans to increase the number of foreign workers beyond this.
Importing more workers might help Kahlon achieve his goal of increasing building starts. But it will hurt two other objectives: reducing income inequality and increasing productivity.
Kahlon should be praised for seeking to cut income gaps. In the past, the Treasury, overwhelmingly dominated by supply-side economists close to big business interests, has been preoccupied with fiscal matters such as budget deficit as a percent of GDP or tax revenue projections.
Inequality and other socioeconomic issues have rarely registered on the ministry’s radar.
By prioritizing the need to fight inequality, the Finance Ministry is making a statement: Inequality is not just bad for the poor, it is bad for the nation. Similarly, improving productivity is the best way to improve the standard of living. More productive workers earn more.
Unfortunately, Kahlon has not only failed to provide any operative solutions to the problem of income inequality, he has chosen to take steps that will likely deepen income inequality and hurt productivity. The construction sector needs to stop relying on cheap labor and start investing in new technologies. Where possible, Israelis should be integrated into the sector. The solution is not to import more foreign workers.