Israel's major economic associations this week called for formation of a special committee to discuss the minimum wage question amid concerns that plans to raise the minimum wage could lead to less competition and higher unemployment.
The presidents of Israel's economic associations agreed that the only viable solution for narrowing the socioeconomic gaps and improving the lot of low-wage earners was the introduction of a negative income tax policy. Implementing the negative income tax, the believe would promise an addition to the salaries of low-wage earners without dragging the wage scale in the industry upwards. The presidents of the associations are concerned that raising the wage scale, however, would weigh on the ability of Israel's economy to be competitive and deepen unemployment.
The Kadima Party said this week it would not be able to agree to the Labor Party's demand for the minimum wage be raised to $1,000, since such an increase would cause unemployment to go up to 5% within a few years.
According to a calculation carried out by the economic team of the Manufacturers' Association of Israel, raising the minimum wage to NIS 4,500 a month would cost the economy NIS 26 billion annually of which NIS 18b. would weigh on the business sector. In comparison, instituting a negative income tax would cost the economy no more than NIS 12b. annually.
Raising the minimum wage could have two negative ramifications, according to some economic experts. One is that salaries in the industry could actually recede as exporters and companies competing with importers lose business to low-labor cost Asia and close down. Israel's recent history is replete with examples of local textile plants closing down, or migrating to Jordan, Egypt, China and India.
Secondly, as minimum wages rise, employers could make greater use of technology, substituting machines for workers. Raising the minimum wage could thus make low-skilled workers unemployable, forcing them onto unemployment benefits or income support.
The meeting of the economic associations, which was headed by Shraga Brosh, President of the Manufacturers' Association, also included Avi Ella, president of the Israel Hotel Association; Aharon Cohen, president of the Israel Association of Contractors; Zeev Weiner, president of the Israel Association for the Self-Employed; and Alhadif Yehuda, president of the Israel Craftsmens Association.
While the political parties' negotiation teams are holding coalition talks, the associations called for a special committee to be formed to discuss the minimum wage question. Only a committee made up of government representatives, employers' representatives and employees' representatives will be able to advise the government on the right way forward, they said.