Avoid a minimum wage showdown

The results of facile concessions on minimum wage could be fundamentally counterproductive.

By
April 15, 2006 23:34
3 minute read.
Avoid a minimum wage showdown

amir peretz 224.88. (photo credit: Ariel Jerozolimski [file])

The presidents of Israel's major economic associations proposed last week that the thorny issue of increasing the country's minimum wage be studied, and recommendations provided, by a committee of experts representing the various involved sectors. The bottom line, implicit in their suggestion, is that the matter is too crucial and potentially damaging to the economy to be left in the hands of politicians who are liable to subordinate national concerns to their pressing short-term interests. There are numerous precedents in which critical differences were papered over to promote immediate political prospects at the expense of the good of the nation. These compromises solved nothing yet exacerbated many ills. The issue of minimum wage hikes should certainly not become another subject for coalition give-and-take because the results of facile concessions could be fundamentally counterproductive. Now that coalition haggling has begun in earnest, the sides appear to be at an impasse. With Labor's Amir Peretz having made raising the minimum wage to $1000 per month a key plank of his electoral platform, much of his credibility and prestige hinge on delivering on this promise. Kadima, however, has thus far nixed Peretz's demands, arguing they're a sure-fire recipe for upping the jobless rate by 5 percent within the new government's term of office. Peretz may be sincere in his desire to help low-income workers but the economic associations estimate such a move would have a price tag of NIS 26 billion of which NIS 18b. would be borne by employers. Such a move could prove to be an economic blunder, and impact negatively on the very workers it proposes to help. The manufacturing sector - obliged to compete with cheap labor in a globalized marketplace - is already hard-pressed, with Israeli jobs having slipped away to Asia and elsewhere. A significant rise in wages could make this trend a deluge. Hi-tech isn't a viable alternative for much of Israel's manual workforce. Israel is in the vanguard of state-of-the-art technology, yet segments of its population must be offered less sophisticated employment. This employment could be rendered even more uncompetitive than it already is. Peretz's desire to act as the workers' champion could undermine his best intentions and expedite the further demise of local manufacturing. What is needed is economic growth, which creates jobs and fuels prosperity. Exporting jobs, or making the reliance on illegal foreign labor increasingly tempting, will unquestionably make a bad situation worse. A populist idea such as raising the minimum wage may be expedient on the campaign trail but in workaday reality it could increase poverty, overburden the productive middle classes and boost the grey "unofficial" economy where incomes are invisible and undeclared. The notion of economic growth was popularized by former finance minister Binyamin Netanyahu. Peretz has cleverly jumped on the growth bandwagon to promote his pay demands, arguing that a higher minimum wage would increase buying power and strengthen the economy. But this rhetoric threatens to undercut the very growth that Labor purports to endorse as the government could be forced to raise taxes. Pricing unskilled laborers out of the market and bankrupting small businesses will hardly create more employment opportunities. It will, however, mandate more government intervention and more wasteful bureaucracy, regressing Israel to an era of stunted and inflexible economics. The stakes are much too great to leave them to the manoeuvring skills of Kadima headliners - desperate to forge the semblance of a workable coalition from the jigsaw of factions which the election created - or Peretz's trade-union passions, which may be misplaced in the national arena. His Histadrut federation is no paradigm of successful management or equitable support for all employees. Teetering on the brink of insolvency and dominated by monopolist unions, it has hardly put the interests of the most needy at the forefront. Indeed it evinced no qualms in sanctioning strikes by the most powerful unions, which led to laying-off the most vulnerable workers. The last thing Israel's economy should have to endure is a prestige showdown. This might be best avoided by removing the issue of minimum wages from the political bazaar. The coalition agreement should include the appointing of a professional committee, with enough time to weigh the consequences and recommend a course of action regarding the minimum wage. Such a move would spare all participants loss of face and would likely deliver solutions based on foresight rather than demagoguery.


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