Ethics @ Work: Solving the quandary over contract workers

Widespread presence of these workers in Israel is an expression of a deep-seated ambivalence in Israeli public life.

histadrut protest (photo credit: Ben Hartman)
histadrut protest
(photo credit: Ben Hartman)
The Histadrut Labor Federation is threatening to strike over the working conditions of workers who are not even Histadrut members. What is this labor dispute about? The Histadrut is threatening to strike over the status of a unique Israeli cadre of workers known as “contract workers.”
These are workers who are formally employed by one employer, the contractor, but in practice do their work in the workplace of the actual employer who needs the work done.
Contract workers exist – to some extent in every economy – to fulfill a substantive economic need. The two main kinds are temporary workers and outsourcing.
If I am hiring a worker for an extended period, I would prefer in general that he or she be accountable to me. But if I need someone to do a standard task for a few weeks or months to fill a temporary absence, to fill in while I find a suitable worker, or to relieve some special seasonable pressure, it might make sense for me to turn to an agency specializing in temp workers of this nature. The temp workers has much more job stability than someone who looks for such occasional opportunities on his own, and the worker is more accountable than a truly temporary worker since the temp agency can fire him.
Likewise, if I am hiring a worker for a specialized task that I don’t know much about, it might make sense for me to outsource the work. I may know everything about widgets but very little about cleaning or security, so I may prefer to leave these tasks to a specialized firm.
But Israel also has a very large number of a third kind of contract workers: workers who I want to keep on working directly for me for an extended period, but who I don’t want to pay as much as other workers who have special statutory rights or collective bargaining rights.
The Histadrut would like to give these workers many of the privileges they currently lack. The reason is obvious: These workers are a lower-cost substitute for union members.
Unions everywhere are zealous for the rights of anyone who gets paid less than them; they are invariably in favor of anti-sweatshop legislation, minimum wages and any other measures that make it more expensive to hire nonunion workers.
I see the widespread presence of such workers in Israel as an expression of a deep-seated ambivalence in Israeli public life, together with a unique Israeli acceptance of improvised solutions to circumvent rules. In Northern Europe, unions are very powerful, so there is no public support for legal subterfuges that circumvent labor laws. In the United States, unions are very weak, so there is no need for such subterfuge.
In Israel, the labor movement has been powerful enough to pass legislation providing for extensive rights for workers, but it has not been powerful enough to ensure that these laws actually apply throughout the Israeli labor market. Israel has a comparatively generous minimum wage, but studies consistently show it is poorly enforced. Israeli workers have many rights, but in recent years it has been easy to hire foreign workers.
Direct employees have many rights that contract workers lack, and so this sector has become quite large. The contract workers are a jury-rigged solution that suits the Israeli temperament.
Is the competition from contract workers a legitimate concern for Israel’s labor unions? Of course it is. Is it a legitimate grievance for a labor dispute and a threatened strike? In my opinion it is not.
The Histadrut has a grievance when it can claim that the workers it represents are not getting the conditions they are entitled to. If they want to change the face of Israel’s labor market, they should promote their views through the political process, promoting laws that would close the “contract worker” loophole.
On the political level, is such legislation healthy for Israel’s labor market? There is no question that contract work is an awkward work-around that is bad for everybody. The worker and the employer would both be better off eliminating the middleman and his monetary and bureaucratic cut. Often the cure is worse than the disease; requiring the employer to hire the worker directly if he works for more than a certain number of months will just result in having a perfectly good worker fired from his job.
The two solutions are to eliminate the loophole (as the Histadrut would like to do) or to eliminate the red tape that makes it attractive.
I think giving workers more rights is currently harmful for Israel’s economy. Making it expensive to hire workers and expensive to fire them makes starting a business more cumbersome and expensive, and that discourages entrepreneurship.
That is one reason the Histadrut has found an unlikely ally in many of its battles in the Manufacturers Association of Israel, which represents the established companies.
Just as the unions would like to avoid competition from nonunion workers, so would the established manufacturers like to avoid competition from new, low-cost firms. The result is that competitiveness is harmed, and this may be one reason for the high degree of concentration in the Israeli marketplace.
If Israel does extend labor-market protections, many workers would gain from improved working conditions. But everyone would suffer from higher taxes, higher prices and less growth.
Asher Meir is research director at the Business Ethics Center of Jerusalem, an independent institute in the Jerusalem College of Technology (Machon Lev).