Gov’t votes against wage-hike bill

20 cabinet ministers voted against and 10 in favor of the proposal.

311_ amir peretz (photo credit: Ariel Jerozolimski/The Jerusalem Post))
311_ amir peretz
(photo credit: Ariel Jerozolimski/The Jerusalem Post))
The government on Sunday voted against a bill that would raise the minimum wage from NIS 3,850 to NIS 4,600.
After hours of discussion at the weekly cabinet meeting and pressure from Prime Minister Binyamin Netanyahu and Finance Minister Yuval Steinitz, 20 cabinet ministers voted against and 10 in favor of the proposal.
The bill, which was advanced by Labor MK Amir Peretz, would gradually increase the minimum wage over 15 months.
Steinitz announced plans to expand an income-tax credit program nationwide as part of the state budget for 2011 and 2012. The Earned Income Tax Credit, or negative income tax, was launched in September 2008 in four locations and aims to help low-paid workers.
“I support the finance minister’s plans to include the nationwide expansion of the negative-income-tax program in the next budget,” Netanyahu said. “It is the right measure for working people who receive low wages. This will encourage employment, while other proposals would have increased unemployment.”
Steinitz had warned that raising the minimum wage would be costly and result in budget cuts to welfare, defense, education and other ministries.
“As a result of an approval of the proposal to raise the minimum wage, the government would need to cut NIS 5 billion across all ministerial budgets to cover for the additional financial cost of its implementation in the years 2011 and 2012,” he said at a meeting of Likud ministers, which took place before the cabinet meeting. “The measure would also negatively affect local authorities in general and the weak ones in particular, as they are struggling to survive the burden of budgetary difficulties.
Anyone who votes in favor of the bill to raise the minimum wage cannot complain about cuts that will be made in their ministry’s budget.”
In May, the Ministerial Committee on Legislation voted in favor of Peretz’s minimum-wage bill. But the Finance Ministry said its implementation would have an adverse effect on unemployment and would increase the need for higher government spending on welfare.
“The threatening way the Finance Minister put pressure on government ministries and ministers to vote against the bill is not legitimate and possibly even illegal,” Peretz said.
The Finance Ministry, Netanyahu and employer organizations have vehemently opposed the bill, arguing that higher labor costs would make Israel less competitive for business, especially in light of the recent depreciation of the euro against the shekel, and force companies to relocate their activities to countries with cheaper labor costs.
The Finance Ministry said supervising and enforcing a higher minimum wage would be difficult. Compliance with the current minimum-wage law is relatively low, with about 14 percent of all fulltime employees being paid less than the minimum wage. An OECD report on Israel found the number of inspectors dealing with labor-law enforcement was less than a quarter of the International Labor Organization benchmarks for the number of workers per inspector.
“The minimum wage in Israel is high in comparison to the average market wage in OECD countries, risking negative employment effects, and the ratio should be progressively reduced over time, together with increased enforcement,” the OECD said in a recent economic report on Israel.
The Bank of Israel has also expressed opposition against raising the minimum wage.
“Some of those affected would indeed benefit from an increase in their wages, and their economic situation would improve,” the central bank said in a recent report. “In some instances, however, it is reasonable to assume that employers would not comply, since there will be a greater incentive to noncompliance, as the difference between the minimum wage and the competitive wage widens, and the economic situation of those workers will not change.
“In contrast, it is also reasonable to assume that some employees, particularly in tradable-goods industries, will be fired, so that their situation will deteriorate.
Therefore, an examination of the range of implications of the proposed change gives cause for concern that it would have a negative effect on a considerable share of low-wage earners – those it is aimed at helping.”
The Finance Ministry wants to help the working poor by increasing investment in education and training of skilled staff, aimed at expanding the hi-tech sector, especially biotechnology and technology for financial services, and boosting participation of certain population groups in the labor market.