'Minimum wage deal still harmful'

Gradually raising minimum wage by NIS 500, could have significant negative effects, economists say.

shekels 88 (photo credit: )
shekels 88
(photo credit: )
The compromise reached between Kadima and Labor negotiators, gradually raising the monthly minimum wage by NIS 500 by July 2007, while less than Labor had demanded, could nonetheless have significant negative effects, economists said Tuesday. "The problem is in the chain effects of the raise across the board," said Excellence Nessuah Chief Economists Shlomo Maoz said Tuesday. A raise of even that size, multiplied by masses of minimum-wage workers in Israel, will boost the average wage index "significantly" inflating, in turn, all wages tied to that index, he noted. The strong upward influence this will have on public sector wages, in particular, will require increased government spending, putting further pressure on the budget and fiscal policy, in addition to that caused by other coalition deals, Maoz said. National Insurance Institute (NII) welfare payments are also tied to the average wage. The increased minimum wage will also raise pressure on employers in minimum-wage sectors, such as textile and food industries, supermarkets, gas stations and other services, to cut their work force, he said. "People will be thrown to the street." Israel Institute for Economic Social Research chairman Roby Nathanson was more optimistic. "The agreement is a good one," he said, "since it integrates an excellent raise to minimum wage, but without being excessive." The raise is only a little beyond the legally required advancement of minimum wage, which is itself tied to the average wage index, Nathanson noted, calling for greater enforcement of the existing minimum wage law, as well as any raises to it. Neither Israeli industry nor the economy's productivity will be hurt by the plan, he said, conceding that certain minimum wage-dependent sectors will be hurt, including agriculture and tourism, "but not to such an extent that the economy will suffer or unemployment rise." Most industrial jobs earn more than minimum wage, Nathanson noted. Manufacturers Association of Israel President Shraga Brosh, who helped broker the deal, said "we minimized the damage of the minimum wage raise," though he said a negative income tax system would have been preferable. "What is most important is the decision to set up a committee composed of employers, government and the Histadrut, which will follow the economy's capacity and condition and decide on the timing and size of actual raises to the minimum wage," Brosh said. The Histadrut praised the compromise and the cooperation with employer representatives that made it possible, adding that the organization hopes the minimum wage will continue to be raised until the desired goal of $1,000 per month is reached. According to existing legislation, the minimum wage is raised automatically each April 1, to equal 47.5 percent of the previous year's average wage (according to NII calculations, not the Central Bureau of Statistics). This year, it was boosted 3.6% to NIS 3,456.58 per month from NIS 3,335.18, having been frozen for four years, along with average wage and NII welfare payments, said Industry, Trade and Labor Ministry chief labor relations officer Shlomo Itzhaki, noting that a special deal made during the freeze between the Histadrut and the business sector allowed for a one-time NIS 68 shekel raise in 2003. Itzhaki said that any raise to minimum wage negotiated by politicians would still require an amendment to the existing law before it can be applied.