Israeli lawmakers seek to raise minimum wage, already highest in region

Experts disagree on the benefits and dangers of the proposed legislation.

Meretz MK addresses minimum wage protestors (photo credit: ANAT VARDIMON)
Meretz MK addresses minimum wage protestors
(photo credit: ANAT VARDIMON)

In a rare show of cooperation between Israel’s governing coalition and opposition, nine members of the Knesset from seven different parties led by Labor lawmaker Naama Lazimi submitted a bill that would raise the country's minimum wage by more than a third to 40 NIS ($12.50). 

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Lazimi wrote in an explanation to the bill introduced last Wednesday that the number of those employed and still living under the poverty line has increased in recent years, and that "raising the minimum wage will increase the buying power, the incentive to be active in the market and will help small businesses." The bill's supporters expect the raise to encourage those unemployed as a result of the COVID-19 crisis to seek employment, the Israeli news website Ynet reported. 

The effectiveness of this policy is a matter of debate, however. 

Dr. Michael Sarel heads the Economic Forum at the Kohelet Policy Forum. “I haven’t seen strong evidence that this reduces inequality,” Sarel said of raising the minimum wage. One reason for this, he told The Media Line, is that minimum wage workers often are employed by small businesses, whose owners themselves usually do not earn high salaries. 

On the other hand, Sarel says that increasing the minimum wage will “almost certainly push unemployment upward, especially of young unskilled [workers] who have a hard time finding a job.”

Deal reached to raise the minimum wage in Israel (credit: MARC ISRAEL SELLEM/THE JERUSALEM POST)Deal reached to raise the minimum wage in Israel (credit: MARC ISRAEL SELLEM/THE JERUSALEM POST)

The COVID-19 pandemic has already impacted this sector significantly, says the economist, so the proposed bill could certainly have a detrimental effect. Sarel notes that there has been some research indicating that raising the minimum wage does not contribute to unemployment. However, he says that the test cases differed in notable ways from the current situation in Israel, and so are not applicable.

Professor Joseph Zeira, an expert on the economy of Israel at the Hebrew University in Jerusalem, sees things differently. “The laws of economics apply to Israel as well,” Zeira told The Media Line, referring to the recent research which, he explained, shows that an increase in the minimum wage has little to no influence on unemployment.

“The question of what should be the rate of minimum wage is not a scientific question – the only answer we can get comes from comparing to other countries,” Zeira said. A proper comparison, explains the professor, entails comparing what percentage a country’s minimum wage makes up of its hourly workforce productivity. When analyzed this way, Israel joins countries such as Spain and the Netherlands at the low end of the list of developed countries. Bringing the minimum wage up to 40 NIS will move Israel closer to countries such as Australia, which top the chart. It also will put Israel more or less in line with a $15 minimum wage in the US, which has been at the center of a years-long struggle.

“It doesn’t cause economic damage, and it certainly has social benefits because it will greatly influence the gap between workers,” said Zeira. He believes, however, that the bill will be hard to push forward for political reasons.

Sarel says the increase may be too much at one time. “I expect that no one would be willing to raise the minimum wage by 35% in one go,” he said. However, an increase is possible if the right political elements align, but it will most likely be a gradual increase.

While it remains to be seen whether the bill will receive the approval of the Israeli parliament, even without this proposed increase the small country still leads regionally. A 2020-2021 report by the United Nations International Labor Organization (ILO) noted that the Arab states are lagging behind globally in the implementation of minimum wage laws. Only 64% of Arab countries – which are a majority in the region – have enshrined minimum wage rates in legislation. By comparison, in the Americas for example, 94% of countries have minimum wage laws.

It is not surprising that Israel, with its strong economy, has a higher minimum wage than many of its neighbors. And it is notable that regional economic leaders such as Saudi Arabia and the United Arab Emirates do not have minimum wage laws, according to the ILO, which excludes laws that apply only to civil servants. 

Despite the fact that a majority of countries in the region do have minimum wage laws, 52% of wage earners live in Arab states that do not have such legislation.

In March, Qatar became the region’s latest country to adopt a minimum wage standard. Significantly, the law extends to all workers, no matter their nationality. The rate set is 1000 Qatari riyals ($275) per month, and the law also demands that employers pay an additional allowance of at least 800 riyals for food and housing.