Israel: Labor, Manufacturers Strike Minimum Wage Deal

This complete global solution for HR professionals combines custom research, strategic white papers, country primers, webinars, and the expert guidance you’ve come to expect from...

By Jenny David

Dec. 24—The Histadrut National Labor Federation cancelled a threatened general strike earlier this month after the Manufacturers Association agreed to raise Israel's monthly minimum wage gradually over the next two years from the current 4,300 shekels ($1,076) to 5,000 shekels ($1,252).

The agreement will raise the minimum wage for adults in the private sector by 16 percent, from 23.12 to almost 27 shekels an hour, in three stages. On Jan. 1, 2015, the monthly minimum wage will rise to 4,650 shekels, on Aug. 4, 2015, to 4,825 shekels and on Jan. 1, 2017, to 5,000 shekels.

Beginning in 2017, the minimum wage will be set at 52 percent of the median wage on April 1 of each year, but never below 5,000 shekels. By definition, this will keep minimum wage workers above the poverty line, defined as 50 percent of the median wage. According to Israel's Central Bureau of Statistics, the salaries of between a quarter and a third of all Israeli workers are based on the minimum wage. Most employees, however, receive a variety of benefits on top of base pay.

Broad Support, But No Vote

The agreement has the support of most major economic stakeholders, but not the weight of law, since the parliament had no time to approve it before it was dissolved pending new elections scheduled for March 17.

Economy Minister Naftali Bennett called the deal “important news for all of Israel” and said in a Facebook post that it had been achieved “in the proper way—through dialogue rather than force.”

The Federation of Israeli Chambers of Commerce also welcomed the deal, but said Israel's minimum wage law must also be changed to give employers more flexibility and cover workers' sick days from national insurance.

Some economists, however, expressed concern that the increased minimum wage would force small and medium-sized businesses to fire some workers or raise prices.

“I have great respect for the employers, but I don't respect those who are trying to prevent this,” Nissenkorn responded. “They are creating a poor generation here, and it is always the same ones who are harmed—the ultra-Orthodox, Arabs, and women.”

Nissenkorn added that gradual implementation will help businesses adjust to the new minimum.

Growing Gap Between Salaries, Productivity

The Histadrut was strengthened in the final negotiations by a Bank of Israel study showing that since 2008 Israeli salaries have grown more slowly than output per employee and that the average gross salary in Israel was lower in real terms in 2013 than in 2001—9,051 shekels per month in 2013, down from an inflation-adjusted 9,280 shekels in 2001.

Both productivity and salaries remain low by international standards. In 2012, average productivity per Israeli work hour was 73.4 percent of the OECD average, and average pay per hour was 74.7 percent in terms of purchasing power parity.

To contact the reporter on this story: Jenny David in Jerusalem at correspondents@bna.com

To contact the editor responsible for this story: Rick Vollmar at rvollmar@bna.com

A summary of the Bank of Israel's wage study is available in English at http://www.boi.org.il/en/NewsAndPublications/PressReleases/Pages/26-11-2014-Wages.aspx.

For more information on Israeli HR law and regulation, see the Israel primer.