Boosting the minimum wage
Yes, 2007 was a good year for the Israeli economy. Growth maintained its rapid clip, the unemployment rate declined, the balance of payments is in the black, the budget is balanced, inflation is low and the national debt has shrunk.
Yes, 2007 was a good year for the Israeli economy. Growth maintained its rapid clip, the unemployment rate declined, the balance of payments is in the black, the budget is balanced, inflation is low and the national debt has shrunk. In addition, international credit rating agencies have upgraded Israel. And 2008 will also be a good year. If something positive emerges from the Annapolis conference and serious peace talks are conducted, 2007's results will pale beside 2008's. So it is hard to understand the Knesset's decision yesterday to postpone updating the minimum wage for six months.
It all started in mid-2007, when the finance ministry proposed postponing the third stage in upgrading the minimum wage by an entire year - from December 2007 to December 2008. The Histadrut labor federation's leaders were furious. In August, Finance Minister Roni Bar-On and Histadrut chief Ofer Eini met and arrived at a compromise: The minimum wage would be upgraded in July, not December, 2008. In other words, the postponement was shortened to six months. On Tuesday, the Knesset's Labor and Welfare Committee approved the postponement by a majority of eight, with six opposed, after an exhaustive discussion that lasted all of 10 minutes. The Knesset approved it yesterday after a stormy debate. Many Labor MKs voted against, but the Pensioners Party mobilized, creating a majority.
The outcome is that Israeli society's weakest members will continue earning NIS 3,710 a month (NIS 19.95 hourly), and their salaries will increase only in July - to the stunning monthly level of NIS 3,850. That is, by NIS 140.
The treasury meanwhile will save a paltry NIS 116 million. Why paltry? Because in the 2008 budget debate, the treasury increased the education budget by NIS 1.7 billion, the defense budget by NIS 1.6 billion, the health budget by half a billion, senior-citizen allowances by half a billion and compensation payments to surviving victims of the Nazis by NIS 700 million. Was the treasury unable to find another NIS 116 million in a budget whose total expenditure is NIS 300 billion?
The freeze on the minimum wage is a delayed - and mistaken - reaction to the Second Lebanon War. It was decided after that war that ministry budgets would be slashed because of fears of both a recession and a reduction in tax revenue. But neither scenario occurred. Economic growth accelerated and productivity sharply increased. Nonetheless, the upgrade of the minimum wage was postponed from June 2007 to December 2007, and this week it was again postponed.
The postponement is a mistake - socially and economically. It clashes with our economic policy to encourage people to enter the labor market. Silvan Shalom and Benjamin Netanyahu (Likud) initiated the process when they reduced the guaranteed income allowance while lowering the income tax rate.
The result was that Israelis were encouraged to go out and work. Former Labor Party leader Amir Peretz climbed on the bandwagon when he demanded an increase in the minimum wage to $1,000. Although some companies were forced to reduce their workforces because of the increase, some businesses went ahead with the pay raise, even recruiting additional employees.
The undeniable fact is that since 2003, 400,000 people have entered the job market and the percentage of Israelis in the national labor force has climbed from 54 to 57 percent - an important social achievement.
An increase in the minimum wage is the appropriate answer to poverty and the socioeconomic gap. It is the best incentive for encouraging people to enter the labor market and emerge from poverty's vicious circle because, among families where both partners work, only 4 percent live below the poverty line.
An increase in the minimum wage is a much better solution than the dubious invention known as negative income tax, which creates red tape and needless complications, promotes deceptive behavior, and discourages people from advancing themselves in their careers and earning more. So it is infuriating to hear that the same finance minister who agrees to allocate NIS 300 million for a negative income tax wants to save NIS 116 million by delaying an upgrade to the minimum wage.
The postponement should be canceled. The minimum wage should be raised today to NIS 3,850 amonth. It should be raised again next year to NIS 4,000. As long as the economy grows quickly and demand for workers increases, employers can and should pay a higher minimum wage. That is why it is high time to upgrade the working conditions of those prepared to abandon a life of inactivity and enter the job market.
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