Analysis / Wage Cuts Help Avert Further Dismissals

Once, until the year 2000, the best wage agreement you could get was to have your pay linked to the average wage in the economy.

Once, until the year 2000, the best wage agreement you could get was to have your pay linked to the average wage in the economy. For many years, in fact since the establishment of the state, wages rose constantly year after year, far beyond the consumer price index.

What better proof that this was the best agreement around than the fact that the prime minister, ministers, Knesset members, judges and directors-general in government service all linked their salaries to the average wage.

But then came the second intifada and jumbled the laws of statistics. Wages have since been plummeting at an alarming rate. In the past two years (the average of 2001 compared to May 2003), real wages went down by no less than 12 percent, an unprecedented process that nobody could have predicted.

Why did it plummet so drastically?

Because the recession shrunk the market brutally. Workers and employers were forced to adapt themselves to the new situation to survive, which means workers agreed, having no other choice, to dramatic pay cuts in the private sector. Wages in the public sector were also slashed.

The second reason was the high-tech mudslide. The erosion of the fabulous salaries of 1999 and 2000 that were paid both to workers and to managers affected the entire market average.

In the past, there were years in which, despite dismissals, the average wage increased. This was because those who were fired were low income earners, the simple laborers. So those who stayed had the higher wages and the average rose.

It didn't happen this time, because the cuts were made on all levels and because in high tech, even the highest wages were slashed.

At first glance, all this looks like a negative process. Who wants his salary harmed? But, on second glance, the dire figures indicate the strength and stability of the Israeli market. If the Histadrut had more power, and if the trade unions were more militant, they would not have allowed this wage reduction. The result would have been a much higher rate of unemployment because the plants and businesses that could not lower wages would have reduced their activity further or closed down.

But since the `90s the Histadrut and trade unions' strength has dwindled, and more and more workers do not belong to a union and consequently the market mechanism enabled wage reduction, averting the need to fire more workers and shut down more work places and plunge the market into a even greater recession.

The Histadrut also displayed responsibility by consenting to reduce wages in the public sector last month. This will bring about a further reduction in the average wage but will also help stabilize the economy. MK Yossi Katz passed a resolution in the House Committee that even if the average wage is "frozen," the MKs' wages would be reduced when the real value of wages goes down.

(A Knesset member's wage is NIS 30,232 a month, plus a car, plus clothing expenses, plus an advanced training fund, plus 2 percent for the pension fund, plus all office expenses from funds earmarked for ties with their constituents, plus an annual NIS 3,200 to learn a foreign tongue, plus financing for two assistants, plus many trips abroad with the help of 50 (fifty!) inter-parliamentarian friendship associations.)