Netanyahu Aide Proposes Paying Foreign Workers Less Than Minimum Wage

Defying conventional wisdom, Netanyahu economic adviser Avi Simhon suggests doing just that for the said benefit of Israeli citizens

Meirav Arlosoroff
Meirav Arlosoroff
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Hundreds of Chinese workers on their way to Israel in August, 2017.
Hundreds of Chinese workers on their way to Israel in August, 2017.Credit: Ministry of Finance Spokesperson
Meirav Arlosoroff
Meirav Arlosoroff

Prof. Avi Simhon, the head of Prime Minister Benjamin Netanyahu’s National Economic Council, is not your typical economist. He challenges orthodoxies and from time to time suggests things bound to upset the Bank of Israel and the Finance Ministry.

His latest move is not only likely to upset the central bank and treasury but the Labor Ministry and the Histadrut labor federation too. Simhon is proposing doing away with the minimum wage requirement for foreign workers employed in agriculture and home health care.

“What sense is there is paying into a pension or training fund for someone working in a hothouse in the Arava who will be going back to Nepal in another three years?” asks Simhon. “And why do we so stubbornly insist on increasing the cost of living for elderly needing nursing care by forcing them to pay high wages to non-Israeli workers?”

His answer: “The minimum wage is a social concept designed to protect society’s weakest in the name of social solidarity. But this doesn’t apply to citizens of foreign countries, who would work here for a third the salaries they get today. We aren’t forcing anyone to come here. Even with lower pay, there will be those who want to work in Israel,” he says.

Simhon’s stance is based on several assumptions. The most important of them is that you can’t substitute Israeli workers for foreign ones, He is confident that no matter what the pay is, Israelis won’t work in a hothouse in the isolated Arava region. Nor will they agree to work a 24/7 shift in the home of an elderly person, whatever the salary is.

In short, from Simhon’s point of view, the markets for these two kinds of jobs are separate from the general Israeli labor market, so that conditions in one don’t affect those in the other.

That is very different from the view of the treasury, which has fought a 15-year battle against foreign guest workers on the assumption that one class of workers can substitute for the other.

Backed by economic studies conducted by a former deputy governor of the Bank of Israel, Prof. Zvi Eckstein, the Finance Ministry has assumed that foreign workers are taking jobs from Israelis in the bottom rungs of the labor market: for instance Thai agricultural workers replacing Israeli Arab women or that Filipinas forced recent immigrants from the former Soviet Union out of jobs tending the elderly.

That has exacerbated the problem of poverty in Israel by closing off jobs to the people with the least education and training, Eckstein contended. In particular, he was thinking of Arab tilers and plasters who found themselves in competition with imported Chinese workers, who not only got paid less but worked harder.

In addition, said Eckstein, low-cost imported labor has deterred Israeli construction companies from adopting higher-tech solutions and is responsible for the low rate of productivity in the building sector.

Simhon will have none of this. “Fifteen years ago there was a plethora of foreign workers,” he says. “There was a real worry about the harm to the weakest Israeli workers. The government was called on to set ceilings on employing [foreigners] and to raise the cost of employing them by entitling foreign workers to the minimum wage and social benefits.

“But these policies, which were correct when foreigners made up 12% of the work labor force and the minimum wage was 3,500 shekel a month, are no longer appropriate. We’ve reduced the number of guest workers to 5% of the labor force and the minimum wage is now 5,300 shekels.”

The decline in the number of foreign workers over the last 15 years shows that the policies worked. There’s no longer any competition between Israeli and foreign workers because there’s a limit on the number of the latter who can enter Israel. Simhon contends that if his idea is put into effect, the savings that, say, an Israeli farmer enjoys from paying lower wages can then be invested in better equipment or paying higher wages to Israelis.

Simhon’s proposal, which would in effect create two classes of workers in Israel, is unprecedented in the developed world. Among member countries of the Organization for Economic Cooperation and Development, no such systems exists, apparently for ethical reasons.

Simhon dismisses that concern. “There are journalists who make 8,000 shekels a month and they work side-by-side with journalists who make 30,000 a month. Why should a situation like that be seen as exploitative, as if there are two parallel classes of workers?” he asks.

Elsewhere in the government, they don’t see it that way. Letting foreign workers’ wages fall would make employing them more attractive and undermine the quota system, pushing more Israelis out of the labor market and further deterring investment in technology and productivity growth.

“The minute a foreign worker becomes a cheaper input, the pressure to increase the quotas will grow enormously,” says one senior official, who asked not to be named. “Experience shows that politicians don’t stand up well to pressure, just as the decision taken a decade ago to reduce the quota in agriculture and construction to zero was never honored.”

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