Israel averted a general strike late Tuesday night after business leaders and the Histadrut labor federation agreed to raise the minimum wage by 700 shekels over two years to 5,000 shekels ($1,260) per month.
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The wage hike is expected to take place in three increments. The first, a 300-shekel-a-month increase, is set to take place in April; another 175-shekel increase is set for August 2016, and a final 175-shekel increase is scheduled for January 2017, according to the agreement publicized yesterday.
The agreement is considered an interim one and affects only the private sector for now.
As of 2018, minimum wage is supposed to be 52% of the average salary, up from the current 47.5%.
This is an achievement for the Histadrut’s new chairman, Avi Nissenkorn. Last month the Histadrut declared a nationwide labor dispute, demanding a 1,000-shekel rise in the minimum wage. Unions are permitted to launch sanctions two weeks after declaring a labor dispute.
Nissenkorn had demanded that minimum wage start increasing on January 1, and wanted it raised to 5,300 shekels in total. Minimum wage is currently 4,300 shekels a month.
“We welcome the agreement and will continue to discuss the issue of public-sector employees with the Histadrut,” a Finance Ministry spokesman said yesterday.
The Histadrut too aims to expand the agreement to the public sector, but a deal needs the signature of the finance minister — which Israel might lack until after the March 17 general election. Earlier this week Prime Minister Benjamin Netanyahu fired Finance Minister Yair Lapid and Justice Minister Tzipi Livni, setting the stage for the vote.
A second reason behind last month’s labor dispute was the growing number of contract workers at government ministries, local authorities and schools. The parties did not reach an agreement on this. A third reason was the government’s alleged unwillingness to include its ministries in a directive requiring private-sector employers to hire workers with disabilities. Lapid had agreed to the Histadrut’s demand in this regard, and said he supported increasing the percentage of disabled employees to 5% of the public sector workforce, versus 3% as agreed for the private sector.
The plan has drawn objections and reservations from small and medium-sized businesses, as well as the hotel and agriculture sectors, which employ a significant number of minimum-wage employees. The manufacturing sector is less likely to be impacted, as most of its workers do not receive minimum wage in the first place.
However, many analysts believe that the country’s smaller businesses won’t actually be harmed by the move; instead, they’ll just pass the cost on to consumers, who will see prices and their cost of living increase as a result.
Analysts say that major grocery chains may take advantage of the decision in order to raise prices immediately, even though wages aren’t set to increase for several more months.
While the agreement exempts public sector employees from the deal at the moment, it does not exempt foreign workers, which means that the 120,000 families who employ a foreign caregiver will be seeing a direct increase in the cost of their nursing services.
A blow to supermarkets
Officials of supermarket chains have mixed reactions to the decision to raise the monthly minimum wage by 700 shekels. Some are warning of high prices and employee layoffs, while others welcome the move. The large chains, Supersol and Mega, posted weak financial reports last month. The financial reports of Rami Levy’s supermarket chain, Hashikma, were middling as well, with a decline in profitability of more than 60 percent.
The decision to raise the minimum wage could cause further erosion in the supermarket chains’ profitability. It will mean an additional expense of roughly 130 million shekels per year for Supersol, and of roughly nine to ten million shekels per year for Hashikma.
“This is a tough blow to our industry, to stores and suppliers alike,” a high-ranking official of one of the supermarket chains said on Wednesday afternoon. “It means hundreds of millions of shekels more in operating costs for the stores and for the suppliers, and I estimate that prices will have to be raised by two to three percent to cover it.”
He added, “Everybody is going to raise prices at the same time. It won’t be price-fixing, Heaven forbid. Instead, the prices will just edge higher little by little. Unfortunately, this is a populist move — minimum wage in Israel is not low compared to the rest of the world. The problem in Israel is the high cost of living, not the low minimum wage, so instead of raising the wage, they should have lowered value added tax on food, for example.”
A high-ranking official in a mid-size supermarket chain said in response to the agreement: “Any act that means attacking the profitability of the supermarkets while they are in a tough financial state will make their situations even shakier. Since competition and a slowdown in consumption do not allow us to raise prices, it looks like there will be further erosion of the supermarket chains’ profitability, which is far beyond dangerous.”
“This move was decided upon at the last moment of our budget planning,” he said, adding that there is already much uncertainty in the sector because of the passage of the Law for Enhancement of Competition in the Food Sector, which goes into effect in January.
“For us, raising the minimum wage means a budgetary addition of about 10 millon shekels per year. This is a welcome move in terms of social justice, but it should not be thrust upon the private sector without easing...the regulatory burden on all of us.”