Israel’s weaker classes will be particularly hard hit by the coronavirus crisis and the likely salary cuts it is expected to bring, according to an annual report from the Taub Center for Social Policy Studies in Israel published Wednesday.
The blow to the lower classes is particularly notable given that in Israel, unlike many other countries, salaries for lower-paid workers were actually rising over the past few years.
Over the past few years, Israel’s inflation rate had slowed, so that nominal salary increases did in fact improve employees’ purchasing power, state Taub Center researchers in their 2020 “Picture of the Nation” report.
“Despite the fact that worker productivity rose relatively slowly in the past few years, price changes, and in particular the relative cheapening in production costs, led to an improvement in worker wages despite the lack of any substantial rise in worker productivity. Looking ahead, the coronavirus crisis will reverse this trend due to a significant increase in unemployment, which will lead to a reduction in wages.” Household income grew at a faster pace among the lower wage-earners over the past few years, relative to higher earners. This drove lower-earning households to have a second parent enter the workforce, while the number of dual-income higher income households was already relatively high.
This also increased real income on the bottom end of the salary scale, partially due to minimum wage increasing to 5,300 shekels a month by the end of 2017, up from 4,300 a month as of the beginning of 2015.
“This phenomenon is substantially different from the experience in other countries, where wages for stronger populations grew faster while those in the lowest quintile rose slightly or even declined in many countries,” write the Taub center researchers.
However, over the next few years the salary picture isn’t optimistic, they say.
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“The coronavirus crisis is likely to lead to a reduction in wages. It is likely that these who have recently joined the labor market will be hit harder and that many of them will lose their jobs,” they write.
The researchers note that over the past few years, Israel’s GDP growth per capita lagged behind that of other developed nations, and that between 2017 and 2019 it increased at an annual pace of only 1.5%.
Israel’s economy was strong before the crisis, but not as much as would have been expected, they state.
The entrance of unskilled workers into the workforce contributed to the low growth in GDP per capita, they state.
“The low productivity is evidence of a lack of private investment in physical capital, which may continue for a long time due to the crisis,” they state. “Public capital as seen in, among other things, infrastructure, transportation and communications, decreased over the last quarter of a century to half of average OECD levels relative to GDP.”
The massive investment in health and transport expected in the wake of the crisis may actually narrow the gap in public capital investment in Israel versus other nations, states Taub Center President Prof. Avi Weiss.