Netanyahu Orders Minimum Wage Hike for Israel's Public Sector

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Israeli Prime Minister Benjamin Netanyahu, December 18, 2014.Credit: Emil Salman

In another apparent case of election economics, Prime Minster Benjamin Netanya announced at Sunday’s weekly cabinet meeting that he planned to extend a formula for raising the minimum wage for the private sector to the public sector as well.

“Adding the public sector to the agreement is good news that will reduce the [income] gaps in Israeli society,” Netanyahu in a very high-profile announcement, saying he made the decision after meeting with the chairman of the Histadrut labor federation, Avi Nissenkorn, and Manufacturers Association of Israel president Zvi Oren.

Netanyahu, in his capacity as finance minister, said he had ordered treasury officials to accept the terms of a pact signed by the Histadrut and employers three weeks ago that sets the minimum wage at 5,000 shekels ($1,274) a month. That agreement covered by the private sector only, not the public sector, where the government is engaged in talks with unions over an agreement.

The prime minister did not say how the new rule would be implemented.

The move is the latest step by Netanyahu to unveiled voter-pleasing economic initiatives as Israel moves toward a March 17 general election. He took over the finance portfolio after pushing Yair Lapid and his Yesh Atid party out of the coalition, giving him control over the budget, and has announced plans to eliminate the 18% value-added tax on food staples.

In any case, no matter how the higher minimum wage is put into effect, it won’t happen for at least several months. The treasury has no framework for raising the minimum wage nor has it budgeted funds to cover the cost.

“A 5,000-shekel minimum wage within the framework of a collective bargaining agreement is desirable, but the Histadrut has to continue negotiations with us concerning civil servants,” a Finance Ministry official said on Sunday after the decision was announced.

The official, who was speaking on condition of anonymity, warned that a rise in the minimum wage could not include civil servants whose base wage may be below the minimum but who receive benefits that can raise their gross pay to as much as 10,000 shekels or 14,000 shekels a month. If that is not taken into account in implementing the increase, the total cost of raising the minimum wage could reach 1.5 billion shekels.

The Netanyahu initiative is also likely to raise the hackles of business people who opposed raising the minimum wage to begin with. They will likely turn to the High Court of Justice to block it, arguing that as head of a caretaker government Netanyahu has no authority to order such an important measure.

Economy Minister Naftali Bennett, who supports raising the minimum wage across the board, had previously been prevented from issuing the order. He has sought an opinion from Attorney General Yehuda Weinstein, who in turn asked treasury officials for their view. They have so far not responded.

Nevertheless, sources in the Prime Minster’s Office and the Economy Ministry said on Sunday they were confident that Netanyahu’s plan could be implemented. Treasury officials insisted they also see eye-to-eye with Netanyahu on the matter.

Oren, whose manufacturers’ trade organization is a party to the private-sector minimum-wage agreement, offered mixed praise for the Netanyahu plan. “We support any move that will reduce inequality but raising the minimum wage is not a panacea, he said in a statement. “The prime minster must undertake a series of steps, including negative income tax and rescinding the employers’ tax.”

Under the private-sector agreement, the minimum wage of 4,300 shekels a month that has been in force for the past two years will rise in three phases, beginning April 1, reaching 5,000 shekels on January 1, 2017. From that point on the minimum wage will automatically be set at 52% the average wage nationwide, up from 47.54% today.

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