Israel's Cost-of-living Banner Has Been Raised

With the Open Skies agreement, Israel's government has shown it is willing to take on big economic interests for the public good; now the labor federation chairman will have to decide whose side he is on.

Sami Peretz
Sami Peretz
Sami Peretz
Sami Peretz

If lowering the cost of living is truly a benchmark for Israel's new government, it passed its first test Monday in the area of labor disputes.

The Open Skies agreement, which will boost the number of flights to and from Israel, is now in effect, and the brief strike by airline and airport workers against the reform ended with the government conceding only to pay for most of the airlines' security costs.

This will not cost the government much, since it already subsidizes these expenses. And it is money well spent to soften El Al's opposition to the Open Skies agreement and level the playing field between domestic and foreign airlines.

The contribution to the economy will vastly outweigh the cost of subsidizing airline security if forecasts of its effect on the tourism industry bear out. According to the Tourism Ministry, for every additional 100,000 tourists who come to Israel annually, 4,000 jobs and $100 million in revenues are generated. So if 500,000 more visitors come to Israel next year, as predicted, the government's investment will prove excellent.

On a broader scale, something occurred here that is even more important than opening the skies to competition. Any government that starts its terms by pushing a reform that puts it on a collision course with workers' councils and the Histadrut labor federation sends out a message to Israel's other powerful and protected interest groups that a new day is dawning.

This message has been delivered to the ports, the electric company, the defense establishment, the banking system, the food companies and the entire public sector. They have been put on alert that lowering the cost of living and striving for social justice sometimes involves conflict with powerful sectors in control of important spigots and that the public interest overrides the narrow interests of any segment of the population.

While the government is a long way from dismantling the economy's big pressure groups and exposing the other monopolistic and cartel-led industries to competition, it has certainly created the expectation that more is to come.

It will not be easy. Some industries will be trickier to deal with than the airlines were. Electricity, were a decade of reform attempts have been fruitless, or the seaports, where Prime Minister Benjamin Netanyahu tried and failed to make changes, are just two examples.

The big concern with any reform is the high cost of streamlining and the inevitable heavy layoffs. The government must prepare for these consequences and be ready to provide solutions. It needs to draw up a major reform of the labor market, focusing on the development of professional training programs and the social safety net for the unemployed.

Israel's labor market, numbering about three million people, suffers from huge disparities in the circumstances of different classes of workers. Alongside the hundreds of thousands of workers who enjoy job security and social benefits, there are over two million without any security – many working through contracting agencies for low pay and under substandard conditions. These workers will be the main beneficiaries of effective reform, because the cost of living will go down and more flexible labor markets will offer them greater opportunity.

This poses a challenge to Histadrut chairman Ofer Eini: Can he serve as a partner in building a more efficient, flexible and competitive labor market and a serious social safety net in which the government assumes a central role? He could play a key role and be remembered as the person who revolutionized the labor market. But he could also remain in his traditional, comfortable spot as hostage of the large worker councils that abhor any economic change and are only interested in perpetuating the status quo, which has served them well at the expense of most of the Israeli public.

Ofer EiniCredit: Emil Salman

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