Treasury Proposes Freezing National Average Wage

At the height of an economic crisis and the highest unemployment rate in Israel’s history, the average wage is rising. This could saddle the budget with billions of extra costs

Sami Peretz
Sami Peretz
A pedestrian in a mask walks past a pharmacy in Tel Aviv, April 19, 2020.
A pedestrian in a mask walks past a pharmacy in Tel Aviv, April 19, 2020.Credit: Moti Milrod
Sami Peretz
Sami Peretz

Israel’s coronavirus pandemic has taken its toll on everything from health and education to the economy and even statistics. The months of lockdowns and reopenings have caused wide fluctuations in economic output and employment. The volatility is making itself felt in soaring wages, too.

In response, the treasury over the weekend announced it would be seeking legislation freezing the officially-designated average wage.

A lot of salaries and pensions are linked to the Central Bureau of Statistics figure on the national average wage. But strangely enough, as a broad measure of unemployment, including people on unpaid leave among others, the average wage has risen sharply. In January it had been 10,551 shekels ($3,160 at current exchange rates) a month, but by August it had risen almost 10% to 11,578.

The reason is that when people become unemployed, they are no longer counted in the statistics bureau’s calculation of the average wage. The joblessness created by the coronavirus has disproportionately hit lower-wage earners, raising the average pay for those who continue at their jobs.

That has created an absurd situation: At the height of an economic crisis and the highest unemployment rate in Israel’s history, the average wage is rising. Those who wrote the law that links wages and benefits to the average salary never envisioned such a situation.

Among those whose compensation is linked to the official average pay figure are senior civil servants, handicapped people getting government allowances and those who get the minimum wage. The amount they get is adjusted every January. But with the average wage rising so quickly, the Finance Ministry realized that starting this January it would be saddled with 7 billion to 9 billion shekels in additional costs without any economic justification.

The last time the treasury froze the average wage was in 2003 when Israel was in the midst of its steepest recession ever due to the second intifada.

The proposed legislation may encounter opposition from some of the beneficiaries of a 10% pay/allowance hike, but none of the groups that enjoy linkage have any good reason to oppose the freeze apart from self-interest.

The dilemma will only come later when the jobless rate begins to decline and the average wage will start to decline, perhaps even a lower level than January. The proposed law provides for an insurance policy against that by stating that the average pay for both 2021 and 2022 will be linked to January’s 10,500-shekel figure.

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