Mandatory Pensions Will Raise Minimum Wage

Unskilled workers would be even more disadvantaged compared with foreign workers, say sources

Imposing mandatory pensions, as the Finance Ministry proposed on Monday, will increase the minimum wage, whether the treasury likes it or not.

The cost of employing minimum wage workers would increase by as much as 6%-7%, apparently. Economists said yesterday that the increased cost of Israeli unskilled labor will only make that population's problem in the workforce, versus foreign workers, that much worse.

Mandatory pension provisions are to be made by the employee and employer. Usually the worker pays 5.5% of his salary into a pension fund while the employer pays 7%.

Therefore, the mandatory duty to make pension provisions will raise the cost of labor by 6% to 7%, say analysts.

At low levels of pay, the working assumption is that employers tend to impose increased labor costs onto their employees. In other words, they find ways to roll over the cost and may try to do so in this case too.

But if the minimum wage law is enforced, employers would not be able to do that.

Organizations of employers are expected to object to the reform because of the higher costs they would have to bear. Opponents claim that Israel's labor market remains unbalanced, and unskilled workers still suffer from stiff competition by foreign workers. Raising the cost of employing Israelis will just make the imbalance worse.