Who’s Afraid of a Maximum Wage?

In the U.S. and Europe, the concept is no longer taboo. In Israel, alas, it hasn't broken the confines of the loony left and the academia.

Prof. Shlomo Mor-Yosef’s monetary arrangements with the Hadassah Medical Center and the National Insurance Institute, the salary demands of Bank Leumi’s senior employees, Jacob Perry’s nice bonus from Bank Mizrahi-Tefahot and the list of staff who have gotten wealthy from private colleges – all these demonstrate that social norms and even common sense, forces that could have helped to regulate executive wages, simply do not apply to Israel's economy. Even revelation of such sums to the general public and an amendment to the Companies Law, which requires senior staff's compensation plans to be approved at shareholders' general meetings, have not changed the situation wherein those closest to the plate get more.

In the United States and the European countries, the taboo against discussing the issue of a maximum wage has been removed, mainly in the aftermath of the financial crisis of 2008. But in this country, the concept remains the province of the social-justice advocates of the loony left and boring economics professors.

The ones who lose out because of this are half of Israel’s workers, who, according to a report submitted to the Knesset’s Finance Committee in November, earn less than NIS 6,541 per month (or about $1,900; plus, 34 percent of local workers earn less than NIS 5,000).

Income inequality in Israel is among the greatest among the OECD countries, and its poverty rate is the highest of the 34 developed countries, according to reports published by the OECD.

The system that could be the best for Israel in terms of limiting wages is not one that would set an absolute cap on compensation, rather one that would consider all salaries within a particular business – a system that links the salary of the highest-paid employee with that of the lowest-paid one, thus bringing a kind of solidarity back to the world. This means that if the CEO wants to put a few thousand more shekels into his own pocket, he must also raise the salary of the receptionist or of the security guard at the entrance to the parking lot.

A survey conducted in France last year showed that 83 percent of the public supported limiting salaries at the highest echelons; this issue was debated at length in the country's 2012 presidential elections. Switzerland even voted in a referendum on the possibility of limiting salaries within the same business to a ratio of 1:12. (The proposal was rejected, evidently because it was too stringent.)

By comparison, in Israel, any attempt to restrict salary levels quickly dies from being “populist,” “communist” or just dangerous to the free market and the principle of competition. In both the current and previous Knessets, MK Shelly Yacimovich (Labor) tried to promote a bill that would set a salary ceiling for public agencies, at 50 times the salary of the lowest-paid employee. If the lowest-paid employee earns minimum wage – NIS 4,300 per month, let's say – the CEO may earn NIS 215,000 per month. Although the legislation was quite generous and flexible, it was buried twice.

Our finance minister once asked, before taking office: Where is the money? The people who demonstrated in the country's streets knew the answer even as long ago as in the summer of 2011: The money is in other people’s pay slips. But it is possible that after several decades of living in a capitalist society, Israelis too are shying away from any move that would limit their wealth, once their dream of accumulating it comes true.

Maybe that is where the root of the problem lies: in the possibility that you, too, will succeed, and your talents will bring you to the top as well. The Israelis who have trouble making ends meet are willing to keep pulling the cart that grows heavier by the year because – who knows? – maybe one day they will not need to check the price of cheese in the supermarket anymore. And when that happens, the rest of the world can go to hell.

Perry
Tomer Appelbaum