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It’s Not 1985, but It’s Worrying

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File photo: Supermarket in Jerusalem.
File photo: Supermarket in Jerusalem.Credit: Ohad Zwigenberg

So it’s true that the price of gasoline was cut significantly on Monday, but that of electricity went up, and price-controlled bread is becoming more expensive, as are price-controlled eggs and dairy products. If we add in price increases for other consumer goods, it turns out that the annual pace of inflation is about 5 percent in Israel, and that’s a matter of concern.

While 5 percent annual inflation is relatively low compared to Europe and the United States (where it’s about 9 percent), sharing in misery is no consolation. Inflation is a serious social ill that mainly hits the weak. Those who suffer from it are non-union employees, whose salaries erode; those living on government benefits; and people with mortgages, whose monthly payments go up due to rising interest rates.

Israel has major experience in dealing with inflation. In the early 1980s, we suffered from triple-digit annual hyperinflation, but managed to extract ourselves from it thanks to a comprehensive economic plan that was launched on July 1,1985. The main provisions of the plan were: deep budget cuts (including to defense and government subsidies) to reduce the high deficit, a high real interest rate and a freeze on wages, prices and currency exchange rates.

Granted that we’re not in 1985. The problem today is much smaller, but it merits learning the lessons from that successful plan.

There’s no basis for budget cuts today because there’s hardly any deficit. On the other hand, there are grounds for raising interest rates (which has been done) as well as freezing wages. Such a move would break the vicious cycle that causes inflation to soar: a cycle involving rising prices, wage increases, a drop in profits leading again to higher prices. Rinse and repeat.

That’s why the latest comments regarding wages by Arnon Bar-David, the chairman of the Histadrut labor federation, are such a concern. But before we get to them, we should mention the artificial distinction that he made between exclusive importers of consumer goods and large domestic manufacturers, who have also raised prices. He doesn’t mention the five food giants – Tnuva, Strauss, Osem, Coca-Cola, and Unilever – who also raised prices and therefore deserve criticism. The reason for this is simple: He represents the workers in the food industry but not at the import firms.

Getting back to wages, Bar-David is demanding “a pay increase for workers to compensate for the cost of living.” So first of all, it should be noted that such compensation wouldn’t be received by all workers but only those organized through the Histadrut, meaning employees in the public sector and at major companies.

It’s true that there hasn’t been a collective bargaining agreement for three years (since 2020), but it stands to reason that public sector employees wouldn’t be entitled to a wage increase for the COVID years. They enjoyed workplace and wage stability while the private sector saw layoffs and cutbacks.

Bar-David says, “I will lead a battle and we’ll get people out on the streets” to obtain a pay raise. But that really can’t be squared with the great enthusiasm that he has shown in his war on inflation.

After all, he is also very familiar with the vicious cycle. He also understands that if public sector workers receive major wage increases, the private sector will be forced to pay more, due to competition for the same human resources, and the result will be the ever-increasing inflation that he is at such pains to prevent.

The same message should be directed to teachers’ union leader Yaffa Ben-David. She should accept the Finance Ministry’s latest offer, which provides for a major wage increase for beginning teachers.

And she knows that waiting in line right behind her is Ran Erez, the head of the secondary schools teachers’ union, followed by groups representing higher education faculty and then there are the physicians, nurses, psychologists, engineers, the IDF, the police and the rest of the public sector.

And if all the teachers get a major pay increase, the balance in the system will be thrown off-kilter, and all other organizations will receive major increases, in the process sucking us into a vicious inflationary cycle.

Ben David and Bar-David need to demonstrate responsibility. They may be able to get the government to cave into their demands on the eve of elections, but they too don’t have a spare country.

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