 |
The minimum monthly wage is set to be updated to NIS 4,100 in July 2011 and to NIS 4,300 in October 2012. |
| |
The minimum wage revision is expected to reduce the incidence of poverty by 0.1 percent. In order to reduce poverty by a significant amount, improved compliance with the law is required. |
| |
The minimum wage revision is expected to lead to an increase of at least NIS 427 million in public expenditure in 2011-2013, due to direct salary costs. |
| The minimum wage for full time work of 186 hours per month is set according to the current Minimum Wage Law at 47.5 percent of the average salary, as per chapter 1 of the National Insurance Law. It is supposed to be updated each year, in April, based on these figures. The most recent update of the monthly minimum wage was in April 2011, when it was raised by about NIS 40, to NIS 3,890.3. At the end of December, 2010, an agreement was signed between the Histadrut and the Coordinating Office of Economic Organizations to raise the minimum monthly wage to a level of NIS 4,100 in July 2011, and to NIS 4,300 in October 2012, in addition to the minimum wage update which occurred in April. The agreement was expanded to the public sector in March 2011. The agreement's application to workers and employers in the business sector who are not represented by the organizations that signed it depends on an expansion order, which the Minister of Industry, Labor, and Trade is supposed to give. The update in the minimum wage according to the deal, if it is expanded to the overall economy, will bring two consecutive increases of 5 percent (each time) in the nominal minimum wage. The real minimum wage is expected to increase 5 percent, and then 2.4 percent, in accordance. |
| A minimum wage is intended to assure a suitable standard of living for low wage workers, and to reduce the incidence of poverty and wage gaps between employees. However, the weak compliance with labor laws, particularly the minimum wage law, seen in data from Israel, takes away from the impact of these laws. There are studies which point to a weak negative impact of updated minimum wage on employment levels, and this is in any case dependent on the economic environment and on the industry. Due to the limitations of minimum wage to extricate people from poverty, many countries operate other tools which are intended to increase the income of low wage earners, such as a progressive tax system and negative income tax. |
| Effects of an update to the minimum wage |
| An update of the minimum wage is forecast to influence primarily employees whose gross salary is at the minimum wage level and also employees whose gross salary is between the current minimum wage level and the new minimum wage level. In order to investigate the effects of an update of the minimum wage on the incidence of poverty, we assumed that there is somewhat of a rise in salary of all employees whose salary is between the old minimum wage level and the new level, in accordance with the rate of the increase in the minimum wage, but that the salary of those earning above the new minimum wage and below the old minimum wage won't increase as a result of the agreement. We also assumed that employment in the short term won't fall following a rise in the minimum wage – a reasonable assumption given the background of findings in literature, the agreement which serves as the basis for the increase in minimum wage, and the state of the economy. In line with this simulation, the poverty line will rise a bit as a result of the distribution of wages following the minimum wage hike, and the incidence of poverty will fall by only a miniscule amount. The fact that the incidence of poverty barely changes despite the rise of the poverty line comes from the relative definition of the poverty line (which is equal to half the median income per standardized household member), and from the fact that in some households where one of the earners is earning the minimum wage level, there are other earners, whose salary is higher than the minimum wage and won’t be effected by changes in it. In any case, the members of these households are usually not classified as poor. With that, a rise in the poverty line reflects the increased absolute income of the working poor. |
| Another perspective of an update in the minimum wage based on the agreement which was signed is the update in salaries of government workers and employees of public services whose salary is lower than the new minimum wage, as well as employees who work at government offices through contractor companies and other indirect expenditures. According to Bank of Israel statistics, over 30 percent of government office workers receive income support to bring their basic salary level to that of minimum wage, and this group is set to grow in a situation in which the minimum wage rises. Raising the minimum wage to NIS 4,300 is forecast to bring an additional budget expenditure of at least NIS 428 million in direct salary costs between 2011–2013. An additional increase in public expenditure is forecast as a result of indirect costs connected with a rise in the minimum wage and from the update in salaries of workers employed at governmental bodies and other budgeted institutions through contracting agencies. |
|
