Only two years have passed since Finance Minister Israel Katz announced in June 2020 a NIS 45 billion cut in public sector wages within 3 years. The Ministry of Finance argued in those days that it was not possible for the entire economy to go into a spin because of the epidemic and closures, and only in the public sector would businesses and salaries be broadcast as usual. Did Katz really believe that he could join the Histadrut and the powerful committees? Hard to know. This is the same minister who promised us, for example, a (completely imaginary) train station named after President Donald Trump in front of the Western Wall. But in any case, that sword forced the Histadrut two years ago to agree to a wage freeze in the public sector until the end of 2021, which was then extended until the end of 2022.
The economy has risen back to horseback and the public sector behind
Only now, when that freeze is over, the Histadrut and the various committees feel suckers and have started sharpening knives. The economy is back on track, the corona – the cause of that freeze – looks like a distant dream, the deficit has plummeted all the way back (0.6% GDP), unemployment is at an all-time low (3.1%), and the business sector is reporting wage increases almost daily. Only recently did the Central Bureau of Statistics report that there was a further increase in the number of job vacancies – 154.1 thousand in April, 5.1% of the jobs, which means that they are only waiting for workers out there, so the state will persuade them to stay.
In addition, the chairman of the Histadrut, Arnon Bar-David, has only just been re-elected, and is fully equipped to prove that he has come to take care of the workers. On the other hand, even a powerful finance minister like Lieberman will not want noise and strikes. And the real wages of the workers are really eroding month after month.After many years without inflation, the wage increase is no longer just a chopper or a reward for seniority for the public sector, it is primarily intended to align and compensate them for the rising prices abroad.
The workers may be right, but this is exactly the scenario that worries economists and the Bank of Israel so much. When most of the rise in inflation is attributed to international phenomena – the supply crisis, the commodity crisis and more, a wage push can make the difference between modest 4% inflation and double inflation, like that of many EU or US countries.
Arnon Bar-David, Chairman of the Histadrut / Photo: Histadrut Spokeswoman
Wage increases will inevitably fuel the inflation monster and will further push up prices. Both to cover the increasing expenses of employers, both because they will lead to further wage increases in the private sector, and also because they produce an increase in demand and continued public expectation of price increases (a prophecy that will very easily come true if only because we will buy today ).
At the same time, pressures from below are also expected very soon to push up wages – and with them inflation. The “package deal,” which received so many headlines last November after the Treasury reached agreements with the Histadrut on an outline for raising the minimum wage, is actually stuck in the Knesset. This, especially in light of the Labor Party’s demand (through the chairman of the Labor Committee, Efrat Reitan) to raise the minimum wage beyond what is stipulated in the same agreement – 5,400 in the first phase planned for April 2022 (NIS 100 increase on current wages), NIS 5,500 in April 2023 until NIS 6,000 only in 2026. Now, with a fair amount of justice, politicians and labor unions are demanding a significant increase in the minimum wage – in what seems like a sure recipe for that inflationary spiral.
The Bank of Israel and the Treasury, meanwhile, are having a hard time finding a solution to this trap – in which workers rightly demand a wage increase, which is trying to cope with the rise in prices in the economy, but the same increase pushes for further price rises and so on.
High-tech may balance the picture, but at a heavy price
Quietly Quietly, at the other end of the scale, there are those who believe that perhaps a drop in the salary of hitchhikers following the air coming out of the bubble will balance the picture. Unfortunately, and leaving the joy to the aid of quite a few people, such a scenario – which includes damaging the locomotive of the economy – is no less frightening than the danger of inflation. A locomotive literally carries the rest of the carriages behind him. If he slows down or God forbid he gets off the rails, all the carriages behind him – lawyers, accountants, and hundreds of thousands of workers in the food, real estate and other industries who celebrated the boom in high-tech – also got off the rails in turn.