Jerusalem – Israel Minimum Wage Set to Exceed America’s

Jerusalem – The political upheaval across the Middle East has just been joined by two unlikely protagonists: Israel’s unions, which used the regional unrest smartly, and the Israeli taxpayer, whom organized labor managed to swindle while public attention was focused on the dramas in Libya, Egypt, Tunisia and Bahrain.

At stake was the minimum wage, famous for poignantly pitting social justice against economic efficiency.

Morally, experience demonstrates that if left without adult supervision, employers readily stuff unskilled workers into sweatshops where pay can be so low as to blur the border between employment and slavery.

Economically, however, the minimum wage defies gravity, as it disturbs the natural play of supply and demand, causing employers to hire fewer of the very workers that the minimum wage is meant to help in the first place.

Worse, minimum wages encourage employers to hire illegal workers because they, unlike the intended beneficiaries of minimum wages, will not report their abuse.

And that’s where the politicians come in. Sometimes they enshrine a minimum wage as part of a broad vision, as FDR did in 1938 when he introduced it as part of the New Deal, setting it at 25 cents an hour.

In other cases, politicians once in a while tinker with the minimum wage opportunistically, which produces a plethora of formulas reflecting assorted local circumstances. For instance, the current American minimum wage varies from state to state, from $7.25 in several southern states to $8.67 in the state of Washington.

With people power swelling across the Middle East, there is no leader in the region right now who does not think twice before potentially provoking the lower-income classes. That’s why Jordan last month raised public-sector pay, Syria just delayed plans to introduce a value-added tax, and Egypt’s interim government has canceled deposed President Hosni Mubarak’s planned subsidy cuts.

Israeli Prime Minister Benjamin Netanyahu, though operating in a very different political setting, still followed his neighbors’ example.

The former treasurer, who eight years ago earned fame by slashing social spending, last month cut public-transport prices 10% and shaved 3% off of retail gasoline prices by reducing the gas tax, a measure that has since been offset by the Libyan upheaval’s impact on the oil markets.

And last week, with polls indicating growing anger at the rising costs of utilities, and with the Histadrut union federation threatening to organize rallies and strikes, Netanyahu had Treasurer Yuval Steinitz enter into negotiations with unions over a deal to raise the minimum pay. The deal hatched within days — and constituted a total victory for the unions.

Steinitz had long opposed raising the minimum pay, insisting that its level of 3,850 shekels, a bit more than $1,000 a month, was both fair and affordable, and that raising it would cost the Treasury billions and require painful budget cuts. That was in winter 2010.

Since then, it emerged that the Israeli economy grew much faster than predicted. Fourth-quarter GDP soared 7.8%, almost twice the original expectations of 4.2%, while second-half growth reached 5.4% after settling at 5% the previous six-month period, and 3.4% during the second half of ‘09.

Now, with January-February internal revenues 16% higher than their level during the year-earlier period — and with the prime minister breathing down the Treasury’s neck — the Finance Ministry suddenly felt it could not only afford to raise the minimum wage but that it could do it with style.

And so Steinitz agreed to lift the minimum wage 6.5% in July, to 4,100 shekels, and another 5% in October 2012, by which time the Israeli minimum wage will be 4,300 shekels, which is roughly $7.50 an hour. In other words, the Israeli minimum wage will now equal the practical American minimum wage, and exceed the federal minimum of $7.25.

Full article at MarketWatch