Since 2008, salaries in Israel have grown more slowly than output per employee, according to figures published today by the Bank of Israel. These figures ostensibly reinforce the claim by Histadrut (General Federation of Labor in Israel) chairman Avi Nissenkorn, who is demanding a hike in the minimum wage, saying that growth has not benefited the workers.
The figures also indicate that the NIS 9,051 average gross monthly salary per worker in 2013 was lower than the NIS 9,290 figure for 2001 (in 2013 prices). A summary of the past 20 years shows that salaries in Israel have risen by the same rate as the average aggregate salary in OECD countries.
The Bank of Israel today published data on the development of salary and productivity since 1990. The figures come from a semiannual survey of economic developments to be published in the near future. The figures include a comparison with salary and productivity figures in the other OECD countries. The comparison shows that salary levels in Israel correspond to work productivity: the average productivity per work hour in Israel in 2012 was 73.4% of the OECD average, and the average salary per hour was 74.7% of the OECD average (in terms of purchasing power parity PPP). Based on these figures, the Bank of Israel concludes, "Salaries in Israel are relatively low because average productivity per work hour in Israel is relatively low, compared with the corresponding figure for the other OECD countries."
An analysis of salary trends in Israel, however, compared with the OECD average shows that while the average wage in the OECD has grown moderately, but steadily, wages in Israel have been very volatile, and in the bottom line, have not grown in real terms since 2001. The Bank of Israel's figures indicate that the development of wages in Israel can be divided into two main periods. In 1990-2001, the average salary shot up by 25%, much greater than the growth in salary in the OECD, and faster than growth in productivity. After 2001, average wages sank to a low in 2003 (NIS 8,470), rose again until 2007 (NIS 9,094), hit another low point in 2010 (NIS 8,859), and have been going up since then. In summarizing the two decades, it can be said that two gaps were closed: the gap between the rise in salaries in Israel and in the OECD, and the gap between the rise in salaries and the increase in productivity in Israel.
The Bank of Israel stresses that the average net wage in Israel has grown more than the average gross salary, as a result of lower income tax rates. Since 1996, the average net salary per employee has risen at an annual rate of 1.2%, while average gross salary grew by an annual 0.8%. Since 2001, the average net salary has risen by 0.7% per year, while the average gross salary slid 0.2%, and since 2003, the average net salary has grown by 1.7% per year, and the average gross salary by 0.7% per year. This means that lowering taxes on salaries has made it possible to increase the workers' pay, and has moderated their salary pressure, without increasing the employer's wage expenses.
The Bank of Israel also cited two measures that increased actual wages, even though they are not directly reflected in real wages per employee: the introduction of labor grants (negative income tax), and the introduction of compulsory pension payments.
In summary, the study editors noted, "In the medium term, and also in recent years, (salary) has been to a large extent correlated with the development of output per worker. In the medium term, wages are also affected by other short-term factors, and the assessment of the way salaries change over time is sensitive to the year selected for comparison."
Published by Globes [online], Israel business news - www.globes-online.com - on November 26, 2014
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