Bank of Israel strongly opposes minimum wage hike

"A sharp rise in the minimum wage will result in widespread layoffs and cause a rise in unemployment."

The Bank of Israel strongly opposes the proposal to raise the minimum wage to NIS 4,600 a month. The central bank today published its official position on the private member's bill by MK Amir Peretz (Labor), which the ministerial legislative committee approved on Sunday. Minister of Finance Yuval Steinitz also opposes the bill and filed an appeal against it.

The Bank of Israel agrees with the Ministry of Finance on this issue. It says that raising the minimum wage will compel manufacturers and companies to fire employees and transfer production lines overseas to countries with cheaper labor forces.

"A sharp rise in the minimum wage, especially in sectors facing profit and competitive difficulties, will result in widespread layoffs and cause a rise in unemployment," says the Bank of Israel. "Instead, the negative income tax should be increased and enforcement of the minimum wage should be strengthened."

The Bank of Israel adds, "The total salary of some employees who earn the minimum wage, especially in industries where most employees are unionized, is substantially higher than the minimum wage itself, because the total salary includes items that are not included in the minimum wage."

The Bank of Israel warned that raising the minimum wage would make it more worthwhile to hire foreign workers at the expense of Israelis, as well as cause substantial layoffs and a rise in unemployment. It advises to focus on the negative income tax to narrow social gaps, a measure that the Ministry of Finance supports.

Published by Globes [online], Israel business news - www.globes-online.com - on May 26, 2010

© Copyright of Globes Publisher Itonut (1983) Ltd. 2010

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