Avshalom Vilan, Israel Farmers’ Federation; Ron Tomer, Manufacturers Association of Israel; Arnon Bar-David, Histadrut; Uriel Lynn, Federation of Israeli Chambers of Commerce. (Photographs: Flash90/Histadrut)
A Win-Win Model

The Histadrut and Israel's employers appeal the government: 'We need an alternative employment model to unpaid leave.'

Wage subsidies will allow businesses to resume operations gradually, with employers set to receive higher incomes than they would on unpaid leave, and the state saving money in the process

11.05.2020, 10:36

Unions and employers are calling on the government to adopt a wage subsidy model to replace the furlough model, in an attempt to boost employment. In a joint letter, four major business organizations called on the Prime Minister and the Minister of Finance to apply wage subsidies based on a the German model of Kurzarbeit, under which the government subsidizes decreased wages in case employers choose to cut working hours. The letter was sent from the Histadrut Labor Federation – representing 800,000 unionized workers;  the Manufacturers Association of Israel, the Federation of Israeli Chambers of Commerce and the Israel Farmers’ Federation – representing most employers in the Israeli economy.

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"Incentivizing employers to return furloughed workers to work," they wrote, "requires the execution of a policy that will replace the unpaid leave mechanism, which will enable flexibility for employers and workers on the one hand, and economic security on the other hand, in the coming intermediate period."

How does the proposed model work?

The model, if accepted by the government, will allow employers to bring back their employees under part time conditions. Employers will continue to pay their workers close to their full wages, even though working hours have been cut. The government will then compensates employers for a proportion of the workers' salaries.

The employer would receive compensation from the government for the wages paid for the hours reduced. That way,  businesses will be free to reduce activity if demands fall, without harming the workers' incomes.

This will avoid the 'binary' state of workers either staying fully at work or sent on furlough, and will allow employers to adjust the scope of work to the changing conditions.

Tried and tested

According to the organizations, the main advantage of the model is that it encourages the continuation of employment, rather than furlough. According to them, furlough is an obstacle for encouraging a return to full employment, since it requires employers to relinquish their employees for 30 days, and is liable to lead to a situation where employers replace existing employees on unpaid leave with new workers.

"In the absence of alternative subsidy policies," the heads of the organizations wrote, "workers face an incentive to favor unpaid leave over employment at a reduced job rate, and employers are forced to relinquish workers from whom business benefit could be derived, even if in a reduced employment situation."

Another advantage of the proposed model is reducing the employers' incentive to shut down the business to avoid losses. In this model they can reduce their employees' work hours, save expenses – without firing them or putting them on unpaid leave – and continue the activity in the extent possible under current conditions.

The transition to work in varying employment scopes will help employers with the gradual resumption of activities, and in parallel, many workers will benefit from it. Parents of young children or workers belonging to at-risk groups can agree with the employer on a resumption of work in a gradual manner that matches their needs in their coronavirus routine.

The German model, which was first successfully executed during the 2008 financial crisis, has proven as particularly effective also in light of the coronavirus crisis. it is stated in the letter that 25 out of the 35 OECD countries are already implementing a wage subsidy policy, and the European Commission allocated 100 billion Euros for loans to member states that will adopt models of this kind.


Brought to press with the help of the International Relations Division of the Histadrut