A study by the Arlozorov Forum found that Israeli workers lost an average of 1,875 shekels (547 USD) per month in 2021, as labor productivity has steadily risen for decades without a corresponding increase in wages.
The study, conducted by head of economics and social services at the Arlozorov Forum Yoni Ben-Basat, tested the hypothetical theory that an increase in productivity would be matched by an increase both in wages and standard of living in Israel. The research showed that this theory was only mirrored in society until 2004.
While in the 1980s and 1990s, productivity and wages in the Israeli business sector grew at a similar rate, but from the beginning of the 2000s until today, the opposite process is taking place – a disconnect between wages and productivity. This process indicates a change for the worse in the production distribution. The result of this trend today is that the average real wage of 2021 (11,773 shekels or 3,432 USD) was 11.5% lower than the level it would have reached if the rate of increase between productivity and wages had been the same. In this latter situation, the average salary would have been 13,124 shekels (3,829 USD). That is to say, the Israeli worker lost an average of 1,351 shekels (394 USD) per month, even before considering the increase in the cost of living in Israel during these years.
According to Ben-Basat, this disconnect between labor productivity and workers' wages is reflected, amongst other things, in the growing wealth gap between 90% of the population and the top decile as calculated by share of GDP.
"The percentage of production that went to the workers, in the form of wages and social benefits, kept getting smaller… while the percentage that went to the capitalists, in the form of capital gains, kept getting bigger,” said Ben-Basat.
He explained that from 1995 to 2003, workers’ share of GDP was fairly constant, and stood at 74% on average. From there, that share steadily dropped for ten years before rising back up to reach about 71% in 2018. However the COVID-19 pandemic period saw a rapid drop in workers’ relative income to land at a mere 64% by 2021.
"The measurement of wages in terms of GDP does not reveal to us the whole picture because it is necessary to also look at the wages from the perspective of the purchasing power of the workers." Ben-Basat continued, "In other words, the average wage should be examined even when it is deducted from the Consumer Price Index, in a way that reflects the shopping basket of the employees versus the shopping basket of the employers.
“For example, pasta, diapers, and educational services are components of workers' shopping baskets, but specific capital goods such as iron or machinery are not. From this point of view, the rate of increase in the prices of the products consumed by workers on a daily basis was higher than the rate of increase in the prices of raw materials.”
Had it not been for the formation of this gap between the price indices (product and consumer), another 4.5% would have been added to the workers' wages, and the average wage would have reached 13,648, which represents a loss of about 1,875 shekels on average, every month, in 2021.
"The disconnect of wages from productivity shows that a policy which focuses solely on increasing labor productivity will not succeed in raising the standard of living of the majority of residents in Israel," explained Amit Ben-Tzur, CEO of Arlozorov Forum. "In order to succeed in raising the standard of living of the majority of the residents, it is necessary to address the factors that shape the wage structure of the workers, and in particular to increase their bargaining power. In this case, instead of the wage structure widening the gaps and distributing income in the economy biased in favor of the capitalists, it will result in more fairly distributed fruits of production.
“The government must implement a policy which will support the reconnection of productivity with the real wage through increasing the bargaining power of workers, for example by increasing the rates of unionized workers and strengthening worker protection legislation."
This article was translated from Hebrew by Hannah Blount.
