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Bank of Israel: Wages Rose in 2023, but Did Not Cause Inflation

According to the Bank of Israel's 2023 report, contributing factors to the rise in wages included the signing of collective agreements in the public sector after a period of about five years of wage freezes

נגיד בנק ישראל פרופ' אמיר ירון נותן לראש הממשלה בנימין נתניהו 
את דו"ח בנק ישראל (צילום: עמוס בן גרשום / לע״מ)
Bank of Israel Governor Amir Yaron (left) presents the Bank of Israel report to Prime Minister Benjamin Netanyahu (Photo: Amos Ben Gershom / Government Press Office)
By Nizzan Zvi Cohen

In the first nine months of 2023, the increase in prices outpaced wages, as revealed by the Bank of Israel's report for 2023. The bank clarified that despite the relatively rapid increase in wages last year, the labor market was not among the factors causing inflation.

Nominal wages in Israel rose on average by 6.3% during 2023. Adjusted for the increase in the consumer price index, wages in the private sector rose by 5.1% (0.8% after adjustment), and in the public sector, they rose by 8.5% (4.1% after adjustment).

In April 2023, the minimum wage increased by about 5% for the first time since December 2017, following a period during the pandemic where it was frozen. Although this increase affected minimum wage earners, who make up about 17% of all Israeli workers, its impact on the average wage in the economy was minimal.

This April, the minimum wage rose again by 308.25 shekels ($83) and now stands at 5,880 shekels ($1584) per month.

Another factor contributing to the wage increase in 2023 was the signing of collective bargaining agreements in the public sector following a period of about five years during which wages were stagnant.

The framework agreement signed with the Histadrut included a gradual increase of about 11% in average wages (through monthly increases of 500 shekels and a six percent increase). The agreement also included a shortening of the workweek, equivalent to a 4.5% hourly wage increase, as well as a one-time grant of 6,000 shekels ($1,612) affecting the annual average wage.

Additionally, wage agreements were reached for educational support staff, who received a significant wage increase, along with teachers, doctors, nurses, and other groups in the public sector.

The Bank of Israel noted that the wage agreements in the public sector closed part of the gap that had widened between public sector wages and those in the private sector. However, according to their statements, wage agreements are considered a mitigating factor for inflation, as they keep wages in line with rising inflation rates without significantly increasing workers’ purchasing power. The implication, according to the Bank, is that the gap between the sectors is not expected to continue narrowing significantly, which could have implications for the public sector's ability to attract quality human capital.

The report analyzed wages in various fields and industries, finding that the real increase (adjusted for Consumer Price Index increase) was highest in the education sector at 4.8%. In support and management services the average increase was 4.6%, in local government, public administration, and security, as well as in transportation, storage, and postal services, the figure stood at four percent. Arts, entertainment, and leisure industries saw a 3.7% increase, while workers in construction and agriculture saw a 3.3% increase. That increase, however, was largely enjoyed by foreign construction and agricultural workers, with Israeli construction workers seeing only a 1.3% increase and Israeli agricultural workers seeing only a 1.5% increase.

In the manufacturing sector the increase was 3.1%, in electricity and water supply it was 2.5%, and in the information and communication sector it was 1.9%. Workers in food and hospitality services saw a 1.7% increase, and those in professional, scientific, and technical services saw a 1.6% increase.

In health, welfare, and social services, wages remained stable. Real wages decreased in financial and insurance services by 0.5%, and in wholesale and retail trade by 0.3%.

This article was translated from Hebrew by Ben Markbreiter.

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