Economists: Layoffs to Follow Minimum Wage Increase

While social activists celebrate the increase in Israel's minimum wage, businesses worry about how to pay for the wage increase.

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Moshe Cohen ,

Shopping mall (illustration)
Shopping mall (illustration)
Thinkstock

While social activists celebrated the increase in Israel's minimum wage Wednesday, officials in a number of low-margin industries were expressing worry at how to pay for the wage increase.

Speaking to business daily Calacalist, officials in the grocery and supermarket industry said that they now had no choice but to lay off workers.

A senior member of the industry said that supermarkets and food service providers - where many of the workers worked at minimum wage “cannot absorb the costs involved in this law, because they are already operating at a minimum margin. They can't raise prices because of competition, so this is their only option.”

A report this year by supermarket chain Supersol, the largest in Israel, said that each 1% increase in minimum wage salaries would cost it NIS 8 million a year.

Under the deal reached Wednesday between employers and the Histadrut labor union, the minimum wage will increase 8.1%, meaning that Supersol will have to shell out an additional NIS 64 million a year in salaries.

In a similar study, Rami Levy, a much smaller chain that discounts more than Supersol, said it stood to pay out NIS 7 million more a year in salaries, while Victory, another discount chain, said that salaries were already its biggest outlay, and that this will be exacerbated by the new deal.

The “minimum wage effect” is likely to affect workers in other industries as well.

For example, economists told Calcalist that 74% of workers in the Golf clothing chain earned minimum wage, and increasing their salaries by NIS 700 a month would require Golf to pay out an additional NIS 11.4 million a year in salaries – a sum equivalent to 22.8 of its profit for 2013.

“It's unlikely Golf will be able to stay in business unless it lays off workers or closes branches,” because competition would not allow the chain to raise prices, the economists said. “There are many chains in the same situation.”








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