Israel's Minimum Wage vs the United States' Minimum Wage - Research Paper Example

Industrial Labor Relations Introduction Both the US and Israel are known for their higher minimum wages. However, both the nations, due to one reason or the other, failed to acknowledge the role of trade unions in negotiating and representing employee requirements, especially that of the low-paid unskilled employees. As a result, despite the government interventions and the higher minimum wages, they failed to enforce the same in all the industries, and many cases violations go unnoticed. The American Minimum Wage The history of minimum wages in the US started with the Great Depression of the 1930s. Until then, the US labor system was plagued by various sweatshops and factories that offered horrible working conditions and poor wages. However, presently, minimum wage has become a basic principle of the labor system in the US. It started with President Roosevelt who signed the Fair Labor Standards Act which set a federal minimum wage for all workers. This amount was revised several times to adjust for inflation and ever rising cost of living. As reported in the North Carolina and United States minimum wage rate history, though the minimum wage rose from $ 0.25 per hour in 1938 to $ 7.25 per hour in 2009, when the amount is considered in real dollars, one can see that there was a fall of 22% in minimum wages. The issue becomes even worse when one comes to know that during this period, the domestic corporate profits rose by 50%. Thus, the difference between haves and have-nots becomes wider and wider. A look into the history of American industrial relations shows that unions never had an important role in deciding the minimum wage of laborers or the enforcement of FLSA. At first, the idea of Roosevelt on introducing the FOSA was to set it up as a quasi-judicial governmental agency where the labor unions could act as worker representatives. However, this idea never materialized. Despite the absence of such a chance, the unions were active in the initial years and they worked a lot to educate the workers about their legal rights. In addition, unions helped employees in making effective complaints to WHD, and published bulletins detailing the statutes for the workers. In addition, the unions tried to have the complaints submitted through them so that the complaints get protection under the National Labor Relations Act. In addition, the unions started suing and picketing factories and workplaces that violated the rules by denying minimum wage or overtime pay. However, the government intervened again to control the union power to make collective representations. For example, there came the Portal-to-Portal Act that took away the FLSA provision that enabled the workers to designate representatives like unions to sue employers on their behalf. In addition, in order to initiate class-action suits under FLSA, it was necessary for individual workers to give consent in writing. Thus, the government that introduced FLSA made it rather difficult to launch collective actions through these measures. The period after 1947 saw a more moderate role of the unions as they only were able to inform the workers about their rights. They helped the workers to initiate class-action suits, informed workers about their rights under the rules and regulations, helped workers in communicating with WHD, and helped WHD conduct effective investigations when possible. However, a look into the low-wage worker category proves that the union representation is too low in this section as compared to the US workers as a whole. To illustrate, according to the statistics in 1997, nearly 14.1 percent of all US workers were represented by unions. However, only 0.2 percent of subminimum wage workers were represented by unions. As Wial points out, only 0.6 percent of the workers in the bottom tenth of the wage distribution, that is the people who earn les than $ 5.46 per hour, is represented by union (21). In addition, when the industries that are the biggest violators of the minimum wage statutes are considered, one can see that they have less union density than in other industries. Thus, one can reach the conclusion that the defects of the FLSA Act along with lack of union representation has led to employees’ inability to act collectively for the proper implementation of the minimum wages or for an increase in the same according to the rising expenses. This point is substantiated by the study conducted by Aghion, Algan, and Cahuc. The study named Can policy interact with culture? Minimum wage and the quality of labor relations show that minimum wage is inversely related to labor relations. In order to prove the same, the study juxtaposes the variation in minimum wages and union density in various states in the US. According to Aghion, Algan & Cahuc, It is found that in all states, with no exception, the variation in minimum wage is inversely proportional to the variation in union density. However, it is not an easy task to identify how this gradual deterioration in union intervention has affected minimum wage scale. In order to understand this, it is necessary to look into the percentage of average wage covered by the minimum wage over all these years. According to Vassalotti, in the year 1969, minimum wage amounted to nearly 53% of the average wage. However, by 2004, the minimum wage only covered 27% of the average wage (6). For example, in US, the allowed minimum wage is well below the living wage. Thus, according to recent statistics, the living wage for a typical two parent-two child family in a city like Los Angeles is $ 34.07; and while the poverty level is set at a wage of $ 9.83, the minimum wage is just $ 8 (“Poverty in America”). Thus, one thing becomes evident; the minimum wage allowed is not at all sufficient to meet even the basic requirements of life as is even less than half of the living wage. The implications of this situation are plenty; and the taxpayers are the ones who ultimately pay for all this. For example, when the workers are forced to live with the minimum wages, they have no other way other than seeking public assistance like food stamps, medical insurance and subsidized housing. This makes the taxpayers responsible to pay for their underpaid neighbors too. However, there are different opinions regarding the impact of minimum wages on the economy. While some people think that minimum wage kills jobs, some people think it does in no way affect employment. For example, the study by Dube, Naidu, and Reich named The Economic Effects of a Citywide Minimum Wage, published in Industrial & Labor Relations Review in the year 2007 looked into the effect of citywide minimum wage on employment in San Francisco. According to this, in the year 2003, San Francisco introduced the minimum wage of $ 8.50 per hour; and though it was a 26% rise in minimum wages, the study found no considerable impact on the availability of employment as a result of this rise (524). As Wial opines, collective action by workers is potentially the most important source of non-governmental enforcement of the minimum wage (34). However, as the quality of union intervention is seriously affected by lack of legislative support, the employees, especially of the lower sections, do not have adequate bargaining power that ensures them such a basic wage that is sufficient for survival. However, what happens in America is that the minimum wage is almost entirely decided by the government, which is far below the amount required to live a life of dignity. In other words, if the purpose of minimum wage is to reduce poverty, the amount set should be above the poverty level income. It is this understanding that made 67% of the respondents in a Public Religion Research Institute survey dated 8 November 2011 opine that the minimum wage should be raised from $ 7.50 per hour to $ 10.0 per hour (“Poverty in America”). Thus, though there are claims from businesses and lobbying groups that increasing minimum wages would decrease employment opportunities, especially for the unskilled workforce, the fact is that it becomes necessary for the government to raise minimum wages in accordance with the increasing living expenses and also according to the rising average wages. However, comparing American minimum wages with that of Israel is a task too difficult. This is so because in America, poverty is more a factor of emotional and spiritual loss than of material deprivation. As Kersey points out, most of the poor Americans possess cars, air conditioning, televisions along with refrigerator and well furnished homes. Thus, according to him, increasing minimum wage is not the right way at this juncture. This claim is substantiated by the fact that increased governmental intervention is associated with decreasing unionization and collective action. So, in the case of American, what had to be done is to amend the provisions of FLSA so that unions get more and more chances of employee representation. Minimum wage in Israel In Israel, collective bargaining is administered by the Collective Agreement Law of 1957, and most of the trade unions belong to the New Histadrut. Evidently, Histadrut enjoyed considerable influence in the government, industry, and workers. The law provides the guidelines regarding rights of employees, terms of employment, duties, and obligations. However, the last three decades witnessed a considerable shift in the ideology of people. People turned more and more individualistic in nature, and this resulted in a general decline in union support. For example, the presence of blue-collar workers declined from 32.2 percent to 22 percent between 1967 and 2004. The main reason is that the employees got many benefits directly from the Knesset which required collective agreements in the past. In addition, the government has developed a bad relationship with Histadrut. In addition is the increased privatization in Israel economy. Presently, despite efforts from the part of Histadrut, many people are unaware about its presence, assistance and importance. Israel is marked by higher levels of poverty as compared to other OECD countries. Though it has an income very equal to that of the US, it shows much higher rates of poverty too as is evident from the work of Ayal Kimhi. As Kimhi points out that the higher income inequality despite the higher average income is mainly a result of lack of employment, extent of work, and wage disparities. A point of consideration here is the fact that unlike its OEDC counterparts like the US, in Israel, the wage gap is too high. For example, when the 90-10 ratio is chosen, the gross wage ratio is 4.9 percent in 1998, which means the highest wage scale is nearly 5 times higher than the lowest scale (133). However, even after many years of recession, in US, the differential was 4.5. However, as Kimhi says, the fact here is that when Israel shows a likely decline in wage differentials as it has come down from 5.6 of 1996 to 5.17 in 2009, US is on a rise that reached 4.9 from 4.5 in the same period. (136). Here, the question arises if it is wise to raise minimum wage in Israel in order to reduce poverty. However, the point is that Israel already has one of the highest minimum wages in the world. Thus, it becomes evident that the problem lies not in minimum wage amount but in its implementation. According to Kimhi, if all workers get their minimum wage, the wage differential would come down to 4.6 (133). Thus, the nation would stand in a better position than US. Another factor that becomes evident is that the level of poverty is linked to rate of unemployment in families. Unlike many other OECD counterparts, the Israelis have big joint families, and this can affect the level of poverty depending on the number of earning hands in the family. Thus, another vital step is to increase employment opportunities. Thus, Israel requires better enforcement of the current minimum wage standards and creation of more employment opportunities. This will help reduce the problem of poverty in the nation. Conclusion It becomes evident from the analysis that US needs to set such a minimum wage that is above the poverty level income. Also, WHD should be well equipped to see that all the sectors properly adhere to the FLSA guidelines. Also, the presence of unions should be raised among immigrant and low-paid unskilled workers so that they get adequate representation in the matter. The fact is that too much of governmental intervention is likely to create a lethargic workforce that will not try collective action. However, in the case of Israel, the minimum wage set is much more than many of its counterparts. However, it is lack of job opportunities and the improper enforcement of the minimum wage standards that led to the present levels of poverty. Admittedly, in this case too, there is the need to empower labor unions. Works Cited Aghion, Philippe, Algan, Yann & Cahuc, Pierre. “Can policy interact with culture? Minimum wage and the quality of labor relation.” IZA. (2008):1-66. Web. 15 December 2011. Dube, Arindrajit, Naidu, Suresh & Reich, Michael. “The economic effects of a citywide minimum wage.” Industrial & Labor Relations Review. 60.4 (2007): 524. Kersey, Paul. “The Economic effects of the minimum wage.” (n.d). “North Carolina and United States minimum wage rate history.” (n.d). Web. 15 December 2011. Public Religion Research Institute. “2011 American Values Survey: Widespread support for raising minimum wage to $10.” Living Wage Campaign. (2011). Web. 15 December 2011. Poverty in America: Living Wage Calculator. “Living wage calculation for New York.” (2011). Web. 15 December 2011. Vassaloti, Amy. “How will an increase from $6.75 to $7.75 in the California minimum wage impact the California economy?.” Advanced Policy Analysis. (2005): 1-35. Wial, Howard. “Minimum-wage enforcement and the low-wage labor market.” Task Force Working Paper. (1999): 1-47. 15 December 2011. Read More