Wages in Israel are determined mostly through negotiations conducted between three parties: the government (still the country's largest employer), whose wage scale has strong implications, influencing all segments of the economy, the Histadrut (General Federation of Labor), and the organization of private sector employers.
The agreements reached constitute a framework of wage scales for the different sectors of the economy and, with occasional changes, also provide for automatic payment of a cost-of-living allowance as compensation for inflation. Thus, the wage situation for many years had been rather inflexible - especially at the lower end. Waves of unemployment in Israel did not significantly reduce wages, although in times of labor shortages wages rise with greater elasticity where the demand for workers is more acute.
However, during the recent crisis the labor markets showed significant flexibility. Many workers agreed to reduce their hours or take cuts in pay rather than face the possibility of layoffs. This in turn helped stabilize the labor markets and abetted positive consumer sentiment, which in turn helped buoy the domestic consumption.
In June 2008 the average monthly wage was NIS 8,075 (about $2,250). Conditions for workers in the country's various economic sectors are set forth in work agreements negotiated between employers and employees. Minimum requirements, however, are anchored in law and include a maximum 47-hour work week (with the actual 2006 average in the business sector being under 40 hours a week), minimum wages (NIS 3,850 in 2008; approximately $1,000), compensation for overtime, severance payments, and paid vacation and sick leave.
The Histadrut - General Federation of Labor was established in 1920 as a federation of trade unions to represent the country's workers and to set up industries to provide jobs for its members. In time, it became one of Israel's largest employers and played an important role in the development of the country.
Today, the New Histadrut, with 700,000 members, unites 78 trade unions that are concerned with the local organization of labor, signing collective agreements, and seeing to their implementation. Most branches of employment in the Israeli economy are represented: food, textiles, hotels and tourism industries, government and public sectors workers, clerks, practical engineers, nurses, pensioners, and more. Some professions are represented by independent unions: engineers, medical doctors, academics, teachers, and journalists.
The Histadrut is not as strong as it used to be, as workers are increasingly being employed through sub-contractors or by personal contracts.