ideology and reality: work and pay in israel

ROBERT DUBIN AND YAIR AHARONIO

Ideology and Reality: Work and Pay in Israel

ISRAEL’S WAGE STRUCTURE reflects a commitment to the socialist egalitarian philosophy, “from each according to his ability, to each according to his needs:’ that has been distorted over time. The constant pressure from individual occupational groups claiming that their services constitute unique contributions which entitle them to enhanced income payoffs undercuts the egalitarian goal of minimal pay differentials from the top to the bottom of the occupational structure.

Here we examine the two principal work compensation mechanisms that have evolved in Israel for balancing the tensions between strict egalitarianism and a free market ideology that rationalizes differential rewards as fair compensation for differential contributions. The automatic linking of occupational pay rates sustains the egalitarian ideal, while pay supplements, awarded on the basis of special work or working conditions, provide a means for meeting the competitive labor market demands of industrialization. We conclude that, among civil service workers in the public sector, these two mechanisms essentially neutralizc each other with respect to the broad income distribution among occupations. In the private sector, how- cvcr, data for key occupations suggest that pay supplements play a major role in income differentiation among occupations, and particularly between top exccutives and other workers.

Ideology and Reality Egalitarian ideology was an integral part of the Zionist move-

ment which eventually resulted in the formation of the Israeli nation-state. The successive waves of Eastern European immigrants were strong pro- ponents of socialist egalitarianism (Eisenstadt, 1967), but even right-wing Zionists believed that the socialist workers should be supported because

OThe authors are, respectively, Professor of Administration and Sociology, University of California, Irvine, and Issachar Haimovic Professor of Business Policy, Tel-Aviv University.

I N ~ L J S T R I A I . RI~:I.ATIONS, Vol. 20, No. 1 (Winter 1981). ‘’ 1981 by the Regents of the University of California. 0019/8876/81/215/18/$1.00

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Work and Pay in Israel / 19

only they, not the middle-class immigrants, could create the Jewish state (Shapiro, 1975). Evidence of an early and widespread commitment to an egalitarian ideology is apparent in the founding principles of the Histadrut (Israel’s General Federation of Labor); in the Kibbutzim; in the official treatment of the predominantly lower-class Moslem immigrants who flocked to Israel between 1948 and 1953; in the laws mandating universal military conscription; in the creation of a national insurance plan which provided flat rate pension and survivors’ benefits; and in the inclusion in the wages paid workers in some sectors of the economy of a “family allowance” based on the number of dependents! With respect to compensation for work, the egalitarian ideology outside the kibbutz movement came to mean a commitment to three objectives-equal pay for equal work; only a limited differential between the lowest and highest paid worker; and use of the welfare and tax systems to maintain minimal differentials.

Despite the official ideology, however, there have always been pervasive economic pressures encouraging differentiation, particularly during the pre-state and early state period. Israel attempted to absorb into its economy large numbersof immigrants; and also opted for a policy of rapid economic growth. The economy had increasing need for the technical and managerial skills necessary for building the state institutions and effecting rapid industrialization. Certain technical and managerial skills were very scarce, but market forces alone were not allowed to determine salaries-because of ideological constraints.

The result was the creation of many contradictions between the official ideology of equality and pressing economic needs. Any perception of an increase in inequality of income and wealth repeatedly caused public outcries and political debates. During a period of five years, two separate public commissions were established to examine developments in the distribution of income and to ensure that the government was maintaining equality. The first committee found that “income differentiation in Israel is significantly lower than in other countries.. . . The comparison of the net income distribution clearly shows that the influence of income tax further reduces the degree of inequality in Israel compared to other countries” (Committee on Income Distribution and Social Inequality, 1966, p. 3). The second committee reported a further reduction in inequality among salaried urban Jewish families. It found “inequality in 1970 was less than in 1963/4,” with “an improvement in the relative position of the lower income brackets”

‘The commitment to a welfare state was declared as early as 1948, in the midst of the War of Inde- pendence, and the law of National Insurance was enacted in 1953. At the beginning, the national insurance system provided a flat rate universal old age pension and survivors’ benefits, maternity grants, and work injury insurance. Coverage and types of benefits were gradually extended. In 1959, the family allowance was removed from the pay packet and is now paid for each child through national insurance.

20 / ROBERT DUBIN AND YAIR AHARONI

(Committee on Income Distribution and Social Inequality, 1971, p. 4). Despite these positive reports, doubts lingered. The committees drew

their conclusions (in part) on the basis of income surveys that allegedly did not include many nontaxable sources of supplementary income. The reliability of the income surveys as a source of information on the income of salaried workers has been reduced during the sixties since significant portions of the increases in salaries were in the form of benefits, many of which were not reported as income in the surveys. Others, too, questioned the reliability of the income surveys as a measure of inequality, noting scattered evidence of unreported supplemental payments (see Roeter and Shamai, 1971).

Such controversy is understandable since there is no general data base for gross salary in the country. By the very nature of the justifications for the supplementary payments there is an obvious tendency to hide their exact amounts, distorting accurate gross salary figures. Substantial information is available, however, on the wage and salary structures - including supplemental benefits- in the public sector.

Compensation in the Public Sector The public sector in Israel includes the central government,

the municipalities, and workers employed in hundreds of state- and munic- ipal-owncd authorities and corporations. Salaries in the central government are negotiated between the Histadrut and the Civil Service Commission. Salaries in the independent authorities (e.g., Port Authority, Airports Authority, and Broadcasting Authority) and in state-owned enterprises are negotiated by the respective managements of each. Municipalities and hundreds of state subsidized groups such as the universities or the sick funds are similarly officially autonomous. However, for many years the central government - through the Civil Service Commission and other bodies in the Ministry of Finance-has been attempting to achieve a uniform pay scale for the whole public sector,

The uniform pay scale. The civil service of the new Israeli state was recruited mainly from the ranks of workers for the Jewish Agency and those employed by the British Mandate government. These two groups had different pay scales: the Mandate government had a large differentiation in salary between the top-ranking British officials and the low and medium ranks held by Arabs and Jews; in the Jewish Agency the differentiation was much less. On June 8, 1948, the government appointed a public committee to create a unified pay scale. This committee proposed the “principal of uniformity”- cyual pay for equal work. Special pay or appropriations for


individual workers or occupational groups were to be strictly avoided. The committee recommended a uniform pay scale of 13 steps, with a basic salary ranging from IL 10 (IL = Israeli pound) for the lowest ranking blue- collar worker, to a maximum of IL 88 for a director general of a Ministry, plus seniority pay (“Vetek”- additional payments for each year in service) and family and cost-of-living allowances? This scale was promptly adopted for all federal civil service workers except policemen, whose salary scale remained as in the Mandate period.

The uniform pay structure was rather quickly subverted. Top-ranking officials received the first supplementary pay -one of many to come later. This one was called a “representation supplement” of 10,15, and 25 IL, and was justified by the need of the top executive to represent the government. Some of those holding academic rank received another supplementary payment - known as “academic supplement.” By 1951, a second committee on public salaries was appointed. It abolished the special allowances and created a new pay scale range of IL 25 to IL 122, comparable, because of inflation, to the old range. Certain groups of workers, for which the demand was high, pressured to be excluded from what they perceived as the straight jacket of the uniform pay scale. Medical doctors were the first occupation that was successful in achieving a separate pay scale (April 1, 1951). This was followed by intensive organizing activities among all professional workers in the civil service, including veterinarians, lawyers, engineers, agrono- mists, archeologists, geologists, economists, social workers, meteorologists, clinical psychologists, and research workers. Some groupings of these occupations were eventually also granted single pay scales.

A third wage and salary committee, appointed in 1955, concluded that the uniform pay scale did have advantages as a means of preserving “equal pay for equal work,” but its inherent disadvantage of inflexibility probably meant that the system would never be able fully to withstand the pressures and demands of different occupational groups. The committee recommended reducing the number of separate wage scales and coordinating them, in the belief that it would be difficult to return to the previous (uniform) salary system (Guri Committee, 1955). Thus, a strict uniform pay scale did not

ZCost-of-living allowances (COLA) first appeared in a few labor contracts in 1939. As inflation continued, the British Mandate government became concerned that inflation would create labor unrest and nominated a special “Joint Committee on Problems of Wage Adjustment.” The Committee recommended an automatic cost-of-living adjustment. Its recommendation was immediately adopted in the agreement signed between the Histadrut and the Manufacturers Association in 1942, and has been a permanent feature of labor contracts in Israel since then. The 1942 agreement stipulated a ceiling in COLA of 80 per cent of the price increase. All subsequent agreements (except that of 1943) stipulated a ceiling for the cost-of-living adjustment. Further, COLA can only be paid up to a certain salary level (on social justice grounds), and thus acts to depress pay differences in keeping with the egalitarian ideology.


serve well as the answer to the problem of operationalizing the ideological commitment to an egalitarian wage structure. In the future, emphasis would be on “linkages” across occupations as a way of maintaining equality.

Linkages among occupational groups. One important mechanism for insuring that no single occupational group will succeed in outdistancing others by gaining special pay benefits is to establish some official linkage between the pay levels of individual occupations. Once such linkages are established and accepted as an automatic justification for pay rate changes, the success of any single occupational group in having its pay rate increased will result in automatic upward adjustments for all linked occupations. This is a powerful mechanism, for it multiplies the pressure any single occupational group can exert by combining it with pressures from all other linked occupations.

Thus, the egalitarian ideology gave rise to the mechanism of linking the pay levels of different occupations and as a result enhanced their collective power to bargain their linked wages and salaries.

For example, employees in the Internal Revenue Service demanded and received a letter from the Minister of Finance pledging that any payment granted to the State Controller employees and/or the National Insurance Institute would automatically be granted to them; high school teachers have received a pledge that their salaries will be linked to a certain rank of civil service engineers; nurses are ‘‘linked’’ to medical doctors who, in turn, are linked to engineers. This system of linkages developed mainly in the sixties. It obviously minimized the increased differentiation in pay among occupations.

Supplements to Income While the linkage mechanism was an obvious way to keep

realistic the egalitarian ideology, there was still no room for rewarding occupational groups which, either because of special contribution, or scarcity of members, could command relatively higher pay in a free labor market. Over time, pressures for specialized pay treatment took the form of demands for “supplements” to the pay packet for characteristics claimed to be unique to the occupational group.

In 1957, public sector engineers started a battle for higher income. The engineers demanded “selective supplements” from government and other employers, and simultaneously tried to convince the Histadrut that a supplementary payment for them would not affect other salaries. Based on the recommendations of a public committee appointed to investigate the status of the engineering profession, the engineers received three selective sup-


plements: they were allowed payments for additional hours; the “Vetek,” or seniority supplement, was paid from the time the engineer graduated rather than from the date he started working at his job-up to a ceiling of 25 per cent of basic salary; and, lastly, the engineers received a supplement of IL 70-IL 200 a month, according to rank, for the “acquisition of professional literature.”

By 1961, supplementary payments of all kinds were granted to various groups of workers. The fourth government-appointed committee on public pay scales submitted its report in April 1963. The committee suggested yet another attempt to reach a uniform pay scale, based on evaluation of jobs across the whole public sector. All special allowances and different pay scales were abolished, unless they were granted for special and temporary conditions of work (Horowitz Committee, 1963). The committee estimated that the job evaluation would result in a 3 per cent increase of average salaries. In fact, each group of workers demanded more points on the job evaluation scale each time another group was granted some points. The process of “balancing upwards” (based on a “linking” ideology) resulted in an increase of average salaries in the civil service by 38 per cent. (The increases were “uniform” in the same pay scale and without any special supplements.)

One result of the inflationary additions to the salaries was a conscious attempt by the government to reduce economic activities. By the end of 1967, the volume of investment was 47 per cent lower than in 1964. This economic slowdown ended following the Six-Day War in 1967, after which a period of an accelerated demand-push inflation and large budgetary deficits occurred. The heated economy increased the demands for skilled labor, and salaries in the private sector were on the increase. The discontent among certain occupations in the public sector mounted.

Engineers were the first to go on strike. This time they received “special allowance for overtime”- justified by their need to work overtime but paid without any actual documentation of such work. In addition, a new supplementary payment was created: special allowance to those holding a Master’s and a Doctoral degree. X-ray technicians went on strike and received a special supplement justified by the risks involved in being exposed to radiation. Nurses received a special allowance ostensibly to compensate them “for overload caused by scarcity of nurses.”

Special supplements in the seventies. Since 1970, the number of special supplementary payments to individual occupations has mushroomed both in volume and in size of payments. The payments seem to have been restricted only by the imagination of various claimants: flight controllers were granted a special supplement for the tension caused by their work;


postmen received an additional payment for “need for more drinking”- legitimized by the thirst caused by carrying a heavy pouch of letters in the summer heat; civil aviation workers received a supplement for “1aundry”- justified by the fact that some of them had to dirty their clothing in loading and unloading; some telephone technicians received a supplementary payment because they had to work in tunnels, and others because they had to climb poles; firemen received a special allowance for working with fire; and lifeguards were compensated for being exposed to sun and water.

By 1971, only vestiges remained of a uniform pay scale system. The separate pay scales for professional workers continued to exist, and certain occupations received more and more supplementary income under different names. Top-ranking officials received other types of supplements that enhanced their income while still keeping the illusion of a low salary. More- over, certain groups of workers were transferred from the civil service to state-owned authorities and enterprises, in which supplements to salaries of managers and certain occupations were higher than in the restrictive government pay scale.

There were a number of instances in the public sector where the rationalization for special pay treatment advanced by an occupational group was not accepted, and the same supplement was demanded by all. This problem may be illustrated by a description of the period after the collective bargaining agreement of 1972 was signed. This agreement included a clause (number 27), according to which “the union of the civil service workers maintains the right to demand special allowances related to specific conditions, that exist only in certain places in the civil service and that do not have any repercussions on other work places in the civil service.” Based on this clause, civil aviation department workers demanded an “aviation supplement” to close the gap between them and the workers of El A1 (the state- owned airline). Following a strike, about 80 per cent of these aviation workers received the requested allowance. Many other small groups in specific occupations received different amounts of supplementary income. All state controller workers received a special supplement; workers of the Knesseth received a Parliamentary supplement; and lawyers were granted a special allowance for preparing files before appearing in court?

Internal revenue service workers demanded a supplement and based their demand on the gap between their salaries and those in the office of state controller. A public committee approved this demand, finding that these workers had “specific conditions” since they are expected to use

‘31n the last instance, the arbitrator said (March, 1975): “I was convinced that the effort in appearing before court with all its components is over and above the normal effort of a lawyer and that it starts at a point where the normal effort of a lawyer not appearing in court ends.”


discretion and judgment in their work; they have to update their knowledge continuously; and they are alienated from friends who do not like to be associated with internal revenue service workers. This latter justification was nicknamed “the disgrace allowance” and caused such an uproar that in 1975 the government appointed a committee of experts to investigate demands by virtually all other public sector workers for pay equal to that received by the internal revenue service employees. Spokesmen represent- ing 44 different groups of workers appeared before the committee. Each stressed some unique element in their job: from the need to use judgment in the issuance of passports to the special circumstances of having to hear grievances all day long in the Rabbinical court of divorce. All demanded that their salaries should be increased to the same level as that in the internal revenue service?

Assessing the Impact of Special Supplements In addition to cost-of-living allowances (COLA), seniority and

family allowances, and overtime payments, the committee found more than 120 “special” supplements to income existing in the public sector. These special supplements are specific to individual occupations and, therefore, represent the (frequently successful) efforts of single occupational groups to claim differential treatment compared to other occupations in the same pay grade. The data in Table 1 demonstrate that special supplements were paid to approximately 40 per cent of the civil service employees. It is notable that the proportion of the base salary incorporated in the special supplement is variable. For example prior to 1972, 2,721 workers in the Ministry of Communications received a “drinking allowance” (allowance for thirst- producing work) that came to only 1.1 per cent of their base salary, while 230 employees of the Courts of Law received a supplement of 23 per cent of their salary for performing the distasteful task of attaching property by court order. It is probable that “special supplements” have more consequence in differentiating between individual occupations within a broad pay grade than they have in increasing the distance among pay grades over the whole range of civil service pay grades.

The question naturally arises as to which has had greater impact on the distribution of income : the leveling consequences of “linking” occupational pay levels and supplements, or the differentiating effects of special supple-

4The justifications were always in the same language. For example: “It is no secret that our Ministry as such has a unique character among all Ministries because of its structure that includes units in which workers are called for special intellectual and physical over-exertion.. . it seems unfair to us that workers of other Ministries will receive unique supplements to their salaries while our workers will receive as a remuneration for their special stress and devotion only a feeling of ‘deprivation.”’


TABLE 1

(JANUARY, 1976) SPECIAI. SAl.ARY SUPPLEMENTS CRANTKI) TO INDlVlnUAI . OCCUPATIONAI. G R O U P S IN THE ISRAELI CIVIL SERVICE

Spacial supplement as a per cent of base salary Number Per cent

Up to 4.0 1,413 7.7 4.1 to 8.0 8,974 48.9 8.1 to 12.0 5,579 30.4

12.1 to 15.5 2,386 13.0 Total 18,352 100.0 Median per cent of supplement 7.5 Averagc per cent of supplement 8.9

Source: Report of the Committee on Unique Supplements, Jerusalem, 1976.

ments to individual occupational groups. Figure 1, which is based on the salaries and supplements paid in October 1975 to Israeli civil service workers (excluding professional ranks and policemen), provides some insight. Since the distributions show pay grades and not individual occupations, we can only discover if supplcrnents have modified the relatiz~e income of the several pay grades of the civil service.

The lower graph of Figure 1 shows the base salary for each job classification. The middle graph shows the average amount paid to the occupants of each job classification including their base salary, cost-of-living adjustment, and seniority and family allowances. The upper graph shows the total average salary for each job class. The difference between the middle and upper graph represents the amount received in each job classification as “special supplements.”

It is clear from the relationships among the three graphs that the slope of the basic salary curve is steeper than the slope of the other two. This indicates that the differentiation in base pay among job classifications is greater than the differentiation in total pay among the job classes. Further- more, it will be noted that the special supplements (the difference between the top and the middle curve) show no marked deviations from the sum of the base salary and the standard supplements. The only exception is the highest job class where the special supplements create a substantial bulge in the total monthly income.

An interesting conclusion emerges. On the average, it does not appear that special supplements to individual occupational groups have had the effect of distorting income distribution within the broad job classification system. The net effect of “linking,” plus the differentiation through “special supplements,” seems to have been to narrow the differentials built into the base salary structure. Total monthly payment is less differentiated from top to bottom of the, job classification range. The major reason for this appears to be the greater impact on total income paid among lower job classes by the standard supplement of COLA, seniority, and family allowances.


FIGURE 1

COMPARISON OF BASIC SALARY, BASK SALARY PLUS STANDARD SUPPLEMENTS, AND TOTAL MONTHLY INCOME RECEIVED I N EACH JOB CLASSIFICATION OF THE ISRAELI CIVIL SERVICE, OCTOBER, 1975

Committee recommendations. When the committee of experts was first appointed to investigate special supplements in the public sector (1975), the government agreed in advance to accept the group’s final recommendation. The committee felt that certain types of supplements were legitimate and should be continued. This category included all supplements that are part of the physical working conditions, such as cold, heat, depth, height, etc.; those granted for special working conditions, such as restrictions due to secrecy, work in the desert, etc.; overtime work and premiums; supplements for the need to and expenses of travel; and supplements for large responsi- bility. The committee further recommended that instead of paying a risk supplement, risk should be reduced; instead of paying for drinks, drinks should be supplied, and instead of payment for clothing, uniforms should be given. It found that most supplements were granted either to compensate workers who used their bargaining power, or those whose services were in high demand, and recommended many changes in the centralized collective bargaining procedure.

The committee published its recommendations in 1976, and all “unique

28 / ROBERT DUBIN AND Y A l R AHARONI

supplements” were abolished. Other, more subtle supplements continued. With time, more supplements were added. In fact, in the 1978 collective bargaining agreements, medical doctors, engineers, and economists were able to get additional types of supplements. In the case of doctors in service in the public hospitals, a large supplement was awarded on the basis of the need “to be on call.” The agreement specifically stated that the addition will be paid whether or not the doctor was actually called, and that it will be included in calculating pensions. As a result of this agreement, department chairmen in hospitals receive the equivalent of more than two salaries a month-but their base salary as such has hardly changed. Thus, overall, it is hard to be optimistic that the role of supplements will in fact decline as a result of the committee’s work.

Individual Income Tax Some observers of Israeli labor relations have noted that

individual income tax has been another force generating demands for supplemental payments not incorporated in the actual wage or salary, a phenomenon widespread in Western economies. Certain supplementary payments granted to avoid income tax became widespread in both the public and private sectors and were equalized over occupations; these were mainly supplements claimed as expenses and therefore nontaxable.

One example was the supplement for “purchase of professional literature.” This was first granted to university teachers and then to those in professions who claimed that they needed to purchase books to maintain their expertise. With time, some employers paid such a supplement to other workers, mainly because the payment was treated as a tax-exempt business expense and was also tax-exempt from the income of the worker. The same was true for the “clothing allowance”; reimbursement for the costs of the employee’s private telephone; and to a large extent, reimbursement for the costs of operating and maintaining a private automobile.

An estimate was made in 1975 of the proportion of gross salary that was made up of supplements beyond the base wage or salary. The working population was divided into income groups and an estimate of the money supplements as a proportion of gross salary was made for each income group. The data, of course, include government employees as well as those in the private sector. These data are shown in Table 2. Those at the top of the salary scale receive a very much larger proportion of their income in the form of supplements than those at the bottom of the scale. The magnitude difference is of the order of 3 when the top three income groups are compared with thc bottom three. Put anothcr way, the top 13 per cent of those


TABLE 2

ESTIMATE OF THE PROPORTION OF GROSS SALARY THAT IS PAID IN MONEY SUPPLEMENTS, 1975

Gross salary

Per cent of Millions Per cent of gross salary Income group wage earners Per cent IL paid in supplements

~ ~~~

u p to 1,000 1,001-2,000 2,OO 1-2,500 2,501-3,000 3,0013,500 3,501-4,OOO 4,001-4,500 4,500 & over

Total

17.8 38.0 12.1 11.4 7.7 3.3 3.4 6.3

100.0

4.7 27.4 12.6 14.5 11.9 5.8 6.6

16.5 100.0

1,128 6,576 3,024 3,480 2,856 1,392 1,584 3,960

24,000

10.0 6.5 8.5

12.0 15.0 16.5 22.0 25.0 13.4

Source: Committee on Reform of the Income Tax System, Report, Jerusalem, 1975.

in the labor force average about three times as much of their gross income from work in the form of supplements than the bottom 68 per cent of wage earners.

The implication of Table 2 is that base wage and salary rates are less differentiated than total earnings. The appearance of an egalitarian earned income distribution is maintained in this manner. Actual gross income from working has a less egalitarian distribution by virtue of the differential proportion of the wage and salary that is incorporated in money supplements to the base wage.

A public committee for the reform of the income tax system estimated these supplementary payments in July 1975 as IL 3.2 billion, or 13V3 per cent of the total gross income of employees. Based on the committee’s recommendations, all these supplements are now taxable. However, taxation has not effectively reduced either the number or value of supplements? There are still hundreds of types of “allowances” which allow groups of workers to circumvent the straight jacket of the uniform pay scale. At the same time, the supplements continue to provide a means of sustaining the illusion of income equality.

Subrosa Salary Supplements The data presented in Table 2 seriously underestimate the

SImmediately after the income tax reform, the instructors in the Department of Agriculture went on strike. They really used their cars for work, they reasoned, and had to travel quite large distances. Taxing this portion of their income meant a huge reduction in their take home pay. The government, not willing to exempt any group of workers from the new regulations, found a new way: it declared that these instructors travel on exceedingly bad dirt roads and therefore agreed to increase the pay for a kilometer of travel, in fact grossing out the tax differential. In the case of El A1 pilots, the company agreed to pay the tax on that portion of the pilot’s salary that was paid in foreign currency, ostensibly as “expenses abroad.”


total impact of supplements, especially in the payment of top managers and executives. In the private economy, and to a lesser extent in the state owned enterprises, there is much greater latitude than in the civil service to provide supplements that do not appear directly in the pay check. For example, in some financial institutions, managers receive up to 15 monthly salaries paid during the year, and often in advance for three months-an advantageous timing of supplementary income in the highly inflationary Israeli economy. Some executives also receive a second salary paid for by a subsidiary of the parent company for which they work, The provision of a car for full time use, the subsidy of a private telephone covering all calls made, along with sub- sidizing an apartment, are all justified as providing maximum ease of reach- ing an executive when not in his office, and insuring a rapid response on his part. Even more imaginative and remote from any connection with work is to provide the executive with personal loans at highly subsidized rates; the payment of tuition fees of family members in school; and guarantees of travel abroad with inflated per diem allowance. It is also not uncommon for the firm to pay the social insurance costs of its top executives, and rarely, even their personal income taxes.

The examples just cited probably do not exhaust the range of special supplements made available to the managerial elite. This list has been summarized from a report of the state controller dealing only with top managers in state owned enterprises for which group it is estimated that the special supplements may double the take-home pay. Their magnitude is so great that a public committee on salaries of government corporation managers stated: “The word ‘salary’ in Israel has lost most of its meaning and significance; most of the components of income of top executives in state owned enterprises has been through other means of compensation” (Committee on State Owned Enterprises’ Managerial Salaries, 1976). What was found to be true in state enterprises no doubt characterized the rewards of private sector executives as well.

Since it is impossible to know from public records the levels of total compensation from work, a private consulting firm in Israel created an information consortium. Individual firms agreed to supply the group with confidential figures on the magnitude of salaries and supplements, and received in return a confidential report on the magnitude of such payments in the average large firm. Table 3 presents the data for two years, showing the index numbers for gross income and gross salaries among selected occupations in the private sector.

There are three notable features of Table 3. A higher proportion of the gross income of chief executive officers comes from supplements to their salary than is true for any other group. Furthermore, the ratio of the index

Work and Pay in lsrael / 31

December, 1977 December, 1978

Salary as Index of Index of a per cent

gross gross of gross Job title income salary income

Chief executive officer 25 1 218 59 Manager - level 3a 100 100 68

Salary as Index of Index of a per cent

gross gross of gross income salary income

253 214 60 100 100 71

of gross income to the index of gross salary is greater for chief executive officers than for any other group, indicating that the amount of the supplements to these officers’ salaries is proportionally greater than for all other groups. Clearly, the differentiation of top salary comes through the addition of very substantial supplements.

The second conclusion to be drawn from Table 3 is that there is the expected ordering of gross income from top to bottom of the occupational structure. The gross income for each period shows that the rank order of the index of gross income corresponds to Western ideas of the relative importance of the several occupations. Traditionally “higher” occupations are paid more, relative to those considered to be below them. This reflects what sociologists label the principle of “distributive justice,” under which differentials of reward are considered to be justified (see Homans, 1961; Adams, 1963).

The third feature of Table 3 is illustrated in Figure 2. Here the relationship between the index of gross income and the index of gross salary is plotted for each occupational group for the two time periods. All possible points on the line in the figure would be points where occupations would have gross income and gross salary directly proportional to those of the index occupation (Manager-level 3). It is striking that when the gross income includes a higher proportion of supplements than the index occupation, the gross income for that occupation will exceed its expected value, relative to its salary. The device of supplements to the base wage or salary is utilized to reward an occupational group, to its relative total income advantage within the labor force.

Engineer 82 86 72 Foreman 65 57 60 Technician 60 66 95 Maintenance worker 60 56 64

Production worker 51 47 62 Secretary 47 59 86

90 95 75 84 79 67 72 74 70 64 59 66 49 59 85 49 47 68


FIGURE 2

RELATIONSHIP BETWEEN SUPPLEMENTS TO SALARY AND INDICES OF GROSS SALARY AND GROSS INCOME, ISRAELI PRIVATE INDUSTRY. FOR SELECTED OCCUPATIONS I N 1977-1978

Engineer'78 0

o = Salary supplements smaller / per cent of gross income than index occupation.

Engineer' 7 7 0 /' / i r e m a n ' 78

Technician ' 78

' Technician' 77

0 / ?faint. wkr.'78

+Foreman' 77 OSecOretary' 78 /'+

Secretar) 77

"Iaint. wkr.'JJ

+ = Salary supplements greater per cent of gross income than index occupation.

/' + Prod. wkr.'JJ

/%%. wkr. ' 78 / / , 1 A 1 1 I 1 1 I I

50 60 70 80 90 lYDEX OF GROSS IYCOME

Source: Table 3 .

Summary and Implications Israel was founded as a country on the ideological belief that

rewards for work ought to be minimally differentiated. That goal continues to dominate the Kibbutzim movement. It is, furthermore, re-emphasized in contemporary concern with the drift toward income differentiation within the labor force, This preoccupation surfaced repeatedly as an issue of public concern, to be handled by investigative bodies whose recommendations attempted to move public policy in the direction of sustaining a minimum differentiation of income. The egalitarian ideology also influenced


public decisions affecting the progressive income tax structure and the wide coverage and rates charged for social insurance, as well as the decision to place a wage ceiling on COLA payments.

The realities of industrialization, with its significant differentiation of knowledge and skills needed in the labor force, run counter to the egalitarian ideology. This is clearly revealed, for example, in the conclusion that job evaluation should be the basis for ranking occupations and their income rewards in the public sector. The fundamental philosophy of job evaluation is that differences among occupations can be measured objectively, as a basis for assigning differential income rewards to each. Additionally, individual occupational groups have sought unique supplements to their basic wage and salary. These supplements (e.g., the thirst allowance and “disgrace” allowance) are rationalized as being so unique to the occupational group that they would not normally be counted in a generalized job evaluation scheme, nor properly weighted as a factor in income determination.

In civil service employment special supplements were, indeed, gained by individual occupational groups. Yet, when we examined the distributions of salaries, supplements, and total income for the entire civil service, it did not appear that supplements had any major effect in differentiating the distribution of income within the governmental labor force. The mechanism of linking occupations, developed to insure that differentiation of income through the upward movement of individual occupations would occur only with difficulty, seems to have neutralized the effect of supplements with respect to the broad income distribution among civil service occupations.

The evidence with respect to some key occupations in the private sector, as well as the evidence presented in Table 2, suggests that special supplements play a major role in differentiating the income among occupations, and mainly between top executives and others. These differences are realized through subrosa payments or other supplements, many of which do not appear in the pay slip, and are, therefore, less visible as a basis for invidious comparisons by other groups of workers. Top executives among all occupations apparently receive the highest proportion of their income in the form of supplements. Other occupations also receive supplements that apparently have the effect of moving their gross income “out of line” from what it might have been if supplements had constituted a smaller percentage of the total income.

Although we presented no direct evidence on the point, it seems obvious that organizations operating in the market economy- whether they are state or privately owned-are more responsive to labor market conditions than is the civil service. This labor market sensitivity takes the form of being more likely to increase total income in response to the labor market


scarcity of a particular group of workers. The easiest and quickest response such a firm can make is to “fatten” the supplements to basic salaries as a means for attracting and/or holding employees. This minimizes the visible differences among occupational groups in their base wage or salary, and, thus, minimizes invidious comparisons, providing that the supplements can be kept reasonably concealed. Such secrecy is much more likely in the market sector than in the civil service sector of the economy.

In a more general sense, Israel illustrates the impact of a socialist-oriented ideology on pay for work. All sectors of that economy (civil service, public and quasi-public production and service units, and private industry) are affected by the socialist traditions that inspired the founding of the State and which persist to the present time.

Central to a socialist outlook is a belief that there is no need to link what each citizen contributes (“from each according to ability”) with what each receives for working (“to each according to needs”). Clearly, contributions and needs can vary independently of each other. Minimum differentials of pay from the top to the bottom of the occupational structure is one important derivative of this orientation. This is an ideology-as-goal, for as we saw in the case of Israel, total income from work is more differentiated than formal occupational pay rates prescribe.

Apparently in socialist-oriented economies, as in Western economies, when individual occupational groups seek special income treatment, they justify their claim on the basis of some distinctive feature of the group’s work. Underlying such claims of uniqueness is an ideological conviction that inequality is legitimate. When that belief arises in an egalitarian society, it becomes an ideoloRy-as-rationalixation to justify departure from the egalitarian goal.

The example of wage and salary determination in Israel provides substantial evidence that ideology-as-goal and ideology-as-rationalization readily co-exist. The image of a society guided by a dominant ideology (a common Western view of socialist-oriented states) seems less realistic than the image of a society having multiple ideologies affecting social action, where the ideologies may be noncongruent, or even inconsistent.


References* Adams, J. S. “Toward an Understanding of Inequity,” Journal of Abnormal and Social Psy-

Eisenstadt, S. N. Israel: Society. London: Weidenfeld and Nicolson, 1967. Gun Committee. Committee for the Examination of Wage Rates and Ranking System of

the Civil Service and Workers in Public Institutions, 1955 Report (Jerusalem: The Com- mittee).

Homans, George C. Social Behavior: Its Elementary Forms. New York: Harcourt, Brace, and World, 1961.

Horowitz Committee. Committee for Salaries of Civil Servants, Municipalities and Religious Councils, 1963 Report (Tel-Aviv: The Committee).

Israel, Committee on Income Distribution and Social Inequality, 1966 Report (Tel-Aviv: The Committee).

Israel, Committee on Income Distribution and Social Inequality, 1971 Report (Tel-Aviv: The Committee).

Israel, Committee on State Owned Enterprises’ Managerial Salaries, 1976 Report (Tel- Aviv: The Committee).

Roeter, Raphael and Nira Shamai. “Distribution of Personal Income in Israel-The ’Ikend During the Sixties:’ Bituah Sociali (Social Security), I (January, 1971), 58-62.

Shapiro, Yonathan. The Organization of Power. Tel-Aviv: Am Oved, 1975. *Note: All committee reports and the Roeter and Shamai reference are in Hebrew.

chology, LXVII (November, 1963), 422-436.

ideology and reality: work and pay in israel

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