The link between interest rates and importing migrant workers

<p>The directors of The Bank of Israel understand what the government refuses to acknowledge: the Israeli economy doesn’t generate jobs.</p>

The directors of The Bank of Israel understand what the government refuses to acknowledge: the Israeli economy doesn’t generate jobs.

The decision of The Bank of Israel at the end of February to reduce interest rates to 0.75% clearly signals that the country’s economy is facing a crisis. Despite the obvious danger that such a reduction will further inflate the housing bubble, The Bank of Israel has determined that the need to support economical growth, create jobs and enhance exports is more pressing.

Raffi Melnik, a member of the Bank’s monetary committee, explained that in light of the global economic crisis, the sluggish growth of Israel’s economy and the continuing strengthening of the shekel, we are now in danger of entering a recession and of rising unemployment, especially among youth. This, he claims, is “graver and more dangerous than rising house prices.” Melnik pointed out that the annual growth in private sector jobs was only 1.9% in the past 12 months, compared to a 4.3% rise in the public sector.

The Bank of Israel’s decision to reduce interest rates reflects an assessment that Israel’s economy is facing a major crisis. This assessment seems to be at odds with the government’s position on the economy. Israel’s unemployment rate is the lowest in the OECD countries, and the Treasury Minister has announced recently that taxes will not be raised as planned, claiming that negative forecasts had not materialised.

It seems, though, that the directors of the Bank of Israel understand something the government refuses to acknowledge. According to the Bank’s decision, Israel’s economy does not generate jobs: “The main reason for the slow growth in private sector jobs in the past two years is an increase in the number of jobs held by foreign workers. The number of jobs held by Israelis has not grown during that period.” In the past two years the private sector has grown by 47,000 jobs, but 25,000 of these (53.3%) were taken by “legal migrant workers” – i.e. workers that have been imported under government-approved schemes.

The meaning of the data is clear: even though the economy is entering recession; even though the global economy is trudging along, putting export on a downwards trajectory; even though the private sector produces very few jobs – to say nothing of wages and employment stability – despite all this, the government continues to approve massive imports of foreign workers (including an unlimited number of care workers). The government has recently increased the number of foreign agricultural workers to 25,000.

In a discussion last month at the Knesset Committee for Migrant Workers, representatives of the Housing Ministry expressed their support for the demand by the Contractors Corporation to import a further 34,000 Chinese workers for the building industry (the present quota for construction migrant workers is 8000). This trend of massive importation of migrant workers contradicts the recommendations of professional committees, and it is incompatible with the market’s inability to absorb additional workers.

Each migrant worker who is absorbed into the private sector enriches his or her agency by tens of thousands of dollars. The migrants are enslaved in many ways, and their organized importation is illegal according to ILO labour covenants. Such importation of cheap labour comes at the expense of Israeli citizens who are condemned to unemployment or else forced to accept work at very low pay and under poor conditions. This is a result of unfair competition with migrant workers who are employed under exploitative terms.

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