War’s Impact on Israeli Public Sector Salaries: Rising Gaps and Structural Challenges

Watan-In the last quarter of 2023, the war in Gaza and Lebanon impacted the salary system of Israeli public sector employees. The extensive deployment of employees in the reserve army and the increased absenteeism from institutions affected various salary components, including call-up payments and overtime work. The Salary Commissioner at the Ministry of Finance stated on Tuesday that the full effects of the war on the wage structure would require in-depth analysis in the coming years.

Looking ahead, the Israeli Ministry of Finance has included a plan for temporary public sector wage reductions in the Budget Arrangements Law for 2025. This is part of a budget convergence plan in light of high war-related spending. The plan, which has not yet been approved, is expected to affect public sector salaries in the coming years in a way that would essentially freeze them.

Israeli Government Salaries Conceal Distortions

A report from the Salary Commissioner at the Ministry of Finance shows that the average salary in government offices in 2023 was about 53% higher than the average salary in the general economy. The Israeli business news site Globes considered these figures misleading because the salary structure of Israeli public sector employees is based on seniority and collective agreements. This creates distortions in wages, making it difficult to attract competent employees to public service.

According to the report, the average salary for a government ministry position was 19,736 shekels in 2023, an increase of about 9.5% compared to 2022. This is a sharp and significant rise compared to the average salary increase in the economy, which reached 12,860 shekels by the end of 2023, after an annual increase of 6.1%. (Exchange rate: 1 USD = 3.54 shekels).

The data indicates a continued widening gap between government and private sector salaries. The average salary in government ministries was about 53% higher than the economy-wide average, a significant increase compared to 2022, when the average salary in government ministries was 18,029 shekels compared to 12,116 shekels in the overall economy (a gap of about 49%).

However, Globes explains that the high average salary among government employees is misleading. Behind this raw figure lies a complex picture of approximately 34,700 employees in a wide range of roles, educational backgrounds, and skill levels. The public sector wage structure, which is based on seniority and historical collective agreements rather than workforce demand and performance, creates salary distortions that make it difficult to recruit qualified personnel for civil service.

Significant Wage Gaps

This gap is particularly evident in professions with high demand in the private sector. For example, engineers starting work in civil service receive salaries beginning at around 10,600 shekels per month, while in private-sector technology or infrastructure companies, base salaries are tens or even hundreds of percent higher.

A similar trend is seen among lawyers, economists, and technology experts. While the average salary of Israelis working in government scientific research is around 33,400 shekels, this figure is skewed upward due to the high salaries of veteran employees. Younger workers in the same positions start with significantly lower wages, making them less competitive compared to the private sector. For instance, a young lawyer in the public sector starts with a salary of about 11,000–12,000 shekels, and an economist with a personal contract earns just over 12,000 shekels.

Each year, the Salary Commissioner highlights various salary distortions in the government system. This year, among other issues, the report analyzed the minimum wage supplement mechanism. It revealed that 25% of government ministry employees receive a “minimum wage supplement,” despite the fact that about 99.9% of them earn more than 6,000 shekels. This phenomenon arises from the complex salary structure, where large portions of base salaries are excluded from the calculation of supplementary components.

An example of this distortion can be seen in administrative positions, where about 60% of employees receive a minimum wage supplement, with an average salary of approximately 14,000 shekels—far higher than the economy-wide minimum wage. Gender equality also remains an issue, despite some progress. Wage gaps are particularly evident at senior levels, where the proportion of women is significantly lower than their overall representation in the workforce.