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A free market for people who resign

He is a veteran worker at an enlightened Hebrew institution, one that does not employ him directly, but through a contract with his employers. For years he has been saying "Everything is fine by me," and "How are you doing?" and "The most important thing is good health." In everyone's opinion, he is a diligent worker who contributes to Israel's economy.

One day perhaps he will receive a certificate of merit for his contribution to the welfare of the middle-plus class. His salary is just a bit more than the minimum wage, he gets a partial refund of his travel costs, and along with the National Insurance Institute allowances for children, he satisfies his basic needs.

But he too would like to earn a little more, and this basic right of his is anchored in the culture of the "free market." This allows his employers to raise prices, or to transfer their business to a different location if they can increase profits there. This is a culture that is supposed to allow the employee who has found a better opportunity to use his qualifications also to resign politely from his job and improve his salary.

But this veteran worker is not about to move to a job anywhere else. Of his own free will he has refused offers of higher pay from people who have discerned his qualities. Why? Because he is a prisoner of the hope that when he retires he will get retirement compensation - and let us pray that he will not be proved wrong. As he says, "This money is my entire savings." Therefore, he cannot explore the forces of a free market that has found him entitled not only to a certificate of merit, but also to an additional NIS 200 a month.

The Dismissal Compensation Law is a progressive social law that awards a person who is fired a month's salary for every year he has worked. It has an important element of savings insurance. A worker who retires will receive the compensation from his employer as if he has been fired. However, if a worker resigns from his job before he is of retirement age, even with due notice, he loses his right to dismissal compensation.

Many pay their employees compensation in any case. "Senior" people in the economy receive such compensation beyond that required by the law. Somebody rightly saw to it that the law would recognize, for example, the appointment of an individual to the job of head of a local council as a reason for resignation that does not excuse an employer from paying compensation.

However, someone who is not a government employee, who is not "senior," who is not about to be elected mayor and is not interested in "making trouble" so as to "force" his employer to fire him - will lose very significant savings when he tries to fly on the wings of the free market.

Still chained to their jobs are workers in difficult straits who are not adequately protected by a labor union and whose pay is low. Even if they are fired they will have a long way to go before they perhaps get what is due to them.

The asymmetry between the employer's mobility and the employee's chains leads to an inefficient and unfair consequence. Workers do not fulfill their potential and employers are given another sword against pay demands by workers who deserve a raise even by the circuitous logic of the hidden hand. The obligation to pay compensation does not deter employers from firing workers arbitrarily.

If the employer intends to pay compensation to the worker when he retires, the cost of the dismissal is not the retirement pay, but only the need to pay it sooner. This is a negligible loss as compared to the loss expected to a worker who resigns, who loses all his compensation.

If there was economic logic in tying a worker to his work place, it was because of the employer's investment in the worker. However, the difference between those who are tied by the Dismissal Compensation Law and those who are not tied is determined only by the strength or weakness of the worker, and not by the "economic value" of the tie.

The Dismissal Compensation Law is a worthy law and full of good intentions, and it can only be amended. It is necessary to oblige employers to deposit the compensation monies regularly in a savings account that will be at the worker's disposal when he severs his connection with the employer, for whatever reason. Thus, every worker will be able to get his due, with the same ease that is reserved for some of us, whatever the case - whether he has reached retirement age, whether the employer has "disappeared," or whether he has been fired or has voluntarily resigned.

The champions of the free market have achieved total control in the state of Israel. Now they have an opportunity to demonstrate their loyalty to the slogans of the free market not only in order to advance their own interests but also when the free market benefits the "others."

If not, this will be additional proof that we "up there," however enlightened we may pretend to be, are only aiming to hang on to our hegemony, riches and the national cake and, when at long last the market forces are about to benefit the weak, we see to creating and implementing laws that ensure that those "down there" will stay in their ordained place.

The writer won the 2002 Israel Prize for Economics
By Ariel Rubinstein

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