In honor of Yom HaAtzmaut (Israeli Independence Day), MKs Shelly Yachimovich (Labor) and Haim Katz (Likud) have decided to throw some red meat to the Israeli masses.

The proposed law and what it means
Their proposed law would dictate that any publicly-traded company be barred from paying its highest paid employee more than 50 times its lowest paid employee.  Let’s examine exactly what that would mean.

As of today, the minimum wage is 20.70 NIS ($5.53) per hour, 3,850.18 NIS ($1,028.63) per month, or 46,202.16 NIS ($12,343.62) per year.

Leaving aside all arguments of fairness, morality, or ethics, consider the practical results of such a law.  First, in any corporation of size with all its employees on the books, someone will be earning minimum wage.  High school students working in a grocery store after school or college students putting in a few hours stocking shelves at the mall will certainly at least start their working lives at minimum wage.  Given that, per the proposed law, the highest paid employee could earn no more than 50 times the minimum wage: 192,509 NIS ($51.343.74) per month or 2,310,108 ($617,180.87) per year.

A salary of nearly 193,000 NIS per month (or $617,000 per year) may not be enough to get you on Lifestyles of the Rich and Famous or MTV Cribs but should be plenty to make ends meet.  So, where is the problem?

Brain drain
Assuming for a moment that the bill could really have the affect that its authors desire, the practical problem with it is our modern world.  In this day and age, an Israeli with talent who would be capped at $600K in Israel can get recruited overseas and start a new job in a new country with a new and bigger salary.  With currency fluctuations, the possibility of this phenomenon can increase rapidly.  This time last year, the same amount of shekels would be $543,811 per year.

Overall, it is a very small portion of the world that earns salaries at those levels or higher.  But, it does exist.  The IRS reports that in 2006 nearly 950,000 US income tax returns were filed with an income of $500,000 or higher.  And, this group includes not only the obvious answer of CEOs, but also a number of specialized and senior doctors (such as hospital chiefs of surgery).  How many top docs and super savvy businessmen can our small country afford to lose?

A hollow bill
As it stands, there is no provision forbidding a well-established, very obvious, and already well-used workaround: manpower agencies.  Instead of putting students and other minimum-wagers on the payroll, companies will pay manpower agencies a flat fee to provide data entry, cleaning, or other services on or off-site.  When all of the employees earning 20, 30, and 40 NIS per hour are sloughed off to contractors, the top dogs will be able to double or triple their earnings.

Red meat belongs on the grill, not in the Knesset
A bill like this could result in real repercussions for Israel in the long-term.  More workers will find themselves in the less loyal and more short-sighted hands of manpower agencies.  And, Israel could potentially lose some of its best and brightest; not only talent and brains fleeing actual restrictions on their earning potential, but also those who wish and hope to one day merit the kind of salaries that they would not be able to achieve at home.