3. Improving Labour Relations in Israel’s Public Sector

In Israel, the main frameworks governing labour relations were designed in the 1950s and provide a significant degree of strength to public sector unions. Today, the world of work and social expectations are changing at increasingly fast pace, and there is an urgent need to rebuild social dialogue and improve labour relations so that the Israeli public service can implement reforms necessary to keep pace. In 2007, Cohen et al (2007[1]), observed that, “the prevailing political climate has led to the popular argument that Israeli trade unions have always been, and continue to be, extremely militant in their strategies and inconsiderate of economic constraints”. Today, this view still holds among many observers and public managers, who feel that unions have a disproportionate amount of influence in management affairs in the public sector, in part due to a legal regime which is no longer fit-for-purpose. On the other hand, union representatives feel aggrieved at what they perceive to be far-reaching changes to their members’ working conditions not being reasonably compensated.

In Israel, unions have the possibility to disrupt a wide range of management-driven modernisation reforms including the introduction of new technologies that reshape work tasks, the implementation of mobility reforms that aim to make the workforce more flexible, and any reconsideration of the pay system recommendations of the previous chapter. Therefore, unions have to be engaged as key partners and social dialogue has to be improved to create the forum needed to agree to a common vision of the future of public employment in Israel’s public sector. The OECD’s 2018 Jobs Strategy shows that wage-setting institutions can contribute to a broader sharing of productivity benefits without undermining employment or the basis for productivity itself (OECD, 2018[2]). To do this, there needs to be good will and trust on both sides, and a legal framework that provides an even playing field in terms of what is negotiated, when and by whom.

A recent report by the OECD shows how collective bargaining helps support challenges faced by the future of work. It shows that, “Providing that institutions are well designed, collective bargaining systems can help employers and unions find mutually beneficial solutions and establish a level-playing field for all companies and workers. However, fruitful exchanges between social partners are not a given and collective bargaining systems need to strike a balance between inclusiveness and flexibility (OECD, 2019[3]).”

The challenge for Israel’s public sector is to re-establish that balance between inclusiveness and flexibility and reconsider the institutions needed. However, social dialogue in Israel’s public sector seems to be stuck, resorting too often to strike action. Talks between public employers and unions appear to occur primarily when there is a crisis or problem, which impedes information-sharing and the building of trust. Israel must find a way to re-build sound and inclusive social dialogue in order to improve public service delivery because there can be no effective public service without trust and collaboration of all stakeholders including employees.

Public sector bargaining has evolved through four stages in many OECD member countries, in Europe and the United Stated in particular: the expansionary years (mid-1960s to 1982) where it benefitted from growth and laws that allowed for collective bargaining in the public sector; the restraint years (1982-1990) where it went under attack, the retrenchment years (1990s) marked by restructuring and downsizing, and the consolidation years (after 1998) marked by economic expansion, the restoration of fiscal stability and increases in public employment. Public sector unions also increased memberships and negotiated increases in wages (OECD, 2019[4]). With the economic crisis, a new period started characterized by cuts or freezes in employment and wages, which is a challenge to social dialogue.

The situation of Israel contrasts to this history of labour relations. The most recent period is not characterized by budget cuts or pay freeze but rather resembles the restraint years of the 1980s: strong labour disputes; high levels of distrust between unions and the executive, high resistance to reform, and the idea that a path to reforms requires weakening the unions. Most of the OECD member countries that went through this tense period came to find that unions could be collaborative social partners who allow reforms to be socially accepted and effective.

Since the 2008 global financial crisis, reforms in many OECD countries were aimed at strengthening firm-level bargaining and giving more flexibility to employers in case of economic shocks (Box 3.1) but were, in some cases, partly revised in recent years, to emphasise greater coordination between national-level and firm-level actors. The challenges posed by the Covid-19 pandemic may give rise to further pressure to reform labour relations: trade-offs may become more acute in times of health and economic crisis as the government seeks to ensure continuity of service and the safety of public sector workers. As such, the challenge facing Israel is to design a reform of labour relations without undermining trust and motivation and avoiding restructuring or downsizing if possible.

When it comes to labour relations, the state is both a legislator and employer. Hence, collective bargaining in the public sector is not the same as in the private sector, and must be understood vis-à-vis the authority of the government.

This includes the authority to establish public budgets which determine and allocate public spending. In the private sector there is a real affordability constraint on collective bargaining, as it is in no unions’ interest to negotiate an unsustainable salary level that threatens to put the firm out of business and leave members jobless. However, in the public sector, this constraint is less natural, since governments have options to fund pay increases through increased taxes, deficit spending/borrowing or internal reallocation. Given that compensation of public employees accounts for above 20% of public spending on average in OECD countries (and above 26% in Israel), unions can have a significant impact on the public budget.

Without an affordability constraint, there is no direct trade-off between the number of jobs and the level of pay: when unions negotiate wage gains it doesn’t directly threaten their jobs since this wage increase could be paid by taxpayers. On the contrary in the private sector, there is a trade-off between wage increases and the number of jobs and unions can accept a wage freeze if the number of jobs is increased or even sustained.

Other arguments have often accompanied some reluctance to give public employees the same bargaining rights as private employees. These include arguments that public sector unions could exploit a power in negotiation due to the fact that they can rarely be fired. The right to strike could be regarded as undermining essential service delivery, and they have a monopolistic power in delivering essential public services. Therefore, strike actions in the public sector can result in significant impacts felt by the population at large, rather than private owners or shareholders of a business, as is typically the case in the private sector.

However, in public services, even if there is no market constraint, there is a user constraint: students, patients or users of public services exert pressure on public employees not to strike or act detrimentally. The suggests that public perception exerts limits on what a trade union in the public sector can do. For example, teachers’ strikes which are not appropriately justified in the public sphere can give the impression that teachers’ unions are punishing children and families, thereby reducing the power of unions at the negotiation table. However, this constraint can cut both ways, since politicians and management may be willing to avoid strikes at high costs in order to maintain a positive public image, particularly at key political moments.

Job stability in the public sector may also enable stability of union membership, hence the stability of the actors of collective bargaining. Union members have a higher power in the negotiations as they usually remain in the public institutions longer than the politicians who represent the government. This job stability both increases the union’s knowledge of needed reforms and can be a leverage to consider them as social partner for growth. However it also gives power to resist change.

Many labour economists such as Richard Freeman challenged the idea that unions may be detrimental to productivity and showed that unions increase employees’ morale and motivation, hence productivity. Unions can enhance on-the-job training and diminish turnover. Workplace innovations depend on meaningful union participation. Unions can induce lower quit rates, better job production standards, more information exchange and better communications. Although there is evidence of this positive effect in the private sector, there are a few studies in the public sector (OECD, 2019[5]), (OECD, 2019[6])). For instance (OECD, 2019[7]), find that on average students are seven percent more productive in unionised schools. On the contrary, (OECD, 2019[8]) finds that teachers' unions have a negative overall effect on student performance, even though they tend to have a positive impact on schools’ resources, because of a detrimental effect on productivity.

There are preliminary questions to answer before entering a negotiation: who negotiates on behalf of whom, at which frequency, on what topics and how binding are those negotiations? This section looks at these aspects of the legal and institutional frameworks that govern and manage labour relations in Israel. It shows that striking an ideal balance across these three factors requires changes to the legal frameworks and to the institutional actors and mindsets that have become embedded in the public sector.

In Israel, there are not many unions but they are partly decentralized – regardless of their appearance. For instance, in the education sector (there are 200,000 teachers in the Israeli education system, most, 130,000, directly employed by the Ministry of Education), there are two unions who do not always agree or speak with the same voice. In the security sector, police officers and the military cannot unionise, but are impacted directly by other unions: there is a direct link (through law or executive order) between what civil servants negotiate and what the military receives so when one union obtains a gain it benefits many sectors, even the non-unionized ones. (It is also worth noting that these non-unionised entities are well organised through e.g. veterans organisations). The unionisation rate is rather high and increasing in recent years, which contrasts with the situation of other OECD member countries. Unions can be partially funded by public funds, even if they mainly rely on their own funds. Again, this situation differs from other OECD member countries where unions for more than two-thirds of OECD countries rely exclusively on their own funds.

In Israel, the role of unions extends beyond pay negotiations, to also include direct employee support. There seems to be a common perception that when workers have an issue with their managers, their working environment, pay, or anything related to work, they go to the unions rather than raising issues directly with management through, e.g. councillors or mediators.

On the government side, the Ministry of Finance represents the government on all matters; it supervises and authorises all agreements, and often defines the strategy and leads the negotiations. Negotiations for the whole public sector employment framework are centralized in the Ministry of Finance. Hence, centralization is a prominent feature of the negotiation process.

There are pros and cons to centralisation of negotiations. The economics literature demonstrates the relative efficiency of centralized bargaining. This is because wage bargaining creates not only direct effects on the employees and firms engaged in the negotiation, but also indirect effects on the whole labour market. Those external effects are better taken into account in centralized bargaining. For instance, a wage increase in a municipality can attract workers from outside, hence creating a negative effect on the other neighbouring towns. A local wage increase can also create a second effect on the neighbouring towns; an “envy” externality that could make other employees not covered by the agreement dissatisfied, reducing their well-being and motivation. All those impacts of local negotiations on other administrations are better handled in a centralized bargaining process.

One of the main arguments for Israel’s level of centralisation is to avoid situations where benefits awarded by one ministry in a specific context become expected by all in every context. Collective agreements (Collective Agreements Law of 1957) are linked either through an index or one to the other. Any agreement in one sector has various effects on the other ministries. Hence when negotiating, the government needs to anticipate what would happen if one single agreement changes. Coordination is led by the Ministry of Finance’s Wages and Labour Agreements Division.

There is also a learning curve in negotiations, and a centralized body gains comparative advantage in dealing with arbitration, labour contracts and labour disputes. Therefore, centralisation of negotiation in the Ministry of Finance may be necessary to avoid situations where decentralized negotiations fall into the hands of managers who are less competent at negotiating. As discussed in chapter 1, line managers’ loyalties are not always in line with the management function. Decentralisation of negotiation is effective only if senior officers are professional, incentivized managers who can enter into constructive negotiations with their employees. This would also require that managers not be covered by the same collective agreements as their employees – and this is not always the case in Israel’s public sector.

However, centralization of bargaining is not optimal if it weakens the managers’ incentives and autonomy. Many OECD countries have experienced decentralization of bargaining to ministries and agencies mainly because decentralization gives managers the ability and incentive to design employment and pay systems that match their business needs, and control and reward performance. Decentralization goes with individualized management of competencies and performance management, since employment systems are an important tool to achieve organisational performance objectives. Decentralisation can also be a way of introducing an affordability constraint and maintaining the integrity of the overall budget, since broad allocations are not up for negotiation, and therefore the negotiation focuses on how best to distribute the allocated wage bill and how to find internal efficiencies that could supplement it.

High levels of centralisation may also reduce managers’ abilities and willingness to negotiate for reforms that are not directly related to pay, but which impact the public service. For example, in many OECD countries, reforms such as the introduction of new technology, changes to the performance assessment systems, or improvements to job classification, can be written into collective agreements, so that pay increases are traded for reforms in areas that make public employment more flexible. In Israel, these kinds of negotiations have also been effective, for example, when negotiations with local government employees enabled the introduction of new technologies. However, since the institutions responsible for these reforms are not within the ministry of Finance there is a risk that these strategic opportunities are not fully leveraged or understood when negotiations are centralised in one unit.

In most OECD countries, decentralisation does not affect equally all the topics that are negotiated. Collective bargaining at the central level often relates to base salary, overall wage expenditure or global working conditions. On the contrary, negotiations are decentralized when it comes to new management tools and performance pay. Sweden is an example of decentralization embedded in a centralized bargain process that takes the best from both systems (see Box 3.3 for the example of decentralization of negotiations in Sweden and the UK). Decentralisation of pay, as in Sweden and the UK, means that managers have greater discretion to use their budget to reward high performers and attract specific profiles. Managers also have scope to trade different elements according to needs, e.g. by offering higher pay for fewer workers (or vice-versa). Additionally, both managers and unions know what the upper limit of their bargaining wage increases are, as they are set in budget allocations or framework agreements, creating an affordability constraint at the lower level (see more on this below).

Regardless of the level of centralisation in Israel, line managers in ministries should be more involved in wage negotiations. For instance in health, it could be useful to take into consideration all the sectoral specificities and try to make the Ministry of Health much more engaged in the resolution of labour issues. In Israel, the equilibrium between the two ministries, the Ministry of Finance and the Ministry of Health, seems to be shifting and the latter with more decentralised responsibility over budgets, wages, and numbers of positions. Their power of negotiation with public employees, i.e. doctors, is stronger than in other sectors, and this example could serve as a standard for future decentralization of negotiations.

The Civil Service Commission (CSC) is another strategic partners for collective bargaining when negotiations are focused on the employees of the central governments employed by the CSC. The CSC accompanies government ministries in managing labor disputes as part of its role as a regulator and professional knowledge center on human capital management issues. The CSC can represent the state employer's point of view at the discussion table, and bring a broad view regarding human capital management. Since the CSC as an employer and regulator has special expertise in the field of human capital, the CSC can help to increase management capacity by establishing trust between management and employees, and increase the ability to implement agreements. Working together with the Ministry of Finance helps to streamline the process for the state as an employer, and enable more forward-looking solutions that take into account the full employment relationship. Partnership and coordination between the two units is important, as the management of the human capital at the Ministries and economic considerations are intertwined.

Most OECD countries have found ways of creating a necessary distance between the budget domain and the collective bargaining domain. This is necessary to create clarity of “what is on the table” and safeguard the democratic right of elected governments to allocate public spending based on their political priorities. This is often done through decentralisation whereby ministries or agencies are given “lump sum” appropriations. An affordability constraint, implemented at individual Ministry or agency level can provide greater transparency to unions on what is available for negotiations, and limit spill-over effects on other parts of the public sector. Another option is to create affordability constraints by separating the budgeting and labour functions through the creation of separate negotiating agencies. For example, in Canada, where negotiations are centralised, the Treasury Board Secretariat, not the Department of Finance, is the employer and manages all the wage negotiations. A third option is to set the affordability constraints in national framework agreements, taking into consideration macro-economic data, and to use that agreement to constrain local-level agreements accordingly.

In Israel, both wage negotiations and budgeting are conducted by the Ministry of Finance, although wage negotiations are overseen by a separate Public Sector Wages and Labour Agreements Division, and this provides an important level of separation between the two functions. Today, the Budget Division is not actively present in negotiations that do not include structural changes and reforms. Occasionally, the Budget Division agrees in advance with the Wages and Labour Agreements Division the boundaries of the budget for each deal and does not sit at the negotiating table. This is an important separation and one that can help to ensure an affordability constraint. However, there could be opportunities to further strengthen the constraint through gradual decentralisation and/or additional separation between the budgeting and wage negotiation functions. In any event, macroeconomic indicators could be used in the bargaining process as a way to constrain negotiations. An independent third party could prepare this analysis, which could help to inform framework agreements, which, in turn, could set upper limits for local-level agreements.

Eventually, the effective level of centralisation depends on the quality and strength of social dialogue. In the present state of social dialogue in Israel, decentralisation cannot be effective if not linked to a major reform in the legal framework that governs labour relations, as it will be argued in the following section. Managers and heads of public entities (ministries, agencies, etc.) might find it convenient to leave negotiations to the centralized level that is perceived as able to both resist a labour dispute and rule over budget expenses.

The topics covered by negotiations in OECD countries are wide-ranging. In Israel, there is a broad definition of working conditions and the unions are entitled to demand negotiations or strike due to the consequences of any changes in the working conditions. Practically this means that any minor change must be accepted by the employees including a change in the location, the scope of work or the tools used. Unions use their power to include in wage agreements a set of detailed issues. Hence, unions are involved in nearly any small change in the working conditions, and all topics are covered by the same institutional organisation.

Compared to other OECD member countries, the importance of negotiation with unions seems to be more prominent in many areas in Israel (Figure 3.1). In Israel, agreement with unions is “mandatory” regarding base salary and social benefits, additional pay or performance pay. Unions must also be consulted in reforms regarding the employment framework, the right to strike, management tools or government structuring and working conditions. In practice, there is no precise definition of working conditions which means that unions expect to be consulted on all topics, and retain the right to strike whenever they disagree.

An additional factor to consider is the question of the protection of essential services. Most OECD countries designate some public services as essential in order to reduce the exposure of vulnerable citizens to work stoppages. Indeed, one needs to find the right balance between the rights of public employees to strike and the well-being of the general population. The definition and scope of what is considered to be an “essential service” varies. It depends on the country and its particular circumstances. The criterion used to designate a service as “essential”, recommended by the ILO, is “the existence of a clear and imminent threat to the life, personal safety or health of the whole or part of the population.” Services designated as essential may still negotiate for the same range of factors as others, but are limited in their ability to strike. The use of binding arbitration is often greater. In Israel, only the security services are limited in this regard. Given the recent experience in designating essential services in the context of the pandemic crisis, Israel may wish to launch a discussion on this topic amongst within the government and among the relevant social partners.

In Israel, there is no predefined timing for labour relations: negotiations and industrial actions may begin before, last during and linger on after the agreements. Moreover, there is no specific timing for negotiation; it could occur at any time, at the best opportunistic moment, and often under the stress of a strike. Moreover, the signing of a collective agreement, even when it includes articles governing industrial peace for a defined moment in time, does not completely preclude employees from participating in work stoppages under certain conditions:

[T]he obligation for industrial peace does not derogate from the rights of Employees to participate in a work stoppage by law according to labour law principles, announced by the Histadrut on a national level, including regarding the framework or occupational agreement, and this without derogating from the claims of any side regarding work stoppages as described above. (source – Collective Agreement between the Israel Government and the Histadrut Ha’Ovdim Ha’Clalit Ha’Hadasha, 28 April 2015)

Israel may want to move toward a system where the timing of negotiations is predefined and where a concluded agreement must last for a minimum period of time before it can be reopened. Moreover, negotiations can’t be everlasting and need to find an exit. In Sweden for instance (Box 3.3), there is a legal obligation to maintain peaceful labour relations throughout the period covered by the agreement. This could be a path to follow for Israel. When social dialogue is built on trust, negotiations don’t take place during the time of the agreement but only at a predefined moment between agreements.

Furthermore, in Israel the rules around the timing of strikes could be reviewed. In order to strike, unions register a labour dispute and are then required to wait 14 days before taking industrial action. However there is no expiration date to the labour dispute, suggesting that strikes can take place with no notice once the 14 days has passed. This, and the lack of peace clauses to prevent industrial action, creates a situation where unions can keep open disputes for many months or even years, and have the ability to launch a strike at any opportune moment. For example, a dispute opened by the teachers’ union in April, may lay dormant with no negotiation until days before the opening of the school year, at which time the union threatens an immediate strike unless demands are met.

Many countries have more specific rules about when and how strikes can be triggered. In the UK, for example, employees must vote to go on strike for a specific reason and secondary picketing is forbidden. Trade union members have to gain both majority participation and the majority in favour of a strike. Employees on illegal strikes can be dismissed.

To conclude, it is very important to know who the actors of negotiations are and how they are representative of the workforce (see Box 3.5 for a French example of recent reforms to clarify this question). There are pros and cons to the centralized system in Israel. In most OECD member countries a decentralized power of negotiation helps match the needs for change and the demands of the unions. A centralisation of wage negotiations helps to reduce externalities, there are likely ways to decentralise some aspects related to local and marginal topics to improve efficiency. Centralized bargaining could be limited to base wage increase and pay system.

However, for this decentralization to be feasible there is a need for a legal framework which helps create the conditions, timing, and scope for a balanced negotiation. A regular and fixed timing helps stabilise expectations and resolve disputes. The time for negotiations needs to be given in advance to all stakeholders so that unions and employees improve their expectation and public services are not disrupted by those negotiations. Peaceful labour relations should be kept during an agreement, unless one party has clearly violated that agreement and refuses to address that violation. The issues of negotiations need also to be clarified, major issues could be centralized but precise working conditions are better fixed at the decentralized level.

Social dialogue is a pillar of public institutions and includes first exchange of information between parties, then consultation, negotiations, and eventually collective bargaining or more formal agreements. When labour relations are inclusive and sound, exchange of information and consultation are usually conducive to collective bargaining and formal agreement. However, social partners can be tempted to reduce the cost of social dialogue and erode the first steps, thereby substituting collective bargaining to consultation. In Israel, social partners seem to focus on the formal agreements. Unions seem to be active actors in formal collective bargaining processes whereas it would be efficient and inclusive to consider them as collaborative social partners. With emerging technologies, social partners can help anticipate skills needs. In a majority of OECD member countries, trade unions are involved in skills assessment, strategic planning and training programs (OECD, 2019[10])

One can also note that while collective bargaining is usually legally defined and formal, other forms of social dialogue are more vague and implicit hence more difficult to measure and use in international comparisons. Although the social dialogue is a pillar of public institutions in most OECD member countries, there is a high level of variation across countries, because labour relations are deeply rooted in the country’s history, tradition and culture (Bordogna and Pedersini, 2013[11]), as in Israel, where the Histradut played a key role in the political and economic construction of the country.

Disputes are a symptom that labour relations have partially failed. The political objective of all parties including the government is usually not dispute resolution but dispute prevention. Labour disputes are a costly way of reaching an agreement. An efficient and inclusive labour relations framework includes paths for discussion, negotiations, and common agreement.

In Israel, labour disputes seem to have become the normal way of reaching an agreement. The recent resurgence of unionizing activity and the conflicting labour relations has become an urgent issue to tackle in order to restore more harmonious relations and insure inclusive growth in Israel. It is crucial to set a sound base and framework for negotiations. When negotiations fail, employees can resort to industrial actions that can be disruptive and costly for themselves, for the organisation in which they work, for the citizens they serve, and for the whole economy. In Israel, the number of disputes and strikes, and their cost in terms of lost working days are very high, compared to other OECD member countries.

International comparison on labour disputes and in particular on strikes at the country level is very difficult because of the lack of data and differences in definitions and measurement: small work stoppages and partial strikes are sometimes excluded, the public sector is not always accounted for, unauthorized strikes are sometimes included but not always, etc. The main indicator published by the OECD is the ratio of the number of working days lost because of strikes to total working days, for both the public and the private sector (see Figure 3.2).

To complement these data, the OECD carried out a targeted benchmark survey of Member countries to better understand the legal framework governing sources of strike action (Figure 3.3). The data show that increasing wages is a common reason for industrial action, but also point to changes in contractual relations as a potential source of discord. This figure also shows that other reasons for Industrial action which appear to be commonplace in Israel are either very rare, or illegal in many other OECD countries.

In the last twenty years, and contrary to the trend in other OECD member countries, one can observe a large numbers of strikers and working days lost as a result of strikes in Israel. This surge can be explained by the strategy to use general strikes in the public sector as a negotiation tool. Unprecedented long-term strikes have also increased the number of days lost and make it necessary to find a path for conflict resolution. In 2018 in Israel, there were 46 different strikes which involved 42000 employees and cost 150 000 days or work. In 2017 the numbers were even higher, when 48 different strikes involved 815 000 employees and cost 672 000 days of work. The large majority of these strikes took place in the public sector.

If long and costly strikes are seen by both employees and unions as the only way to get what they want from negotiations, then Israel would benefit by building institutions that improve social dialogue and negotiations to prevent strikes or other industrial actions. Cohen et al. point to the “total elimination of any alternative methods of dispute resolution in the public sector” as reasons for recourse to strike action (Cohen et al., 2007[1]). This is considered next.

Strikes are costly in terms of days of work and it would be more efficient to come to a resolution quickly. After the conflict resolution, one can wonder why a solution that has been rejected at the beginning of the negotiations is eventually accepted by both parties. However, conflict resolutions take time, mainly because time allows for the sharing of information in both directions, and that information is crucial for social dialogue and conflict resolution. Additionally, public opinion changes over time. Methods for enhancing social dialogue consist mainly of increasing the exchange of information between the two parties, through regular meetings for instance and through social bodies such as economic and social boards (like in France) or pay-body reviews (in the United Kingdom).

In many OECD member countries, tripartite and bipartite institutions help reach an agreement between the government and unions. Bipartite social dialogue covers all exchange of information, consultation, and negotiation between employers and employees without direct government intervention. Tripartite social dialogue opens the discussion to delegates from the government or the ministry of Finance or even to other actors such as consumers’ associations for instance. France provides various examples of such tripartite institutions that operate regularly, such as the Economic, Social and Environmental Council, the Employment Advisory Council, the National Commission on Collective Bargaining, and the National Council on Employment, Vocational Training and Orientation. Israel lacks similar institution to prevent disputes or build a path for resolution. Economic and social councils or labour advisory council could be examples of external institutions that may help social dialogue in Israel.

In Israel, Labour Courts, since their creation in 1969, are a partner in social dialogue. Hence, labour courts have become the place where not only legal disputes are solved but also where social agreements between parties are constructed, under the supervision (and often also pressure) of the court.

The Israeli Labour Court System is composed of five Regional Labour Courts, and a higher instance that also serves as an appeals court, the National Labour Court. Regional Labour courts have, in equal numbers, members from labour and from management, sitting with professional judges. In Israel, the right to strike is not covered by the Basic Laws or other statutes but derives from the constitutional freedom of association. However, it is still considered by the courts as having constitutional status, and as a result, the labour courts' reluctance to limit it creates significant difficulty for employers seeking an injunction against a strike. Many public employers feel that the labour courts do not give adequate treatment to collective disputes, especially with regard to requests for injunctions against industrial actions. The Supreme Court is seldom willing to interfere and change the rulings of the National Labour Court (in any case its scope of interference is limited in general, according to previous rulings).

It could be argued that the importance of the judiciary is a symptom of a collapse of norms and trust. In countries where labour relations are based on trust, parties can discuss and negotiate to reach consensus early, strikes are the last resort, and the few strikes that do happen are short and quickly lead to negotiation and agreement – or, in worst-case scenarios, to third-party arbitration. In Israel, this process is lacking and needs to be rebuilt. Assessing the quality of labour relations is challenging, yet it is a key component of a sound collective bargaining system. Effective mediation and arbitration procedures can play an important role in managing conflicts, helping to find an agreement within the framework of collective bargaining and strengthening the public management system.

The labour court is not the optimal solution for sound labour relations. Effective institutions for solving labour disputes would prevent conflicts from taking place, reduce long-lasting strikes, and likely be less costly. Since the institutions for dispute resolution and prevention are lacking, labour courts step in to supervise and manage labour disputes that reach the courts. The courts have the authority and legitimacy that seem to be lacking elsewhere. Labour courts in effect play the role of mediation because no other institution seems to be able to fulfil that essential role.

In Israel, the means to achieve resolution of strikes seem to be common knowledge for all parties (pressure on government to eventually accede to union demands), and therefore one could expect an earlier resolution of the conflict that would avoid bearing this useless cost of strikes and courts. However, since strikes are perceived as the only way to express a demand, the strength of a strike becomes the mean to signal the importance of the social pressure, hence arbitrate between demands. This process is clearly inefficient and an alternative way to initiate social dialogue and reach consensus would improve both public expenses, trust in government and quality of public service delivery.

A fair process of collective bargaining and a sound social dialogue are the best prevention of conflict. Ex ante mechanisms to improve social dialogue are more efficient than ex post conflict resolution mechanisms. Olson’s (1988) seminal work on strikes in the public sector showed that strikes are more likely to occur in states without a bargaining law, or without a binding arbitration procedure. However, alternative dispute resolution often requires time; hence, there is a need to elaborate a proper dispute resolution mechanism. Mediation consists of choosing an independent authority that brings the parties to react on an agreement but it lacks the power of implementation and in case of a difficult conflict, it serves only in delaying the dispute resolution. Arbitration entails a third party who examines the dispute or bargaining process, provides data and recommendation and exerts political pressure to negotiate. In this case, again arbitration cannot compel the parties to accept the dispute resolution. Arbitration may also encourage the parties to take extreme positions instead of going toward the middle since the third party will probably propose a middle position. A way to resolve those difficulties is a type of dispute resolution called “final offer arbitration” in which both parties submit a proposal to arbitration and the third party must select one of the two proposals. This encourages the parties to propose a reasonable outcome and converge towards the middle (Carrell and Bales, 2012).

Having a common understanding across social partners is important for building trust and easing the cost of negotiations. Data gathering and joint research between the government, social partners and third parties such as independent research bodies help to build common values, common analysis, and trust. It can be costly to design a reform, by testing new approaches, experimenting with new combinations, and gathering data to do so, however, this initial cost is necessary to increase the level of trust and decrease the cost of negotiations. (see Box 3.6 for a UK example).

In conclusion, the legal and institutional framework for settling negotiations and preventing disputes should be reviewed and reformed. There is no significant alternative labour dispute settlement mechanism that could work without the pressure or a strike or the threat of labour court decisions. All parties willing to renew labour relations in Israel could take part in planning and advancing legislation concerning dispute resolution. Employers and Employees’ rights in labour disputes could also be institutionalised. Transparency and data gathering, joint research between government, unions and third parties can be a starting point to find a common solution and make agreements more sustainable.

There seems to be a consensus that the current public sector labour relations arrangements in Israel are not optimal. This, in turn, limits opportunities to design and implement win-win reforms that provide employees with fair pay and employment contracts in return for greater flexibility for the employer (as argued in chapter 2).

The introduction of new technology, in particular, can be an opportunity to renegotiate labour relations and implement win-win reforms. Emerging technologies are an opportunity to rethink labour relations in Israel. Though technologies induce changes in the working conditions and can be considered as a breach of contract by unions, they can be an opportunity to propose a trade-off between payments, training or working hours and technological upgrading. The OECD (OECD, 2019[12]) has highlighted the threats of technological changes but also the opportunities to make labour relations more inclusive, transform the way unions communicate with their members and collaborate to design an inclusive path for growth.

However, in Israel, there is a high level of distrust among social partners in the public sector, and trust is key in successful reforms. The solution is not to abolish unions but to engage them as collaborative social partners in the design of reforms, rather than as opponents to change. Many recent reforms of the public sector failed because of the lack of social dialogue and the ability to build buy-in among employees for the reform’s objectives. Building the framework of cooperation and effective social dialogue is crucial to implementing modernisation reforms. Building a capable and professional public service requires the active involvement and engagement of public employees, and hence, sound and stable social dialogue mechanisms.

The morale of public employees and hence their motivation depend on the trust they have in the central government. Reforms could lead either to increasing social conflicts, which seem to be the case in Israel, and which was the case in the USA (in 2011 in Wisconsin and Ohio) or to renewing social dialogue, which has been the case in many European countries including France, Sweden and the Netherlands. Therefore, restoring trust depends on restoring social dialogue.

This is particularly important given the changes introduced in response to the spread of the Covid-19 pandemic – namely the introduction and take up of digital services, and the widespread implementation of remote working. Initially, these changes were designed to protect public sector workers and ensure continuity of service. While the tools provided to CEOs and executives were time-bound, over the longer-term there may be opportunities to embed beneficial elements of this flexibility across the public sector. For example, during the pandemic, members of the public were encouraged to access public services online rather than in person. This helped limit the spread of the virus, but also presents new opportunities to rethink public service delivery after the crisis. For public sector workers, increased digitalisation has also been a driver of more flexible working patterns, such as remote working. Other elements of flexibility include greater mobility across the public sector, directing resources to where they are most needed. This will require revision of job descriptions and pay structures (as discussed in the previous chapter). Adjustment of working hours and location is another dimension of flexibility that will also require adaptation of performance management frameworks.

These are important steps which stand to increase the effectiveness of public service delivery in routine and crisis situations. Constructive engagement with unions must be a key part of embedding these kinds of positive changes sustainably. Transparency and trust are crucial for an efficient and inclusive government. Building this will require laws, institutions and good will to build sound labour relations. However, changing a social and institutional equilibrium can be very tricky and costly. It is the government’s prerogative to initiate a conference to negotiate on labour relations in good faith, with transparency and inclusion: who negotiates, on what, and when. All parties are needed to construct this level of trust and transparency on the outcome. To do so, the government should act to change the rules and institutions that structure social dialog in Israel, and consider the following recommendations.


[11] Bordogna and Pedersini (2013), OECD Employment Outlook 2019: The Future of Work, OECD Publishing, Paris, https://dx.doi.org/10.1787/9ee00155-en.

[1] Cohen, Y. et al. (2007), “The State of Organized Labor in Israel”, Journal of Labour Research, Vol. 28/2, pp. 255-273, http://dx.doi.org/10.1007/BF03380045.

[10] OECD (2019), Negotiating Our Way Up: Collective Bargaining in a Changing World of Work, OECD Publishing, Paris, https://dx.doi.org/10.1787/1fd2da34-en.

[3] OECD (2019), Negotiating Our Way Up: Collective Bargaining in a Changing World of Work, OECD Publishing, Paris, https://dx.doi.org/10.1787/1fd2da34-en.

[4] OECD (2019), Negotiating Our Way Up: Collective Bargaining in a Changing World of Work, OECD Publishing, Paris, https://dx.doi.org/10.1787/1fd2da34-en.

[5] OECD (2019), Negotiating Our Way Up: Collective Bargaining in a Changing World of Work, OECD Publishing, Paris, https://dx.doi.org/10.1787/1fd2da34-en.

[6] OECD (2019), Negotiating Our Way Up: Collective Bargaining in a Changing World of Work, OECD Publishing, Paris, https://dx.doi.org/10.1787/1fd2da34-en.

[7] OECD (2019), Negotiating Our Way Up: Collective Bargaining in a Changing World of Work, OECD Publishing, Paris, https://dx.doi.org/10.1787/1fd2da34-en.

[8] OECD (2019), Negotiating Our Way Up: Collective Bargaining in a Changing World of Work, OECD Publishing, Paris, https://dx.doi.org/10.1787/1fd2da34-en.

[9] OECD (2019), Negotiating Our Way Up: Collective Bargaining in a Changing World of Work, OECD Publishing, Paris, https://dx.doi.org/10.1787/1fd2da34-en.

[12] OECD (2019), OECD Employment Outlook 2019: The Future of Work, OECD Publishing, Paris, https://dx.doi.org/10.1787/9ee00155-en.

[2] OECD (2018), Good Jobs for All in a Changing World of Work: The OECD Jobs Strategy, OECD Publishing, Paris, https://dx.doi.org/10.1787/9789264308817-en.

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