problems in the system, and will end with a very general description of some aspects of the reform required in this area. 1. the wage system and labor relations in the public sector in israel i will relate mainly to the public sector, which includes large companies some of which are on the way towards privatization and some of which have already been privatized. i will speak about the public sector for two reasons ( a ) it comprises a relatively large part of israel ’ s economy, with on average about 30 percent of all employees, while in the oecd the average is less than 20 percent. ( b ) it seems that labor relations in the public sector are particularly problematic, and most strikes, of which there are many by international comparison as i said, take place in that sector. in general terms it can be said that the wage of a public sector employee in israel is derived from a number of parameters, chief among them his seniority, i. e., years of service, the system of grades ( according to different wage scales : ahid, the basic or uniform scale ; mahar, the scale for university graduates ; teachers ; doctors etc. ), and the grade within the scale. this component of the wage is the basic wage, and to this many additional payments are added, giving the total wage. by the way, the total list of such additional payments and benefits contains over 1, 000 items, not only making it very difficult to understand a pay slip, but even worse, causing lack of transparency. instead of negotiating over wages in simple terms, negotiations take place in terms of benefits, with hardly anyone really understanding their true value, which may well be the reason for using them. wages are adjusted generally once every few years in wage agreements following negotiations on a collective basis. this contrasts with the situation in the business sector where, at least in principle, the wage is derived from the employee ’ s output. and if in the private sector it is difficult to make a precise assessment of an employee ’ s output, in the public sector it is far more difficult to do so. 2. the main problems in the wage system and labor relations in the public sector in israel • the basic wage described above, deriving from such factors as seniority, wage scale and grade, is only part of the gross wage, and in most cases does not constitute more than 50 percent of it. • it is worth noting that in the public sector wages are not necessarily based on employees

’ output. this is not only because of collective granting of higher grades or increases in seniority, for instance, but also because it is difficult to pay the employee suitably on the basis of his knowledge, responsibility, or generally, his performance. this can reduce an employee ’ s motivation to provide high - quality service efficiently. on the other hand, there is hardly any way to move an employee with low output to another position in which his output might increase, or to end his employment in cases where he is making no contribution or even causing damage. • the wage - setting system has a chain of linkages. • the manager has very little authority or ability to reward his staff according to their performance. • wage negotiations sometimes take place according to a party ’ s ability to exert pressure, and do not necessarily reflect labor - market conditions. • the public sector is beset by many labor disputes, and hence many strikes. the problem with quick - fire solutions to disputes is that in contrast with established mechanisms that create agreement and ongoing norms with regard to labor relations, strikes and courts just hasten the advent of the next dispute. this is an inefficient process that leads to a waste of time and resources in the economy 3. principles for reforming the wage system and labor relations in the public sector in israel i will relate in broad outline to three aspects : the structure of wages, the recruitment and promotion of staff, and resolving labor disputes. ( a ) the structure of wages : this should be simplified. as i mentioned, currently there are numerous payment items ( more than 1, 000 ), that can be added to the basic wage, which constitutes about 50 percent of the total wage. these payments distort the wage structure, which is not transparent and which gives rise to discussions on the names of the items instead of the actual bottom - line payment to the employee. this reminds me, and probably lots of you too, of the gashash hahiver “ israbluff ”. it is important that an employee ’ s wage be real, open and transparent. ( b ) staff recruitment and promotion : it is important to implement the rule that new staff should be recruited according to their level of education and knowledge, and promoted according to their output. therefore : i ) the period of classifying a new employee should be extended, and it should include examining his suitability for more than just one position ; the trial period should also be extended. in