Increase employment now

We should not have any illusions: The government cannot stop the economy from sliding into a recession. The drop in global demand is so steep that in the short term there is no possible source for alternative demand. The government can only make the blow less severe with policies that provide a push in the opposite direction, and will moderate shrinking demand. Such a policy means saving thousands of citizens from the clutches of unemployment.

The government has wasted precious time until now trying to deal with the crisis. As opposed to the interest rate policy, which allows for an immediate response to changes, it is more difficult to adapt budgetary policy to sharp changes. It takes the Finance Ministry too long to recover. At first it needed to shake off its complacence, based on the assumption that the economic crisis would pass us over. After that, the treasury was forced, with great difficulty, to break out of its conception that the state did not need to intervene in economic affairs. This second change in thinking is still underway, and it is accompanied by great tribulations. And then the Finance Ministry discovered that there was no government coalition to pass even the most minimal plan.

The immediate economic problem facing the next government is the lack of demand. Producers are selling less because of a lack of buyers, and not because it is not worth producing. Therefore, the idea to encourage manufacturers to produce more, or get workers to work more through lower taxes, is hard to understand. Instead we should take steps that utilize an immediate and large employment multiplier - where every budgetary shekel contributes to creating more jobs - and are easy to stop when the crisis is over. These steps would also strengthen the economy over the long term.

Here are two examples of such steps: The cabinet should significantly increase private sector research and development using the Chief Scientist's Office budget, and increase basic scientific research through the Israel Science Foundation. These steps should include an immediate and large employment multiplier, which would provide a solution for thousands of professionals who were fired - or are about to be.

The state should also significantly increase the budget earmarked for basic professional training, which in Israel is one of the lowest in the world. The professional training budget should be dedicated to upgrading the human capital of tens of thousands of jobless. In that way the unemployed can turn the crisis into an opportunity to improve their earning potential.

All these steps can significantly raise employment numbers - both directly and indirectly: They can be stopped relatively easily, and they strengthen the economic fiber. Increasing investment in infrastructure strengthens the economy in the long run, but does not have an immediate or large employment multiplier, and therefore is not appropriate now. Such acts can only limit the spread of unemployment.

The present macroeconomic conditions will add many more workers to the circle of unemployment, all of whom want to work. It would be insane to claim now that the unemployed don't want to work. Therefore, the cabinet must now, at least for the time being, extend the period that the jobless are allowed to collect unemployment benefits - and increase them too. This act also has a large, indirect employment multiplier, since low income people have a very high level of consumption relative to income.

Such a policy would increase the budget deficit only temporarily and strengthen the economy in the long term. Therefore, there is no reason to fear that once the world economic crisis ends the Israeli budgetary crisis would start.

Dr. Momi Dahan is on the faculty of the School of Public Policy of Hebrew University of Jerusalem, and a researcher at the Israel Democracy Institute.