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While delivering a mortal blow to the victims and their families, and damaging hopes of a peace settlement, this week's devastating terror attack also threw a staggering punch at the economy. In recent months, it seemed, the economy had started to rebound. But then came the terror attack; and, like a punch-drunk boxer who is pummeled anew while trying to pick himself off the ropes, the economy took it on the chin once again, and was sent reeling, head-first, to the floor.

The standard of living in Israel has been hurt badly during the last three years. Wage levels in the country trail those in Greece. Per capita GDP (adjusted for purchasing power) stands this year at $16,000, as opposed to Greece's $17,000. The figure in Israel trails Spain ($20,000), Italy ($24,000), England ($24,000), Norway ($30,000) and the U.S. ($34,000).

The intifada, of course, is a major reason for the economic crisis. It has wreaked havoc on tourism, investments and private consumption; and, in a chain reaction, setbacks in these spheres have led to the closure of businesses, unemployment, fallen wage levels, and state budgetary woes. Yet despite the crushing extent of the damage it has caused, the intifada is not the economy's central problem.

A still more fundamental problem is to be found in the workplace.

Israel's population stands at 6.7 million individuals. Of these, 4.1 million form the workforce - meaning they are aged 15 to 65. Out of these 4.1 million, only 2.3 million go to work each morning; these are the workers who basically determine our standard of living. They represent 56 percent of the potential workforce - in other words, just a little more than 50 percent of Israel's potential workforce is actually employed.

What are the figures in developed countries? Generally, around 65 percent. In England and the Netherlands, the figure is 73 percent. Where does the figure stand in Scandinavian countries, states we so ardently wish to resemble in social terms? There, it's 75 percent.

In other words, a much smaller proportion of Israelis work. And if less people work, fewer products are created; and so the standard of living is lower, and there is less money to support social-welfare services.

And this unfavorable comparison does not even take into account prodigal expenditures on defense, and the infuriating billions of shekels that go to the settlements.

What would happen if the figure for workforce utilization was to reach the developed countries' average of 65 percent? It would mean that the number of people going to work each morning would rise by 400,000, reaching a total of 2.7 million. This, in turn, would mean that per capita GDP would rise to $20,000 - a huge change.

So why do so few people work in Israel? Who are the 1.8 million in the potential workforce, people who are at the right ages to work but who are nowhere to be found in the productive economy?

A large portion of them are people who want to work, but can't find jobs. These unemployed individuals are 280,000 in number. Under present political circumstances, which mostly preclude hopes of a viable peace process, this number is likely to reach 300,000 next year.

The second group is comprised of people who are not looking for work. These are around 150,000 individuals who receive income supplements from the state. Some are unable to work, so society is obligated to support them; but others have become accustomed to a situation in which the state supports them, and so prefer not to join the workforce - at least not in a manner reported to authorities.

Ultra-Orthodox men, who live without working for "ideological reasons," constitute another group. For them, "Torah is their trade." Out of every five Haredi males, four do not work at all; all told, there are 90,000 ultra-Orthodox males between the ages of 15 and 65.

Arab women represent a parallel group - 70 percent of them are not in the workforce.

Regular conscripted soldiers and career personnel in the security services constitute another group. They are not employed in the civilian economy; and so these people - 170,000 in total, according to foreign reports - do not contribute to our civilian standard of living.

Yet another group comprises youths older than 15. This is a relatively large sector, since birthrates in Israel are higher than those in Western countries. Partners in married couples who do not work constitute another group. For the most part, these are women who choose to stay at home, owing either to low educational levels, or to traditional conservatism. These groups of youths and spouses number 1.8 million non-working individuals.

Comparative international statistics never offer a breakdown of individuals employed in the public sphere, as opposed to the private sector. Yet it is clear that the larger the private sector, and the smaller the public sphere, the higher the standard of living for the population as a whole. This ratio derives from the greater efficacy of the private sector. Israel has an over-inflated public sector, and its untoward size is another factor responsible for the country's low standard of living.

It, therefore, follows that should we someday pull off a miracle, and reach the European average by increasing the number of employed people in the economy by 400,000, we would have to ensure that these new workers labor in the private sphere. The public sector has enough workers already.