The Bottom Line / It's the Lack of Peace, Stupid

Amir Peretz, the head of the Histadrut labor federation, jumped on the publication of the new unemployment statistics as if he had just won the lottery: "Once again it seems that Netanyahu's celebrations of economic growth were premature." MK Haim Oron of Meretz also saw his chance: "It turns out that the only growth is in the number of unemployed, and that is a result of the finance minister's devotion to a failed economic policy."

But before Peretz and Oron celebrate, we should examine whether Netanyahu is making a mistake with his economic policy - shrinking the government, lowering taxes, fostering privatization, declaring war on monopolies and encouraging people to work - or whether there are other reasons for the rise in unemployment.

Unemployment indeed rose to 10.9 percent of the work force - 287,000 people - at the end of 2003, but even as the economy starts to grow at a restrained pace, employers are not hurrying to hire new workers. Instead, they work their existing employees overtime in order to meet the rising demand and wait to see if the improvement is real and stable. This is the situation today.

Also, the present growth comes mostly from a rise in exports, due to the recovery of the world economy and the renewed flowering of the high-tech sector. These industries are capital, and not labor intensive; therefore, when they export more, they need almost no additional workers.

Another interesting number published this week shows that the level of participation in the work force rose in 2003 to 54.5 percent of the working age population - up from 54.1 percent in 2002. This figure proves that Netanyahu's policy is working. His goal is to transfer people from a life of government stipends to one of work, and these same people who had their benefits cut (child allowances and guaranteed income grants) have started to look for work, and that's why the rate of participation in the labor force has risen.

Some have found jobs, because the number of employed rose in 2003 by 45,000 workers, but others have joined the ranks of the unemployed because growth in 2003 was too low - only 1.1 percent. It is also true that most of the growth in the number of employed is a result of the rise in the number of part-time workers - and it is reasonable to assume that they were actually looking for full-time jobs, which do not exist. And another statistic: the numbers of those looking for work for more than a year and for more than six months, both rose in 2003. This further demonstrates the depth of the unemployment problem.

In other words, the situation is complex, but the problem does not lie in Netanyahu's policies. Actually, the steps he has taken in the direction of a freer, more competitive economy with a smaller government sector, are the right ones - even if this breaks the hearts of Peretz and Oron, who miss the successful methods once found in the Soviet Union and Albania.

The real problem is in the political arena. As long Netanyahu and Sharon do not understand the connection between the potential growth of the Israeli economy - 5 percent a year over the long term - and the negotiations that will lead to a political solution and peace, the tourists will not return, investors will not invest, and therefore, we will never enjoy this rapid growth. And only rapid economic expansion can lower the number of unemployed - and heal the country.