Competition, substitution, or discretion: an analysis of Palestinian and foreign guest workers in the Israeli labor market

Abstract

This paper investigates the effects of foreign workers on labor market outcomes for Palestinian workers in the Israeli labor market. The paper utilizes a micro-dataset on the Palestinian labor force combined with time-series data on foreign workers in Israel. The data covers the period 1999–2003, a period in which Israel enforced a strict closure on labor (and goods) movement, particularly in 2001 and 2002. The evidence suggests that foreign workers in Israel do not affect Palestinian employment; however, an increase in the number of foreign workers in Israel tends to reduce Israeli wages paid to Palestinian workers from the Gaza Strip. The Israeli closure policy appears to be the main cause for the substantial reduction in long-run Palestinian employment levels in Israel, not the presence of foreign workers.