Abstract
Abstract This article analyzes the effects on the West Bank economy of temporary Palestinian employment in Israel, using a new database and a computable general equilibrium model. The results show that Palestinian employment in Israel increases household incomes but distorts the operation of the West Bank labor market and increases domestic wages. Employment in Israel increases the real exchange rate of the West Bank leading to “Dutch disease” effects that inhibit the development of the West Bank economy. A decrease in the number of Palestinian workers in Israel reduces household welfare, and constraints on the West Bank economy restrict domestic absorption of the extra labor. Hence, the Palestinian National Authority may seek more labor exports to Israel. This article contributes to the broader discussion on the effects of migration policies on labor-sending economies by demonstrating the nontrivial benefits from labor migrations, but that these benefits come with costs. This article explores policy options for offsetting those costs.
Highlights
BackgroundThe labour market in the West Bank is dominated by employment opportunities for Palestinians in Israel
The increase in the number of Palestinians working in Israel triggers three main effects in the domestic labor market: i) people moving out of unemployment to start working in Israel, ii) people moving out of employment in the domestic market to start working in Israel, and iii) people moving out of unemployment to start working in the domestic market
The restrictions on both the number and the characteristics of Palestinians eligible for a work permit in Israel have altered the natural flow of Palestinians commuting to Israel for work with significant negative effects on the Palestinian unemployment and economy
Summary
The labour market in the West Bank is dominated by employment opportunities for Palestinians in Israel. West Bank workers are a relatively cheap source of labour to the Israeli economy, competition between West Bank and Israeli labour is limited. West Bank employees in Israel are largely confined to the low-skill and manual sectors of construction, agriculture, and some low-tech industries and services (Miaari and Sauer, 2011), where the domestic Israeli labour supply falls short of demand (Rosenhek, 2006). Despite the wages earned in Israel being relatively low by Israeli standards, they are relatively high compared to wages in the West Bank. There are strong incentives for Palestinians to seek employment in Israel, even for relatively highly skilled Palestinians
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