Wage differentials and economic restrictions: Evidence from the Occupied Palestinian Territories

Abstract

The article examines the wage impact of Israel's constraints on economic activities and infrastructure development in the West Bank's Area C. We provide evidence to show that Area C workers suffer a wage penalty of about 8 percent relative to workers in Areas A and B. The results also show that when controlling for worker characteristics, the magnitude of the Area C wage differential drops by about half. We then extend our analysis to compare average wages between Area C workers and other rural workers and show that the wage difference is statistically insignificant. This indicates that the Area C wage differential we observe can be attributed primarily to a rural environment effect rather than to Israeli economic restrictions placed on Area C per se. This result indicates that the effect of Israeli restrictions on Area C wages is neutralized. We show that negative labor supply shocks (commuting) serve as a potential transmission mechanism. Specifically, we show that Area C residents are more likely to commute than their peers in other rural areas.

Wage Differential between Palestinian Non-refugees and Palestinian Refugees in the West Bank and Gaza

“…Adding the working in Israel dummy (in column 3) reduces the impact of the refugee status coefficient from 9 percent to 5 percent. Consistent with several works in the literature about the labor market in Palestine(Fallah 2017;Fallah and Daoud 2015;Mansour 2010;Miaari 2009), the working in Israel coefficient explains many labor wage differentials in Palestinian territories. In the employed sample, this coefficient provides a wage premium of more than 50 percent for West Bank workers and 85 percent for workers in Gaza.…”

“…Communities in area C are living in difficult life circumstances due to the lack of major services. Workers from area C also experience a wage penalty compared with other workers from localities in areas A and B (Fallah and Daoud 2015).…”

“…Within 14 years, the wage gap increased from 6 percent in 1999 to 17 percent in 2012. After the Second Intifada, 15 A strand of the existing literature on Palestinian economics has eliminated employment in Israeli when trying to explain the wage differential in the Palestinian labor market; for example, see Fallah (2017), Fallah and Daoud (2015), and Miaari (2009). 16 The percentage of employment in Israel varies significantly between the West Bank and Gaza.…”

The Palestinian Labor Market over the Last Three Decades

“…Additionally, the expected substantial increase in GDP would lead to creating many employment opportunities in the West Bank (Niksic, Eddin, and Cali 2014). Fallah and Daoud (2015) and locality-level variables. The standard error was clustered at locality level.…”

The differential impact of employment in agriculture on wages for rural and non-rural Palestine

“…In a recent article, Fallah and Daoud (2015) investigate the impact of restrictions imposed by the occupation authorities on area C, which falls directly under Israeli security jurisdiction, on wages; they find that there is an 8 % gap between area C and the other areas. 1 The restrictions include an almost complete ban on construction as well as limits on the movement of labor and goods among other measures.…”