Wages, unemployment and regional differences : empirical studies of the Palestinian labor market

Abstract: This thesis consists of four essays analyzing wages, unemployment and regional differences in the Palestinian labor market.Paper [I] investigates the effects of the Israeli closure policy on Palestinian wage earnings. Closure has a significant impact on the Palestinian labor force in the West Bank and Gaza Strip. However, the effect differs between the two regions. The estimated models show that closure affects the Gaza Strip more than the West Bank. This could indicate that external closure is more damaging than internal closure. The reason is that external closure has been more strictly enforced in the Gaza Strip compared to the West Bank, which has suffered from a more severe internal closure.Paper [II] examines the effects of foreign workers on labor market outcomes for Palestinian workers from the West Bank and Gaza Strip. The data covers the period 1999-2003, a period in which Israel enforced a strict closure on labor (and goods) movement. 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 Gazans. The Israeli closure policy appears to be the main cause of the substantial reduction in long-run Palestinian employment levels in Israel, not the presence of foreign workers.Paper [III] (co-authored with Yousef Daoud) investigates the determinants of unemployment duration in the Palestinian territories. This paper is the first study analyzing unemployment duration for Palestinian males; it covers a sensitive period (1999-2003) which in part witnessed a sharp increase in unemployment resulting from the closure of the Israeli labor market to many Palestinians. Non-parametric, semi-parametric, and full parametric methods were used to investigate the importance of individual and local labor market characteristics. The results indicate no significant differences between semi- and full-parametric methods. The Intifada has significantly lowered the hazard rate throughout the Palestinian territories, however, more so for the West Bank than the Gaza Strip. The probability of leaving unemployment is substantially lower in Gaza. Thus, the risk of long-term unemployment for individuals becoming unemployed is higher in that region.Paper [IV] estimates the economic returns to schooling in the Palestinian territories, and examines the relationship between household characteristics and the returns received by male household members in the labor market. The basic findings are that the economic returns to schooling are very low. Yet, the least-square estimate of the economic returns to schooling in Palestine is overestimated because of omitted unobservable household characteristics from the wage-schooling relationship. This is true even after correcting for measurement error in the schooling variable. The measurement-error-corrected least-square estimator of the returns to schooling is overestimated by 32 percent. Nevertheless, the omitted variable bias is of different magnitude in the West Bank and the Gaza Strip. In fact, the least-square estimator of the returns to schooling in the West Bank is more biased upwards, due to omitted unobservable household characteristics, than measurement error biases the estimated returns downwards. The results for the Gaza Strip indicate on the contrary no such bias, as the upward bias due to omitted variables is roughly offset by the attenuation bias due to errors in the measurement of schooling.