1The conflict between Israelis and Palestinians is one of the most complex and intractable conflicts of our time and has drawn enormous attention from scholars and policymakers worldwide. The multifaceted system of Israeli control over Palestinian movement, known as the closure regime, is but one of the dimensions of the conflict that has been extensively documented. Countless studies have shown that the movement and access restrictions imposed by Israeli authorities are detrimental to the Palestinian economy and have been impeding economic growth, private-sector growth, and long-term competitiveness (World Bank, 2004, 2007a, 2007b, 2008a, 2008c, 2010, 2013; Kock et al., 2012). As estimated by the 2013 World Bank report entitled West Bank and Gaza: Area C and the future of the Palestinian Economy, a lifting of these restrictions would have resulted in a 23% increase in Palestinian GDP in 2011 (an extra USD 2.2 billion yearly) (World Bank, 2013, 7). Nevertheless, relatively few scholars have devoted their attention to the impact of the conflict on the Palestinian labour market.
- 1 Miaari and Sauer (2006) see the importation of foreign workers as a way Israel has to reduce its r (...)
- 2 This phenomenon occurs as high-skilled workers compete for low-skilled jobs when returning to the (...)
- 3 He also points to the long-run adverse effects of the permits in Palestine, as there is less incen (...)
2The scholarly literature has focused on the effects of both internal and external closures that restrict Palestinian movement within the West Bank territory and between the West Bank and Israel respectively. For example, Miaari and Sauer (2006) find that closures and the inflow of foreign workers into Israel have a significant impact on Palestinian employment rates.1 Mansour (2010) takes on a skill-specific approach of the closure regime and shows that an increase in the supply of both skilled and unskilled workers expelled from the Israeli labour market reduces wages significantly for unskilled workers in the West Bank but has no significant impact on skilled wages.2 Etkes (2012) provides strong evidence that increasing Israeli employment permits has a positive short-term impact on employment and wages for unskilled Palestinian workers but has no significant effect on skilled workers.3 Calì and Miaari (2013) examine the more direct effects of all types of barriers to mobility, including the West Bank wall, and find that checkpoints have non-negligible negative effects on the West Bank labour market. They also find a positive correlation between the length of the wall and employment, corroborating the idea that the wall may provide short-term work opportunities for Palestinians.
3This study aims to contribute to the literature on the subject by examining the response of the labour market to the construction of the wall in the West Bank. In contrast to other studies, this paper concentrates solely on the effect of the wall, rather than on checkpoints, Israeli working permits, or labour supply shocks. It does so by using the Wall Effect Index, which serves to quantify the level of disruption caused by the construction of the wall. The study takes on a novel approach by introducing a gender dimension to the economic analysis of the closure regime and finds that the impact of the wall is not gender neutral. Moreover, the analysis not only focuses on the wall’s impact on employment, wages, and labour force participation but also on formal and informal economic sectors and trade.
4The study is organised as follows: section 2 contextualises the construction of the wall in the West Bank and provides some key facts; section 3 lays out the different channels through which the wall can impact the Palestinian labour market, the construction of the Wall Effect Index, and the premise of exogeneity necessary to the analysis; section 4 discusses the data; section 5 describes the empirical methods used in the study; section 6 provides the results of the regression analyses and discusses possible biases; and section 7 concludes the analysis.
5Israeli control over Palestinian territories has been an integral part of the Israeli-Palestinian conflict and dates back to 1967, when Israel gained authority over the West Bank and the Gaza Strip during the Six Day War. From that point onwards, Israeli control over Palestinian movement and its economy has fluctuated according to the political context and, over time, has become more and more sophisticated. The security apparatus includes a permit system, curfews, physical barriers, military checkpoints, administrative and legal obstacles, and, most notably, the separation wall.
- 4 According to the World Bank (2010), some 87 % of the wall runs inside the West Bank.
6In response to an escalation of suicide attacks, the Israeli government started constructing the separation wall in the West Bank in 2002. By 2013, 65% of the wall’s route was complete, 10% was under construction, and the rest planned for future construction. Upon completion, the total length of the wall will be 760 km. The wall is composed of fences, ditches, razor wire, patrol roads, an electronic monitoring system and a buffer zone, and 61 km of it consists of 8-9 metre-high concrete and steel structures (UN OCHA, 2011, 3). Installed as an additional security measure, the wall was erected mostly within the Palestinian border, creating a closed area between the Green Line and the separation wall, known as the ‘seam zone’.4 It is estimated that 50,000 Palestinians will reside in the seam zone once the construction is completed (UN OCHA, 2007, 1). The route of the wall was designed so as to surround many of Israel’s West Bank settlements, ‘influenced by perceived needs to protect settlers and to provide space for future expansion of settlements’ (World Bank, 2007a, 9). A complex system of permits was set up for local residents or people who own land or work in the seam zone. Additionally, wall crossings are regulated by gates that are spaced sporadically within the wall and operate on an ad hoc basis. Figure 1 shows a map of the route of the wall from 2011 with the agricultural gates, which channel access to agricultural land on either side of the barrier.
Figure 1: Route of the West Bank wall with agricultural gates (2011)
Source: UN OCHA (2011) maps
- 5 According to PCBS (2014), the agricultural, forestry, and fishing sectors contributed between 4.7 (...)
7The wall significantly impacts the West Bank labour market in a number of ways. First and foremost the wall affects the agricultural sector, which represents a significant share of Palestinian gross domestic product (GDP).5 On the one hand, many communities to the East of the wall are cut off from their agricultural lands in the seam zone and thus from their primary source of income and require special permits to access their land. On the other hand, residents of the seam zone have not, for the most part, been separated from their agricultural land but incur higher commuting costs to reach workplaces, essential services and local markets on the other side of the wall (UN OCHA, 2008, 6). Aside from restricting Palestinian livelihoods, the construction of the wall also involves huge financial losses in the agricultural sector through considerable land confiscations and the destruction of agricultural assets like infrastructure and water resources. Moreover, the wall threatens the future agricultural production of some of the West Bank’s most fertile land, which resides in the agriculture-intensive governorates of Jenin, Tulkarm and Qalqilia, affecting 10.2% of the total area cultivated in the West Bank with an average economic value of USD 38 million (World Bank, 2008b, 16).
8In addition to the impact of the wall on the agricultural sector, the wall also obstructs Palestinian workers’ access to the Israeli labour market. This represents an enormous economic cost to the Palestinian economy, especially for many border communities that rely heavily on Israeli employment. Indeed, high wage differentials between the West Bank and Israel and staggering unemployment in the West Bank have led many Palestinian workers to seek employment in the neighbouring country. Remarkably, when labour flows between Israel and the Palestinian territories were at their peak in 1992, more than one-third of Palestinian workers were employed in Israel and 42% of GDP was composed of the income of those workers (B’Tselem, 1999, 9).
9The wall also has an effect on trade, investment and business and, more generally, on firms’ profitability. Just as other barriers to movement, the wall represents an additional cost to internal and external trade. The added limitation on commercial mobility and delays at commercial crossings along the wall not only raise transaction and commuting costs for firms but also threaten perishable commodities like dairy, meat and fishery products that may spoil due to long waiting periods.Since production inputs are often imported from outside of the West Bank, additional costs are also incurred, reducing firms’ production, revenues and employment. These issues are exacerbated by the fact that Israel is the West Bank’s most important trading partner. Thus, Israel’s permissive approach to Palestinian crossings along the wall is a ‘determining factor of the size and competitiveness of Palestinian trade …’ (World Bank, 2008a). Furthermore, the wall has isolated the East Jerusalem market from the rest of the West Bank and with it an integral part of the Palestinian economy and business community (World Bank, 2007b, 13). Finally, the drastic measure to construct a wall increases already existing uncertainties about the future of the Palestinian economy, further dampening investment in economic activities and reducing the profitability prospects of firms.
- 6 Mansour (2010) finds that the ‘closure of the borders did not generate an immediate, one time, inc (...)
10In the long run, the combined effects of the wall unambiguously predict reduced employment, wages and labour demand due to the increased costs incurred by landowners and firms. However, it is not clear how labour market indicators like wages and employment would react in the short-run. Indeed, Calì and Miaari (2013, 23) note that, ‘the construction of the wall also provides an unskilled work opportunity for the local Palestinian population in the short-term.’ Moreover, as indicated by Mansour (2010), labour supply shocks from restrictions to the Israeli labour market can lead to various labour market outcomes.6
11In light of these effects of the wall on the Palestinian labour market, any measure used to assess the level of disruption caused by the construction of the wall should be positively correlated with the length of the wall. In order to assess the ‘severity’ of the wall, this study uses the Wall Effect Index constructed by El-Attar (2009, 25-26):
where WEgt represents the wall effect in governorate g in year t, Wallgt is the length of the wall expressed in kilometres, and Bordergt is the distance between the Green Line and the wall in kilometres. OutsideLandgt is the area of the governorate that remains in the seam zone, Enclavesgt are the areas that have become enclaves due to the route of the wall, and TotalAreagt is the total area of the governorate. All areas are expressed in square km.
12Based on El-Attar’s findings, this index is strongly correlated with other possible measures of the effect of the wall, for example the destruction of physical assets, and can thus be a good indicator of the impact of the wall. Nonetheless, it remains questionable whether this particular construction of the Wall Effect Index is the most accurate measure of the disruptions caused by the wall. Other strategies have included simply using the length of the wall to measure external closures (Calì and Miaari, 2013). However, the Wall Effect Index takes into account the impact of the areas that are in the seam zone and/or completely surrounded by the wall in each governorate.
13The United Nations Office for the Coordination of Humanitarian Affairs (UN OCHA) provided the high-quality maps used to extend the Wall Effect Index for the 2007-2012 period. Since the construction of the wall, these maps have been published yearly for most of the time period considered, except for the years 2004 and 2009. To deal with this, the study opted to replace these missing values by the mean wall effect indices of the years before and after (so-called linear interpolation). Acknowledging that the wall construction is not necessarily linear, it is possible that this method provides imprecise wall effects for those years. However, the Wall Effect Index is only an approximate measure of the wall’s actual impact and so these replaced values are likely to have marginal effects on estimation results. Figure 2 shows the Wall Effect Index between 1999 and 2012 by governorate.
Figure 2: Wall Effect Index by governorate, 1999-2012
Source: Author’s calculations based on the construction of the index
- 7 They deal with this issue by controlling for Palestinian fatalities in each locality, the closest (...)
14The estimation analyses conducted in this study rely on the premise that the construction of the wall is exogenous to labour market outcomes. Calì and Miaari (2013, 19) identify three possible ways in which the barriers to mobility may violate this assumption and dismantle them one by one. First, they show that a bias could arise if individuals moved to other localities in response to the placement of the barriers, but they find that very few actually changed residential locations and so their impact on labour market outcomes is insignificant. Second, they indicate that the intensity of the conflict is likely to drive both the placement of the barriers and labour market variables.7 In the case of the wall, the sequence of construction and its route could be biased, as Israeli authorities may have started construction in areas from where a larger number of suicide bombers came and more radical factions operated. However, even if a certain governorate were to be more of a security threat, thereby ‘justifying’ the building of more wall and/or enclaves, then labour market conditions would already be expected to be worse off than in other governorates; the fixed effects regression method would control for these pre-existing labour market conditions. Finally, Calì and Miaari (2013) rule out any perverse effect of Israeli authorities specifically targeting labour market conditions for the placement of the barriers. Not only have Israeli authorities stated the purpose of these barriers (solely for security considerations), but estimation results also confirm that local labour market conditions are not statistically related to subsequent decisions by Israel to place these barriers (Calì and Miaari, 2013, 20).
- 8 According to the PCBS (2011, 8), this ‘rotation’ system makes the sample more efficient for monito (...)
15The data on the Palestinian labour market variables come from the Palestinian Labour Force Survey (PLFS). Since 1995 and on a quarterly basis, the Palestinian Central Bureau of Statistics (PCBS) has been administering the labour force surveys to a nationally representative sample of households in the West Bank and the Gaza Strip. The same household is surveyed four times over six quarters: two surveys are conducted in the first two quarters and then, after a break of two quarters, two more are conducted in two consecutive quarters, after which the household is dropped from the sample.8 Since 1998, more than 20,000 households have completed the survey annually.
16The data set provided by the labour force surveys is particularly useful because it includes various types of information on the Palestinian labour market, such as employment and unemployment rates, labour force participation rates, daily wages, and some basic information on the size and structure of the Palestinian labour force. Data is provided consistently at different points in time, making it easy to monitor trends. However, some changes have been made to the labour force survey over the years and so some data is available for some years and not others.
- 9 Only the time periods analysed for the economic activities and trade variables differ (1999-2011 a (...)
17This study uses the panel data from the PLFS at the governorate level. There are 11 governorates in the West Bank, defined as the administrative divisions of the region. The special focus on the governorate level, as opposed to the locality level considered in other studies, is due to the lack of accessibility of more refined data. Since the separation wall does not affect the Gaza Strip, it has been excluded from the data. The time frame considered for the estimation analysis of this study is a 13-year period ranging from 1999 to 2012, as most of the time series data published by the PCBS refers to this time period.9 Since the evolution of the wall’s construction is measured on an annual, rather than quarterly, basis, only annual data is considered. Hence, the unit of analysis is at the governorate-year level.
- 10 The PLFS uses two definitions of unemployment: the standard ILO (International Labour Organization (...)
- 11 The PCBS reports nominal daily wages in New Israeli Shekels (NIS) for so-called ‘wage employees’, (...)
18The labour market variables analysed are unemployment rates, labour force participation rates, and real daily wages. The standard ILO definition of unemployment is used, as it is more widespread.10 Real daily wages are in 1999 prices and are deflated using the consumer price index on a yearly basis.11 Moreover, the distribution of employment by economic activity, the informal economy, and trade flows are all part of the analysis, as the wall is likely to affect them as well.
- 12 Due to the location of the wall, the descriptive statistics only represent trends in the West Bank (...)
- 13 The term ‘overall’ will henceforth be used to describe the population as a whole, i.e. including b (...)
19As a result of insufficient private and public sector job growth, unemployment remained high between 1999 and 2012. Figure 3 shows that overall unemployment fluctuated between 10% and 28%.13 During the second intifada, many private sector jobs were destroyed and the tightening of Israeli restrictions reduced employment in the Jewish state by two-thirds. As a result, overall unemployment was at a high of 28% in 2002. Despite some economic recovery in subsequent years, employment rates never reached pre-intifada levels. The International Monetary Fund (IMF) indicates that high and persistent unemployment can be attributed to restrictions on imports, exports and labour mobility, as well as to low levels of private sector investment, high reservation wages of some job seekers, and the small size of most enterprises (Kock et al., 2012, 4).
Figure 3: Average unemployment rate in the West Bank, 1999-2012
Source: Author’s calculations on PCBS data
20Despite a very young population and an increase in the labour force population since 1995, average labour force participation in the West Bank has remained very low and unstable due to the political situation. Figure 4 shows the average fluctuations of labour force participation. There was a marginal increase in overall participation from 44% in 1999 to 46% in 2012. Amidst deteriorating economic and political conditions following the second intifada, overall participation reached a low in 2002, probably as a result of discouraged workers dropping out of the workforce.
Figure 4: Average labour force participation in the West Bank, 1999-2012
Source: Author’s calculations on PCBS data
21In turn, average real wages were suppressed throughout the late 1990s and up until 2012 due to low private and public sector wages. Indeed, private sector wages suffered some downward pressure due to the numerous economic constraints imposed by Israel (Kock et al., 2012, 4). Moreover, despite the very high wage premium in Israel, the Israeli closure regime has significantly reduced the share of Palestinians working in Israel, further driving down average real wages. Figure 5 shows the decline in average real wages in the West Bank since the start of the second intifada.
Figure 5: Average real wages in the West Bank (in 1999 prices), 1999-2012
Source: Author’s calculations on PCBS data
22There is also an interesting gender dimension to these different trends, as extensively explained in the World Bank Checkpoints and barriers report (World Bank, 2010). Following the second intifada, men’s participation in the labour force declined precipitously, whereas women’s participation saw a dramatic increase. According to the report, in the immediate aftermath of the intifada, many Palestinian men dropped out of the labour force due to a ‘widespread sense of hopelessness’ or delayed their entry to continue with their education in the hope of improving their employment opportunities (World Bank, 2010, 32). Subsequently, a shrinking private sector and Israeli market for Palestinians left those men struggling to re-enter the labour force, forcing women to start working to help meet household needs. In these dire economic conditions, women were also hit hard by rising unemployment, albeit to a lesser extent than men. Figure 6 illustrates these different gender dynamics in the labour market following the second intifada.
Figure 6: Average unemployment rates and labour force participation rates by gender in the West Bank, 1999-2012
Source: Author’s calculations on PCBS data
23Since the mid-1990s, the Palestinian economy saw shrinking employment in tradable sectors as a result of the movement and access restrictions on imported inputs (Kock et al., 2012, 2). Indeed, manufacturing, mining and quarrying stagnated at around 14% and the share of construction declined substantially from 22% to 16% between 1999 and 2011. This decline in the productive sector reflects the obstacles facing the Palestinian private sector. On the other hand, the share of services (including commerce, hotels and restaurants, transportation, storage, communication and other services) in total employment increased from 46% to 56% in those years. Figure 7 shows the overall sectoral distribution of employment by economic sector in the West Bank.
Figure 7: Overall sectoral composition of employment in the West Bank, 1999-2011
Source: Author’s calculations on PCBS data
24The particular structure of the Palestinian economy has led to its segmentation along gender lines. With a labour-intensive manufacturing sector and heavy reliance on the Israeli labour market for low-skilled jobs, job opportunities for women have been constrained and have tended to be concentrated in the service and agricultural sectors (World Bank, 2010, 22). Men, on the other hand, have jobs more evenly distributed throughout the various economic sectors. Figures 8 and 9 illustrate these gender dynamics in the Palestinian economy by showing the sectoral composition of employment by gender.
Figure 8: Sectoral composition of men’s employment in the West Bank, 1999-2011
Source: Author’s calculations on PCBS data
Figure 9: Sectoral composition of women’s employment in the West Bank, 1999-2011
Source: Author’s calculations on PCBS data
- 14 According to the PCBS (2011, 3), an unpaid family worker, henceforth termed as unpaid worker, refe (...)
- 15 Many Palestinians working in Israel have not been granted working permits and thus lack social pro (...)
- 16 Note that the PCBS divides up employment by economic activity (agriculture, industry, services and (...)
25Palestinian participation in the informal economy has also seen rapid growth. The economic crisis in the West Bank has pushed both men and women to create ‘coping mechanisms’ and find alternative employment opportunities, especially in the informal sector (World Bank, 2010, 38). The share of unpaid family workers,14 self-employed workers, and workers in Israel are used as dependent variables to proxy for the informal sector. Indeed, these three categories can be linked directly or indirectly to the informal sector since they all constitute work that lacks social protection and entitlements.15 Figure 10 shows a surge in self-employed and unpaid workers in the aftermath of the second intifada and, expectedly, a substantial decline in the share of workers in Israel.16
Figure 10: Average labour market trends of workers in Israel, unpaid workers and self-employed workers in the West Bank, 1999-2012
Source: Author’s calculations on PCBS data
- 17 On average, imports of goods represented 85 % of trade flows in the West Bank between 2000 and 201 (...)
26Lastly, the tightening or loosening of Israeli security measures also greatly influences trade flows between the West Bank and foreign countries and thus significantly impacts the growth of its economy. Indeed, the World Bank’s West Bank and Gaza report underlines the importance of foreign trade in the West Bank, which has a small and resource-poor economy that relies heavily on trade, especially with Israel (World Bank, 2008c, 1). Figure 11 shows that both registered exports and imports of goods reached a low in 2002, at the peak of the second intifada, and has increased steadily ever since due to the recovery of some economic sectors. It also demonstrates that imports constitute a great majority of trade flows in the West Bank.17
Figure 11: Total value of registered exports and imports (in thousands USD), 2000-2012
Source: Author’s calculations on PCBS data
27The impact of the wall on the gendered patterns of labour market involvement is examined for unemployment, participation in the labour force, and the composition of employment by economic sector. However, the PCBS does not publish data for self-employed workers, unpaid workers, and workers in Israel by gender, and so the gender dimension is not analysed for those variables. Moreover, since trade affects the entire population, gendered outcomes for this variable are not considered either.
28The econometric analysis used to measure the effect of the wall on Palestinian unemployment is based on panel data regressions of the form:
29where lmgtis the labour market variable considered in governorate g in year t; WEgt-1 is the Wall Effect Index lagged one period to capture the gap between the construction of the wall and its impact on the governorate;Φg is individual fixed effect (FE), which captures governorate-specific factors such as culture and geography;γt is a year effect that takes into account common time-varying shocks like the political context, the evolution of the Palestinian economy, etc.; and εgt is the error term.
30The labour market variables lmgt considered are:
Labour force participation rates
The share of agriculture, hunting and fishing in employment
The share of manufacturing, mining and quarrying in employment
The share of services (including commerce, hotel and restaurants, transportation, storage, communication and other services) in employment
The share of construction in employment
The share of unpaid workers in employment
The share of self-employed workers in employment
The share of workers in Israel in employment
- 18 Bulmer (2001) finds that the persistent gap between Israeli and Palestinian wages results in struc (...)
31 Baseline regression (1) is tested against a variety of robustness checks. First, observations are weighted by population sizes, as aggregates derived from larger populations may be more representative of the wall effect. Moreover, a lagged unemployment variable, ugt-1, is added in the regression analysis for unemployment so as to control for the persistence of high unemployment in the West Bank.18 Finally, each governorate is excluded from the analysis in turn to verify that no particular governorate is driving the estimation results.
- 19 Typically, openness to trade is measured as the sum of imports and exports, divided by total GDP. (...)
- 20 Gendered labour outcomes are not analysed since trade affects the overall West Bank population.
32A second specification incorporates trade data as an additional explanatory variable. Trade with Israel is not directly affected by the construction of the wall since it is dependent on the permissiveness of the commercial crossings along the wall. Therefore, it is included in the empirical analysis to control for any tightening or relaxing of the commercial crossings, reflecting Israeli policy. The sum of total imports and exports by governorate is used as a proxy for the ‘openness’ of the commercial crossings.19 Overall unemployment rates are considered as the dependent variable.20 The second baseline regression reads as follows:
33One limitation of this specification involves the indirect impact of the wall’s construction on trade mentioned in section 3. Indeed, since the wall physically obstructs the free movement of people and commercial goods between the West Bank and Israel, it is reasonable to assume that it affects trade indirectly by imposing costs on Palestinian businesses. According to the Report on UNCTAD assistance to the Palestinian people from the United Nations Conference on Trade and Development (UNCTAD), ‘[r]epeated and lengthy Israeli security checks force Palestinian traders into long queues at the crossing points, which have inadequate facilities and limited working hours’ (UNCTAD, 2011, 6). Therefore, a third specification includes trade as a dependent variable:
34Another limitation of specifications (2) and (3) is the inclusion of official trade data as a whole. Indeed, the smuggling of goods between the West Bank and Israel certainly undermines any efforts to quantify the West Bank’s external trade. The World Bank (2008c, ii) reports that ‘because the other routes out of the West Bank have not yet been completely closed, many Palestinian shippers are able to avoid the crossings by using Israeli registered trucks. Consequently, the Commercial Crossings in some areas are currently handling only a fraction of total traffic between the West Bank and Israel.’ The resulting underestimation of trade levels is kept in mind when analysing the results of specifications (2) and (3).
35For the purpose of interpreting results, it should be noted that the fixed-effect estimation implies that between-governorate differences are controlled for and thus only within-governorate variations are estimated. Therefore, ß1 measures the relationship between the labour market variable and the Wall Effect Index that a governorate is exposed to from one year to the next. However, since the Wall Effect Index has no meaningful associated unit, only the sign and significance level of ß1 is interpreted. Additionally, all labour market variables, including unemployment rates, are expressed in percentages and the basic unit of the trade variable is US dollars.
36Finally, all specifications account for fixed and year effects in order to capture governorate characteristics and time shocks. This method effectively controls for omitted variables that are both time-invariant for each governorate and time-variant for all governorates. Nonetheless, omitted variable bias cannot be fully ruled out and provide a source of discussion in the next section. Moreover, all standard errors are robust to heteroskedasticity using the Huber-White correction and are clustered at the entity level to account for dependency of residuals within governorates.
37The results from specification (1) for unemployment rates are presented in table 1.
Table 1: The effect of the wall on unemployment rates, with and without weighted regressions
- 21 This study considers p<0.05 as the relevant threshold for statistical significance.
- 22 The year effects are not displayed in the tables. However, when statistically significant and rele (...)
38They differ somewhat from prior assumptions on the impact of the wall. Here, the wall effect is negatively correlated with overall and men’s unemployment rates (see columns (i) and (iii)). However, these results are only statistically significant21 for men. Expectedly, however, column (v) shows a positive relationship between women’s unemployment rates and the construction of the wall, although the estimate barely reaches the significance threshold (5.8%). Moreover, as predicted, year effects are positive/negative and statistically significant in all the years for overall unemployment/wages.22 Figure 12 shows the evolution of the year effects for those two variables in the time period analysed. The unemployment peak in 2002 reflects the severity of the labour market conditions in the West Bank in the aftermath of the second intifada.
Figure 12: Year effects for overall unemployment and real wages, 2000-2012
Source: Author’s calculations from regression analysis, specification (1)
- 23 PCBS (2007) shows that the percentage of individuals whose mobility was reduced due to time spent (...)
39The possible interpretations of these results are manifold. First, the significant negative correlation between the wall effect and men’s unemployment may corroborate evidence in line with the findings of Calì and Miaari (2013). It is possible that the construction of the wall increased men’s labour demand sufficiently enough in the short-run to offset any negative impacts on the labour market. However, this positive demand shock does not translate to a significant impact on wages (see table 2). Although the construction of the wall may entail work opportunities in the short run, labour market outcomes are expected to be negatively impacted in the long run. Aside from potential work opportunities in the construction sector, this result may also account for the relatively quick adjustment of the men’s labour market in circumventing direct and indirect costs of the wall. Indeed, a labour force survey reports that the negative effects of the wall and restrictions on the movements of individuals declined between 2003 and 2006.23
Table 2: The effect of the wall on real wages, with and without weighted regressions
40The insignificance of the wall’s impact on the unemployment rate of the whole population (both men and women included) suggests that there are other components of the closure regime that are more impactful. As indicated by the World Bank’s Four years report in 2004, the ‘modest recorded impact of the separation barrier [on labour market developments] is explained, above all, by the fact that movement of labor was severely constrained before construction of the barrier began, limiting the additional negative impact of the barrier’ (World Bank, 2004, 18-20). In their analysis of the effect of closures on labour market variables, Calì and Miaari (2013) not only control for checkpoints, road blocks, earth mounds and gates, but also for the length of the wall, the number of fatalities, and employment in Israel. They find that the labour market is mostly affected by the checkpoints and that other barriers, including the wall, have a negligible impact.
41 On the other hand, the positive correlation between women’s unemployment and the wall’s construction is consistent with theoretical assumptions and reflects the gender dimension of the closure regime. Limited employment opportunities for women within the formal economy may explain why the effect of the wall on women’s unemployment is substantial. Indeed, faced with limited labour market opportunities and a strained agricultural sector as a result of the wall’s construction, many women may have been pushed into unemployment.
42In turn, labour force participation rates for men, women and both genders declined significantly as a result of the wall, as shown in table 3.
Table 3: The effect of the wall on labour force participation rates, with and without weighted regressions
43Indeed, column (iii) displays labour force participation results for men that are consistent with a scenario in which the construction of the wall reduced labour supply by limiting work opportunities in Israel. On the other hand, the heightened challenges experienced by women in crossing the West Bank wall are illustrated by the larger negative effect of the wall on women’s economic participation (see column (v)). Women not only face increased travel time and transportation costs but also humiliation and fear at checkpoints (World Bank, 2010, 49-52). Indeed, ‘invasive search procedures (such as being asked to strip, or going through a full-body X-ray machine) and the long waits in tight spaces with large numbers of men, all present a potential risk to a woman’s honor’ (World Bank, 2010, 49). As a result, many women reduce their travels considerably or give up crossing checkpoints altogether. Moreover, Palestinian businesswomen face considerably more constraints when trying to cross into Israel than Palestinian businessmen, further stressing the gender dimension of the closure regime.
44Table 4 presents the results from specification (1) for agriculture, hunting and fishing, henceforth referred to as ‘agriculture’ for simplification. In line with prior assumptions, the construction of the wall is strongly correlated with a shrinking agricultural sector. Indeed, columns (i), (iii) and (v) show a negative and strongly significant relationship between the construction of the wall and the share of agriculture in employment for men, women and the population as a whole. Women in the agricultural sector seem to have been more affected than men, possibly highlighting the gendered impact of the wall on the agricultural sector.
Table 4: The effect of the wall on agriculture, hunting and fishing, with and without weighted regressions
45The results from specification (1) for manufacturing, mining and quarrying are shown in table 5.
Table 5: The effect of the wall on manufacturing, mining and quarrying, with and without weighted regressions
46As explained in the previous section, employment in the manufacturing sector has seen a drastic decline since the mid-1990s. Surprisingly, however, the results of the regression analysis point towards some sort of reallocation of the men’s labour force into this sector as a response to the construction of the wall. Columns (i) and (iii) of table 5 indicate that the construction of the wall statistically impacts men’s and overall unemployment rates in the manufacturing sector. In turn, the results are statistically insignificant for women, which is consistent with the observed concentration of women in agriculture and services.
47Table 6 includes the results from specification (1) for the service sector.
Table 6: The effect of the wall on the service sector, with and without weighted regressions
48The positive and statistically significant relationship between the construction of the wall and the overall share of services in employment also points towards some sort of sector-composition effect. Indeed, amid the number of serious constraints faced by the agricultural sector, it seems that Palestinians displaced from jobs in agriculture are flocking to the service sector. Moreover, women are driving the overall significance of the wall effect, since the results are insignificant for men, as shown in column (iii). These results indicate that women largely respond to the construction of the wall by moving away from the agricultural sector and into the service sector. In turn, the results from table 7 show inconclusive results for the construction sector. Indeed, the effect of the wall on construction is insignificant for men, women and the population as a whole.
Table 7: The effect of the wall on the construction sector, with and without weighted regressions
49Table 8, column (i) shows a strongly significant, negative relationship between the wall effect and the share of unpaid workers in employment.
Table 8: The effect of the wall on the self-employed, unpaid workers and Palestinian workers in Israel, with and without weighted regressions
50This suggests a decline in the informal sector as a share in employment in response to the wall. Indeed, a 2003 PCBS survey on the informal sector found that 85% of employees in the informal sector were unpaid, providing a relatively good proxy for the informal sector (PCBS, 2004a, 26). Moreover, the informal sector, largely occupied by men (91.6%), is composed essentially of domestic trade (65%) and the service sector (17.5%) (World Bank, 2010, 35). A decline in both internal and external trade, due to the added mobility constraints of the wall, could therefore explain why there is a significant decline in unpaid workers. Moreover, the PCBS survey shows that a considerable number of establishments in the informal sector have been permanently or temporarily closed due to the policy of closures and sieges practiced by the Israeli government, further explaining the declining share of the informal sector in employment (PCBS, 2004a, 26).
51Table 8, columns (iii) and (v) present statistically insignificant results for the self-employed and Palestinian workers in Israel, making interpreting results difficult. As expected, however, the year effects for self-employment are strongly significant and positive. Since the 2000s, Palestinians, especially men, have resorted to self-employment in the face of meagre employment opportunities in the formal labour market (World Bank, 2010, 38). Additionally, there is a strongly significant negative correlation between the year effects and the share of employment in Israel, which further strengthens the theoretical assumptions on the impact of closures. Figure 13 plots the year effects against time for both self-employed workers and workers in Israel and shows the quasi-inverse relationship between the year effects of both variables, illustrating the common and inverse time-varying shocks due to the closure regime.
Figure 13: Year effects for self-employed and workers in Israel, 2000-2012
Source: Author’s calculations from regression analysis, specification (1)
- 24 ‘These activities are undertaken on the margins of the informal sector to generate supplementary i (...)
52However, caution must be used when drawing conclusions, especially with respect to informal employment. In reality, the composition change of the informal sector over time is unknown, and so it is difficult to identify the economic sectors that have driven the decline in informal employment over time. Furthermore, a lot of the data may underestimate the actual size of the informal sector, as women often combine their productive efforts into activities that are not well captured in labour force surveys.24 Additionally, the informal or unpaid nature of women’s work often leads them to fail to recognise their contribution as work and thus to misrepresent their economic participation.
53In addition to some data limitations, activities prohibited by law in the West Bank are not included in PCBS surveys. Although it is difficult to measure and quantify such activities, there is evidence that they constitute a non-negligible part of the Palestinian economy. Natsheh and Parizot (2011) reveal the strong link between increased border security and the increase in the size and organisation of informal traffic, especially with respect to Palestinian clandestine workers smuggling themselves into Israel. It is therefore difficult to quantify the actual effects of the wall on informal employment as the underground traffic in workers remains largely undocumented and invisible.
54The regression estimates of specification (1) are robust in terms of population size effects, with small changes in the effect of the wall on labour market variables (see the even columns in tables 1-9). Moreover, table 9 shows that the added lagged unemployment variable, controlling for the persistence of high unemployment rates in the West Bank, only dampens the wall effect and reduces the significance levels of all coefficient estimates, except for women.
Table 9: The effect of the wall on unemployment rates, with and without weighted regressions, further controls
- 25 The results of these regressions are not reported in this paper but can be provided on request.
55However, the correlation signs are the same across all estimates, with or without the added explanatory variable. Lastly, the exclusion of governorates in turn does not substantially affect the coefficient estimates of regression specification (1), further pointing towards the robustness of the results.25
56The results of specifications (2) and (3) are displayed in table 10 columns (i) and (ii) respectively. Controlling for trade levels, the effect of the wall on overall unemployment rates is negative and statistically significant, further strengthening the hypothesis of a short-run positive demand shock (see table 10 column (i)). However, there is no statistically significant relationship between the wall effect and trade, which makes any valuable interpretation difficult (see table 10 column (ii)).
Table 10: Specifications (2) and (3) with control for trade and wall effect on trade
57These inconclusive results may be due to the aforementioned underground smuggling of goods within the Palestinian territories and between Israel and the West Bank, which cannot be captured in official data and affects the Palestinian labour market. Barthe (2007) indicates that the wall and the entire security system do not prevent the smuggling of goods such as stolen cars into Palestine, for example. These results could also reinforce the claim that trade is not directly affected by the construction of the wall and may rely on other factors like the permissiveness of the commercial crossings along the wall.
58 Some limitations to the estimation methods, such as women misrepresenting their economic participation and the unquantifiable underground Palestinian economy, have already been mentioned above. Limitations to data collection encountered in this study certainly also account for some of the inconclusive results, which may suffer from omitted variable bias. Most notably, micro-level data could provide a more refined estimation analysis as it allows control for individual characteristics, such as age, years of schooling, occupation, distance to wall, etc. Despite the study’s restriction to governorate-level data, there are other explanatory variables that could be controlled for. The following paragraphs provide a non-exhaustive list of possible omitted variables.
59First, while the construction of the wall certainly has an impact on labour market indicators, the associated wall regime, which includes the permissiveness of the crossings along the West Bank wall, is probably more relevant when analysing the impact of the wall in each governorate. Specification (2) tries to control for this variable by using trade data, but the gate and permit regime is certainly a better proxy. In 2011, 80 designated gates provided access through the wall for some 150 Palestinian communities whose land is in the seam zone and who live on the other side of the wall. Contingent on obtaining visitor permits, the majority of these gates only open during the olive harvest season and usually only for a limited period during the day (UN OCHA, 2012, 1). Therefore, a measure of ‘openness’ of these gates, for example based on the number of hours or weeks open during the year, could control for these variations. A distinction could also be made between gates that are open for daily crossing for the general Palestinian population and agricultural gates. The regression analysis could also include the number of visitor permits allocated to Palestinian farmers.
60Aside from controlling for the gate and permit regime, a proxy for conflict intensity, such as the number of Palestinians killed by Israeli security forces, could capture governorate-specific levels of violence. In as much as year effects can control for time-varying shocks common to all governorates, the intensity of the conflict varies not only over time but also across locations. Benmelech et al. (2010) find evidence that Palestinian terror attacks have, indeed, important economic costs as they show that they lead to reductions in Palestinian employment and wages in the district of the perpetrator (probably due to scaling up of Israeli security measures).
61As noted in section 3, the business and investment environments, while certainly a function of Israeli security measures, also have a direct impact on the Palestinian labour market. For the past decade, employment in the West Bank has heavily relied on private sector jobs, which have accounted for 70% of total employment (PCBS, 2013, 109). Therefore, a proxy for private sector investment such as loans given out to small and medium-sized enterprises could control for the changing business environment. Furthermore, such a variable correlates with both the construction of the wall, insofar as the latter provides a disincentive for investment, and the labour market. Controlling for this confounding variable would thus further address endogeneity problems.
62Lastly, the allocation of Israeli working permits to Palestinians also substantially impacts the Palestinian labour market, at least in the short-run. Etkes (2012) shows that an increase in Israeli employment permits in a West Bank governorate is associated with an increase in employment. Similarly to the aforementioned omitted variables, the number of permits granted is also likely to be correlated with the wall effect, insofar as both are part of the external closure regime. This would therefore also warrant the inclusion of this variable into the estimation analysis. However, the difficulty that could stem from the inclusion of such a variable is akin to that of the treatment of trade data: official data substantially underestimates the actual number of Palestinians working in Israel due to the immense trafficking of clandestine workers into Israel. In reality, ‘Israeli sources estimate that some 15,000 Palestinians without the required permits smuggle themselves from the West Bank to look for employment in Israel every day in 2011’ (UN OCHA, 2012, 1).
63 Since the start of its construction in 2002, the West Bank wall has become a stark and unavoidable reminder of the external closure regime that Israel imposes on Palestinians. Through panel data econometric estimations, this study has attempted to qualify the impact of the wall on the West Bank economy by analysing different labour market variables and their gendered outcomes. Using governorate-level regressions between 1999 and 2012, the study finds that the short-run effects of the wall on men’s unemployment rates are negative and statistically significant, corroborating the findings of Calí and Miarri (2013) and pointing towards possible short-run employment opportunities in construction. The study also makes novel contributions to the literature on the economic impact of the Israeli closure regime with the following findings:
64The construction of the wall has a significant, negative impact on labour force participation rates, probably as a result of reduced access for Palestinians to their workplaces on either side of the wall. The larger magnitude of the effect on women’s economic participation highlights the distinct gender impact of the wall.
65The agricultural sector has suffered from the construction of the wall, as reflected by the statistically significant decline of the share of agriculture in employment for men, women and the population as a whole. In turn, the wall effect is associated with a positive and significant increase in the share of services and manufacturing in employment, driven by women and men respectively. Thus, there seems to be a reallocation of the women’s labour force away from the agricultural sector and towards the service sector as a response to the construction of the wall. Similarly, men seem to be reallocating away from the agricultural sector and towards the manufacturing sector.
66Unpaid workers, largely part of the informal sector, saw a significant decline as a share in employment during wall construction. The added transaction costs to trade between the West Bank and Israel as well as the destruction of many informal sector enterprises may provide an explanation for the decline in informal employment.
67Recognising the limitation of the estimation, this study also suggests other movement restriction channels that are associated with the wall. Indeed, controlling for the gate and permit regime, the number of Palestinian fatalities, the availability of credit, as well as Israeli working permits allocated to Palestinians could provide the basis for a more in-depth estimation analysis. As long as the Israeli government pursues its closure regime, further research is needed to validate the above conclusions, provide more insights into the economic impact of the wall, and pave the way for a concerted international response.