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Citation Information

Type Working Paper
Title The Effects of Labor Supply Shocks on Labor Market Outcomes: The Israeli & Palestinian; Conflict
Author(s)
Publication (Day/Month/Year) 2007
URL http://core.ac.uk/download/pdf/6508144.pdf
Abstract
Since September 2000, the mobility of Palestinian workers into Israel has been permanently restricted. The new border policies generated an increase of about forty percent in the supply of workers competing for local jobs in the West Bank. Moreover, Israel restricted the movement of Palestinians within the West Bank. The exogeneity of this labor supply shock, a result of restrictive border policies, and the division of the West Bank into local labor markets provide a unique environment to study the e¤ects of labor supply shocks on labor market outcomes. Using the Palestinian Labor Force Survey for the years 2000-2004, two empirical strategies are used to identify the e¤ects of the supply shock on wages and employment patterns. The results suggest that a 10 percent increase in the labor supply of unskilled workers reduces their wages by about 2- 5 percent. No e¤ects on wages are found among the skilled workers. The employment of unskilled workers seems to adjust much slower than for skilled individuals, generating a substantial rate of unemployment among the unskilled. The results will be used to analyze counterfactual policies that are at the core of any future agreement between Israel and the Palestinians, such as border controls and the return of Palestinian refugees to the West Bank.

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