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Since Israel
occupied the larger part of Palestine in 1948,
the Israeli labour market has been a primary
variable in the Palestinian economic arena. The
Oslo agreement of 1993 and the establishment of
the Palestinian National Authority the following
year were followed by the setting up of a new
system for Palestinian-Israeli economic
relations with the 1994 Paris Protocol on
Economic Relations between the State of Israel
and the Palestine Liberation Organisation (PLO).
The protocol affirms the necessity of regulating
the influx of Palestinian labour to Israel as a
matter of prime importance to both
parties.
This relationship deteriorated
in an unprecedented manner in 2000 following the
eruption of the Al-Aqsa Intifada, as reflected
in indicators markedly different from those of
the previous five decades of economic
interaction between the two parties. This
article examines the relationship between the
two economies via a comparison between
indicators in 2000, before the start of the
intifada, and 2005, with the aim of clarifying
the future direction of this
relationship.
The Israeli labour
market
Israel's population grew from
around 6.3m in 2000 to 6.9m by 2005, during
which time the annual population growth rate
dropped from 2.5% to 1.8%.
The Israeli
population comprises a large component of people
of working age, ie 15 or more years of age,
which accounted for 70% of the population in
2000 and 71.6% in 2005. In line with this shift,
the proportion of children as a percentage of
the total population dropped from 30% to 28.4%
over the same period.
The number of
people employed increased from 2.19m in 2000 to
2.45m in 2005, while the number of unemployed
rose from around 211,000 to around 280,000 over
the same period, reflecting an increase in the
unemployment rate from 8.8% to
10.4%.
While the above figures show no
dramatic changes between 2000 and 2005, the most
important difference between the two years is
related to the limits on legal foreign labour in
Israel, which were reduced from 6.8% of the
total workforce in 2000 to 3% in 2005. More
significantly, the Palestinian component of the
foreign workforce dropped from 43% to 12% in the
same period. It is clear from this shift that
Israel seeks to reduce its dependency on foreign
labour, specifically Palestinian
workers.
In the early 1990s, the Israeli
labour market swelled as some 968,000 Jewish
immigrants arrived from the former Soviet Union.
This wave of immigration accounted for around
55% of the total number of Jewish immigrants to
Israel since 1948. It resulted in an increase in
potential labour and the percentage of the
population of working age, and also raised the
average level of education (most of these
immigrants having completed 16 or more years of
education).
The Palestinian labour
market
The size of the population in
the occupied territories - the West Bank and
Gaza - grew from 3.15m in 2000 to 8.825m in
2005. Although the population growth rate
dropped from 4.27% to 3.39% over this period,
the growth in population still outweighed the
absorption capacity of the Palestinian
economy.
The Palestinian population is
clearly a young one. The proportion of the
population below 15 years of age stood at 46.7%
in 2000, dropping only marginally, to 45.6%, by
2005. As such, the potential labour force as a
percentage of the population rose from 53.3% in
2000 to 54.4% in 2005, representing an increase
in the number of those of working age from 1.68m
to 2.1m over this period.
The Palestinian
population structure has a broad base. In 2005,
the percentage of the population below the age
of 19 was 57%, while 66% were below 25. This
means that a large sector of the population has
yet to enter the labour market, which has
resulted in increased pressure on the public
budget for health, education, and child and
family care services; increased rates of
dependency, reflecting the relatively low number
of those of working age as a percentage of the
total population; and continuous pressure
related to demand for employment.
The
number of those employed rose from 595,000 in
2000 to 657,000 in 2005. However, this increase
was not sufficient to satisfy the demand for
work, as a result of which the number of
unemployed rose from 97,000 to 202,000,
reflecting an increase in the unemployment rate
from 14% to 23.5% between 2000 and
2005.
A breakdown of Palestinian labour
by sector reveals that in 2000 13.7% worked in
agriculture, 14.3% in industry, 19.7% in
construction and 52.3% in services. In 2005,
agriculture accounted for 14.6%, industry 13%,
construction 12.9% and services 59.5%. The clear
stability in the Palestinian productive sectors
(agriculture and industry), which together
accounted for 28% of labour in 2000 and 27.6% in
2005, can be attributed to Israel's direct
interest in them.
Palestinian
labour in Israel
In 2000, some
140,000 Palestinians worked in Israel and
Israeli settlements on Palestinian territory,
representing 23.5% of the Palestinian workforce.
Most years, around a third of Palestinian
workers are employed in Israel and Israeli
settlements. Statistics show that while the
growth rate of the Palestinian labour force in
the local market was 2.2%, the growth rate for
the Palestinian labour force in Israel was 3.3%.
This highlights the incapacity of the local
market as well as the role of the Israeli market
in absorbing the natural growth in the
Palestinian workforce. In 2000, Palestinians
workers (licensed and unlicensed) represented
around 6.4% of the Israeli workforce, and around
40% of total foreign labour in Israel. They were
mainly employed in low-skill positions in
agriculture (8.8%), industry (16.7%),
construction (46.8%) and services
(27.7%).
As mentioned above, Israel
started in 2000 to decrease its dependence on
Palestinian workers, reducing their number to
65,000. Of these workers - representing 9.9% of
the Palestinian workforce and 2.7% of the
Israeli workforce - 42.1% worked in
construction, 8.4% in agriculture, 20.1% in
industry and 29.4% in services.
According
to the National Insurance Institute of Israel,
the number of licensed foreign workers in Israel
was reduced from around 150,000 in 2000 (of whom
some 68,000 were Palestinians from the West Bank
and Gaza) to 72,500 in 2005 (of whom 8,500 were
Palestinians from the West Bank and Gaza).
Israel undertook this step for both political
and economic reasons.
Palestinian
workers in Israel: Local disincentives and
external appeal
There are three main
factors that influence the decision of
Palestinian workers to join the Israeli labour
market, as follows:
- The relative
increase in wages for Palestinian workers in
Israel: The average daily wage for a Palestinian
worker in the Palestinian territories was 63
shekels in 2000 and 69 shekels in 2005, while
the average for a Palestinian worker in Israel
was 110 shekels in 2000 and 125 shekels in 2005.
This means that a Palestinian who works in the
local market earns on average less than 60% of
the income of a Palestinian employed in
Israel.
- The general increase in income
and GDP in Israel in comparison with the
Palestinian territories: GDP per capita in
Israel was $17,500 in 2000 in comparison to
$1,437 in the Palestinian territories, while in
2005 it had increased to around $18,200 in
Israel and decreased to $1,165 in the
Palestinian territories.
- The
disequilibrium that has resulted from the large
gap between supply and demand in the Palestinian
labour market: While the size of the Palestinian
workforce has grown, the demand for its services
has not kept pace. The gap between supply and
demand in the labour market has been increasing
since the 1970s, demand increasing by an average
of 4.9% each year. One study concludes that the
Palestinian labour market is able to absorb only
around 62% of those of working age. This leaves
the remaining 38% with two choices: either to
enter the Israeli labour market, or to join the
ranks of the unemployed in the Palestinian
territories.
The Israeli perspective
on Palestinian labour
Given that in
2000 more than 200,000 Israelis were unemployed,
it would be logical to ask how some 140,000
Palestinians were able to work in Israel that
year. This also raises the issue of the cost
effectiveness of Palestinian workers in relation
to their Israeli and other foreign
counterparts.
Research carried out by
both Palestinians and Israelis shows that
Israel's foreign workers are predominantly
employed in low-skill work that is not sought by
Israeli citizens. The average monthly wage for
such unskilled labour is around 4,500 shekels,
while skilled workers could expect to earn
around 7,300 shekels a month.
With regard
to the cost effectiveness of Palestinian workers
in the Israeli market, Israeli statistics show
that a Palestinian worker's wage is equivalent
to around 45-55% of that of his Israeli
counterpart, and around 60% of that of other
foreign workers, for the same job. Furthermore,
a study undertaken by Bank of Israel in 2002 to
compare the effects of the use of Palestinian
and other foreign labour on the Israeli economy
also showed the Palestinians as a good option.
The study noted that the majority of
non-Palestinian foreign workers in Israel
regularly transfer their earnings abroad, which
harms the country's balance of payments.
Palestinians, on the other hand, not only earn
less in the first place, but spend their wages
on Israeli products and commodities, thereby
pumping their earnings back into the Israeli
economy. For purely economic reasons, it is
clear why Palestinian workers are sought in the
Israeli labour market. It is thus likely that
the Israeli economy will continue to depend on
Palestinians for unskilled labour.
It is
also clear that there is no direct relation
between the presence of large numbers of
Palestinian workers in the Israeli market and
rising unemployment among Israelis. Despite the
reduction in the number of Palestinians employed
in Israel from 140,000 in 2000 to 65,000 in
2005, the local unemployment rate increased from
8.8% to 10.4% over the same period. The reason
for this, as mentioned above, is that
Palestinians in the Israeli labour market tend
to occupy unskilled positions not sought by the
majority of Israelis.
The future
of the relation between the Palestinian and
Israeli labour markets:
- Demographic
factors
Analysis of the population
pyramid in Israel shows that the percentage of
the population of working age is increasing. The
base of the pyramid (representing those below 15
years of age) decreased in size from 30% in 2000
to 28.3% in 2005, signalling the growth of the
labour force and thus labour supply. However,
this is a temporary phenomenon as the shrinking
of the base of the population pyramid will lead
in the future to a drop in new entrants to the
labour market. Should Israel succeed in
attracting investments that increase demand for
labour, allowing for the absorption into the
labour force of its unemployed - of whom there
were around 280,800 in 2005 - then the labour
market will come to suffer from a shortfall in
supply of labour rather than demand for
work.
Planners will thus be urged to find
new ways to expand the labour force, whether by
bringing in workers from abroad, seeking to
encourage an increase in the base of the
population pyramid or continuing to depend on
Palestinian labour from the West Bank and
Gaza.
The Palestinian population pyramid,
on the other hand, shows a much smaller drop in
the size of its base - from 46.7% in 2000 to
45.6% in 2005 - which will place continuous
pressure on a labour market already suffering
from a lack of demand. The only way to alleviate
this pressure is by looking outwards,
particularly towards the Israeli labour market.
It is estimated that there will be a gradual
decrease in the proportion of the population
below the age of 15 as the fertility rate in the
Palestinian territories is falling (6.6
children/woman in 1994, 4.9 children/woman in
2000 and 4.6 children/woman in 2005).
Nevertheless, there remains a serious problem as
thousands enter the labour market every year,
and will for some time to come, which will
further increase the gap between supply and
demand.
- Political
factors
For various reasons strategic
policy has become the controlling variable for
all decisions regulating life in Israel. Two
years ago, the Israeli government took the
decision to end the country's dependence on
Palestinian labour from the West Bank and Gaza
by 2008. Implementation began immediately and
has continued in a gradual manner. If we
consider also Israel's various unilateral
actions - such as its withdrawal from Gaza in
August 2005 and the building of a barrier
separating Israel from Palestinian territories
and annexing large Israeli settlements located
on Palestinian land to Israel - it is clear that
the decision on Palestinian labour is part of a
larger plan to force a change in the nature and
balance of relations between the two
parties.
- Economic factors
A
number of developments in the Israeli economy
could soon bring to an end the cost
effectiveness of Palestinian workers in
Israel:
- There is a growing preference
in the Israeli labour market for skilled and
highly trained labour rather than unskilled
workers. The proportion of unskilled workers in
the market dropped from 8.9% in 1993, to 8.3% in
2000 and 8% in 2005.
As mentioned above,
the immigration of large numbers of Russian Jews
to Israel in the early 1990s gave the Israeli
labour market a boost in terms of numbers and
education/skill level.
Given the general
trend in the Israeli labour market and the
traditional role of Palestinian workers within
it, the future for Palestinian labour in Israel
would seem to be under threat.
- A report
published by Israel's Central Bureau of
Statistics late 2005 shows an increase in the
number of Israelis working in the construction
industry as a result of the drop in number of
Palestinian workers in the market. This would
appear to indicate the beginning of a change in
the way Israelis view this kind of work, which
would facilitate the process of eliminating the
need for Palestinian labour.
- Since the
beginning of 2001, the Israeli government has
been applying strong measures to eliminate
illegal foreign labour. Within this framework
taxes were increased for business owners
employing foreign workers, which serves not only
to discourage the hiring of illegal workers but
foreigners in
general.
Conclusion
The
general trends in the Palestinian and Israeli
population structures warn of an impending
crisis, with Israel set to face a reduction in
the number of new entrants to its labour market
while at the same time the already overcrowded
Palestinian labour market will continue to
expand.
The Palestinians must thus
endeavour to increase the ability of the local
economy to absorb the annual influx of new
entrants into the labour market. As a direct
result of the already dire unemployment levels
in the Palestinian territories - with around a
quarter of the workforce without employment -
around 40% of the population are living below
the poverty line.
Finding alternative
markets to Israel for Palestinian labour would
also be difficult. The competitive advantage
held by Palestinians seeking employment in
Israel - ie their focus on unskilled work
traditionally shunned by local workers, as well
as their acceptance of wages far below the
national average - would not help them, for
example, in other Arab markets.
In order
to build a thriving economy and create new jobs,
the Palestinians must put in place policies
designed to increase local economic
capabilities, encourage investment and create a
legislative framework conducive to private
sector activity. This will be no easy task,
however, as long as Israel maintains its policy
of aggression and its unilateral approach to
settlement.
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