Relaxing Israeli restrictions on Palestinian labour: Who benefits?

Palestinian workers have been employed in low-skilled jobs in Israel for decades. The second Intifada, from 2000, increased border restrictions severely and sharply reduced employment possibilities in Israel for Palestinians, increased unemployment and reduced income in the West Bank. Israeli employers responded by increasing the number of foreign workers, mostly from Asia. Growing unemployment among Israeli unskilled workers caused Israel to impose quotas on the employment of foreigners. This study evaluates the effects of reducing movement and access restrictions between Israel and the West Bank. The study uses a single country computable general equilibrium model, adapted to a Social Accounting Matrix of Israel for the year 2004, to simulate the effects of different Israeli labour policy regimes and to identify the inter sectoral, whole economy and distributional implications. ► We model a liberalization of Israeli labour policy to workers from the West Bank. ► This stimulates production and economic growth in Israel. ► This policy would widen the income gap between poor and rich in Israel. ► But all Israeli households gain from decreasing prices and increasing transfers. ► The West Bank benefits as labour income of Palestinians from Israel strongly rises.