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Source: United Nations Special Coordinator in the Occupied Territories (UNSCO)
23 October 1996
Quarterly Report on Economic and Social Conditions and Trends in the West Bank and Gaza Strip

UNSCO, Fall 1996

I. AGGREGATE TRENDS in the WEST BANK and GAZA STRIP ECONOMY

1. The Post-1992 Depression

Estimating the macroeconomic performance of the West Bank and Gaza Strip (WBGS) requires assessing the magnitude of labour and commodity flows between the WBGS and Israel. Because of the intertwined nature of the two economies and the disparity in their sizes, changes in these flows tend to have magnified effects on WBGS national income. Thus Israeli-imposed closures have caused significant income shocks, especially on the level of real GNP (the inflation-adjusted value of output and income including wage incomes of workers in Israel and other incomes from abroad), the broadest measure of national income.

Due in large part to the Israeli closure policies, beginning in March 1993, the Palestinian macro economy has been in a state of depression for nearly four years. The imposition of closure measures has impeded the mobility of persons and goods between the West Bank and Gaza Strip and between the WBGS and Israel. For example, the average number of Palestinians employed in Israel declined from about 116,000 in 1992 to a monthly average of about 32,000 in 1995. World Bank estimates. Total closure days on the WBGS were 28 in 1992, 91 in 1993, 77 in 1994 and 125 in 1995 Palestinian Authority Ministry of Labour “Employment Situation in Palestine,” June 1996, Tables 1, 2 and 3. , depriving workers of their ability to work and business their opportunities to export finished goods and to import production inputs.

This abrupt decoupling of the closely intertwined Israeli and WBGS economies, reduced two key sources of Palestinian national income: worker remittances from jobs in Israel and revenues earned through exports of goods mainly to Israel. Measured in constant 1995 US$, the value of worker incomes earned in Israel fell an estimated 90.5 per cent between 1992 and 1995, dropping from US$741 to $70 million while WBGS exports (about 80 per cent of which were to Israel) fell 53.8 per cent from US$280 to $129 million during the same period. Based on World Bank estimates of factor income from abroad, using a 1995 base-year GDP deflator.

As shown in Table 2 below, real GDP (the inflation-adjusted value of output, and therefore income, excluding remittance income from workers in Israel or abroad) in 1994 is estimated to have been about 2.0 per cent less than it was in 1992. Real GNP, on the other hand, was 15.2 per cent less in 1994 as compared to 1992, due mainly to the drastically reduced income from employment in Israel resulting from the closure policy.


Table 1
Real National Income and Per Capita Income Estimates for WBGS, 1992-1996 Nominal GDP and GNP estimates NIS/US$ exchange rates for 1992-1994 are from World Bank estimates as are GDP and GNP deflators for 1992-1996. Please note that all income figures in Table 1 are quoted in 1995 prices to make numbers more current and intuitive. Population data are end-of-year calculations based on mid-year estimates (medium series) as given in PCBS Current Status Report No. 1: Demography of the Palestinian Population in the West Bank and Gaza Strip, December 1994, p. 217.
(real GDP and GNP in US$ millions; per capita GDP and GNP in US$)

Real GDP Real GNP Population Per Capita GDP Per Capita GNP
1992 US$3,754.6 US$5,009.2 2,064,704 US$1,818.4 US$2,426.1
1993 3,740.2 4,394.6 2,174,261 1,720.2 2,021.2
1994 3,681.3 4,244.1 2,313,988 1,590.8 1,834.1
1995 (estimate) Calculations based on growth rates for GDP and GNP in 1995 as compared to 1994 as given in Palestinian Authority Ministry of Finance “Palestinian Authority’s Draft Budget for 1996,” 14 November, 1995, p.2.
3,810.1 4,116.7 2,462,271 1,547.3 1,671.9
1996 (estimate) Calculations based on growth rate projections for 1996 based on 1995 growth rate results as given in Ministry of Finance “Palestinian Authority’s Draft Budget for 1996,” 14 November, 1995, p. 2.
4,000.6 4,363.7 2,609,280 1,533.2 1,672.3
1996 (April revision) Calculations based on 1995 estimate factoring in declines projected in Ministry of Finance “West Bank and Gaza Strip--Revised Macroeconomic and Fiscal Projections for 1996,” 8 April, 1996 which assumed average monthly employment of 7,500 Palestinians in Israel for 1996 and gradual easing of restrictions on the mobility of goods.
3,390.9 3,416.8 2,609,280 1,299.5 1,309.4
1996 (June revision) Ministry of Finance “West Bank and Gaza Strip--Report on Fiscal Developments During the First Half of 1996 and Revised Macroeconomic Projections for the Second Half of 1996," 26 June, 1996 which assumed average monthly employment of 25,000 WBGS workers in Israel for 1996 with relatively unobstructed movements of goods.
3,623. 43,869.6 2,609,280 1,388.6 1,483.0


Table 2
Percentage Changes in Aggregate and Per Capita Income in the WBGS, 1992-1996
(percentages indicate changes from previous year)

Real GDP Real GNP Population Per Capita GDP Per Capita GNP
1992 --- --- --- --- ---
1993 -0.38% -12.2% 5.3% -5.4% -16.6%
1994 -1.5% -3.4% 6.4% -7.5% -9.2%
1995 (estimate) 3.5% -3.0% 6.4% -2.7% -8.8%
1996 (estimate) The per cent changes in estimate and revisions for 1996 are based on the 1995 estimate.
5.0% 6.0% 5.9% -0.9% 0.02%
1996 (April revision) -11.0% -17.0% 5.9% -16.0% -21.6%
1996 (June revision) -4.9% -6.0% 5.9% -10.2% -11.2%
1992-1996 (estimated) -3.5% -22.7% 26.3% -23.6% -38.8%


2. Recovery and Renewed Compression

Aggregate economic performance in the WBGS began to recover in 1995. The decline in GDP abated and the growth pattern was reversed. Real GDP grew by an estimated 3.5 per cent, despite a decline in agricultural output (due to the bad olive harvest) which traditionally accounts for about one-third of GDP. Non-agricultural output rose mainly owing to the expansion of construction activity (in the Gaza and Ramallah areas especially), and there was a 25 per cent increase in exports led by non-olive agricultural exports. Employment in the WBGS increased by 9 per cent with an average of 32,000 Palestinians working in Israel on a monthly basis. Ministry of Finance “West Bank and Gaza Strip--Report on Fiscal Developments during October 1995-February 1996 and on Preliminary Macroeconomic Outcome for 1995,” 8 April, 1996, p. 13. While this performance was significant, it was insufficient to stem the decline in real GNP which fell an estimated 3.0 per cent as compared to its 1994 level. On the basis of 1995's performance, the Palestinian Authority Ministry of Finance and the IMF estimated that 1996 real GDP and GNP would grow by 5 per cent and 6 per cent respectively assuming a monthly average of 35,000 WBGS Palestinians working in Israel.

The closure that began on 25 February 1996, following the series of suicide bombings in Israel, threw the WBGS economy back into its post-1992 compression mode. By April, based on expectations of continued closure, the Palestinian Authority Ministry of Finance and the IMF revised their 1996 real GDP growth estimates from +5 per cent to -11 per cent and real GNP growth estimate from +6 per cent to -17 per cent as compared to 1995 (refer to estimates in Table 1). These figures were based on a scenario in which monthly employment of Palestinians in Israel would be only 7,500 for the remaining eight months of 1996. The estimates also assumed that WBGS household consumption would fall 16 per cent, private investment would fall 40 per cent, that public investment during a continuous strict closure (including employment generation spending) would rise by 34 per cent, exports would fall by 52 per cent and imports by 33 per cent for the year as a whole. Unemployment was projected to rise from 23 per cent to 39 per cent of the labour force.

In late June, with the partial easing of the closure, 1996 projections were again revised. Assuming an average Palestinian workforce in Israel of 25,000 for the remaining half of the year, as well as sustained easing of restrictions on commodity trade, the Ministry of Finance and IMF estimated a 4.9 per cent decline in real GDP (revising the previous -11 per cent estimate) and a real GNP decline of 6 per cent (rather than -17 per cent) as compared to 1995 (refer to estimates in Table 1).

The macroeconomic picture appeared more encouraging by August. The volume of trade between WBGS and Israel by then had rebounded to near its pre-closure level, even though there were still significant barriers to trade in place, including the higher costs of back-to-back transport arrangements at border crossings. In addition, the somewhat higher labour flows to Israel during the summer, were they to continue, would further soften the anticipated declines in GDP and GNP for 1996, even though it is unlikely that a net decline in 1996 aggregate income, as compared to last year, can be avoided.

But if there were 50,000 WBGS workers in Israel for the remainder of the year, The Israeli government, ten days before the complete closure of 27 September, announced its intention to increase to 50,000 the number of work permits given to Palestinians in the WBGS Jerusalem Post, 17 September 1996. the overall macroeconomic picture could improve. With average daily wages of about NIS75, the equivalent of about US$24, these workers could collectively generate about NIS3.75 million or US$1.2 million per day in direct income. Assuming 18-day work months (the average number of work days for Palestinians in Israel) for the next three months, employment in Israel could generate over US$65 million in household worker incomes. Furthermore, with increased spending power, second-round effects could add significantly to employment and income in the WBGS and thereby reduce the decline in the macro economy. Assuming the movement of goods is not disrupted, such a scenario would improve the 1996 June revision of growth estimates of real GDP and real GNP as given in Table 1.

Nonetheless, the estimated real decline in the WBGS real GDP and real GNP for the period 1992-1996 will be about 3.5 per cent and 22.7 per cent respectively.
Figure 1


More worrisome than the aggregate measures are the per capita income data, the total income generated in the economy during the year divided by the total population. This is a measure of the material resources available on a per person basis and a rough first approximation of the level of living that might be attained. While output has been depressed, population growth has not. Thus, while real GDP in the WBGS has risen an estimated 1.4 per cent between 1992 and 1995, per capita GDP has fallen nearly 15 per cent. Likewise, while real GNP has dropped about 17.8 per cent, per capita GNP has fallen about 31 per cent in the same period. According to the June revised estimates, per capita GDP in 1996 would fall a further 10.2 per cent and per capita real GNP a further 11.2 per cent. Population growth in excess of income growth has reduced resources available on a per person basis and put downward pressure on living conditions.

For the 1992-1996 period as a whole, estimates indicate that real per capita GDP and per capita GNP have declined by 23.6 per cent and 38.8 per cent respectively.

Figure 2


3. Regional Variations in Income Growth

The West Bank seems to have been hit harder by the 1992-1994 depression than the Gaza Strip. Real GDP in the West Bank fell by 2.9 per cent during that period, with real GNP falling 18.2 per cent both slightly faster than the average declines for the WBGS as a whole. Gaza had a small decline in real GDP in 1993 but recovered from that in 1994. But Gaza’s economic performance as measured by real GNP was worse than average, falling 18.6 per cent while the West Bank’s fell 14.2 per cent between 1992-1994, reflecting Gazans’ greater historic dependence on employment in Israel.

Table 3
Real National Income and Per Capita Income Estimates for the West Bank, 1992-1996 Nominal GDP and GNP estimates and the NIS/US$ exchange rates for 1992-1994 are from World Bank estimates as are GDP and GNP deflators for 1992-1996. Please note that all income figures in Table 3 are quoted in 1995 prices to make numbers more current and intuitive. Population data are end-of-year calculations based on mid-year estimates (medium series) as given in PCBS Demography of the Palestinian Population, December 1994.
(real GDP and GNP in US$ millions; per capita GDP and GNP in US$)

Real GDP Real GNP Population Per Capita GDP Per Capita GNP
1992 US$2,811.6 US$3,643.5 1,297,328 US$2,167.2 US$2,808.4
1993 2,792.4 3,226.6 1,359,194 2,054.4 2,373.9
1994 2,727.6 3,124.1 1,440,073 1,894.0 2,169.4
1995 (estimate) Figures for 1995 and 1996 are based on total figures for the WBGS in Table 1 with the West Bank’s portion of the total derived from preliminary estimates of its share of total output.
2,705.1 2,926.9 1,528,131 1,770.2 1,915.3
1996 (estimate) 2,840.4 3,098.2 1,616,220 1,757.4 1,916.9
1996 (April revision) 2,407.5 2,425.9 1,616,220 1,489.5 1,500.9
1996 (June revision) 2,572.6 2,747.4 1,616,220 1,591.7 1,699.8


Table 4
Percentage Changes in Aggregate and Per Capita Income in the West Bank, 1992-1996
(percentages indicate changes from previous year)

Real GDP Real GNP Population Per Capita GDP Per Capita GNP
1992 --- --- --- --- ---
1993 -0.68% -11.4% 4.7% -5.2% -15.4%
1994 -2.3% -3.1% 5.9% -7.8% -8.6%
1995 (estimate) -0.82% -6.3% 6.1% -6.5% -11.7%
1996 (estimate) The per cent changes in estimate and revisions for 1996 are based on the 1995 estimate.
5.0% 5.8% 5.7% -0.72% -0.08%
1996 (April revision) -11.0% -17.1% 5.7% -15.8% -21.6%
1996 (June revision) -4.8% -6.1% 5.7% -10.0% -11.2%
1992-1996 (estimated) -8.5% -24.5% 24.5% -26.5% -39.4%


Gaza’s relatively better economic performance can be attributed in part to the fact that the institutions of the Palestinian Authority are disproportionately located there as well as to the fact that the Authority was present there through most of 1994. Another part of the explanation has to do with the disproportionate amount of international assistance having been channeled to Gaza as compared to the West Bank. A third part of the equation probably has to do with the disruptions to the West Bank of losing economic access to Jerusalem, the main center of commercial activity for Palestinians prior to the March 1993 closure.

Figure 3


Per capita income, while higher in the West Bank, has shown some interesting trends. Per capita GDP in the West Bank fell 12.6 per cent during 1992-1994 as compared to a 11.6 per cent loss in Gaza. Per capita GNP in the West Bank fell 22.7 per cent during that same period and 28.5 per cent in Gaza. This is again reflective of the Gaza labour force’s greater than proportional income losses from employment in Israel as well as faster population growth rates. Gaza’s economic recovery in 1995 was strong enough to push most estimated income measures--real GDP, real GNP, real per capita GDP--above their 1994 levels with real GDP rising above its 1992 level. The West Bank, on the other hand, had further declines in all income measures in 1995 as compared to 1994.

While Gaza’s economic performance overall seems to have been better to that of the West Bank during the years of depression and recovery, the data still show a continuing income disparity between the two regions. At the beginning of the period the West Bank per capita GDP was over 1.7 times larger than that of Gaza, with the per capita GNP discrepancy at 1.5 times in favor of the West Bank. By 1995 the West Bank’s per capita GDP advantage had fallen to 1.5 times with no change in the West Bank’s advantage in per capita GNP.

Table 5

Real National Income and Per Capita Income Estimates for the Gaza Strip, 1992-1996 Nominal GDP and GNP estimates NIS/US$ exchange rates for 1992-1994 are from World Bank estimates as are GDP and GNP deflators for 1992-1996. Please note that all income figures in Table 5 are quoted in 1995 prices to make numbers more current and intuitive. Population data are end-of-year calculations based on mid-year estimates (medium series) as given in PCBS Demography of the Palestinian Population, December 1994.
(real GDP and GNP in US$ millions; per capita GDP and GNP in US$)

Real GDP Real GNP Population Per Capita GDP Per Capita GNP
1992 US$942.6 US$1,377.3 767,376 US$1,228.3 US$1,794.8
1993 933.4 1,168.3 815,067 1,145.1 1,433.3
1994 948.5 1,120.0 873,914 1,085.3 1,281.6
1995 (estimate) Figures for 1995 and 1996 are based on total figures for the WBGS in Table 1 with the Gaza’s portion of the total derived from preliminary estimates of its share of total output.
1,104.9 1,189.7 934,140 1,182.7 1,273.5
1996 (estimate) 1,160.1 1,265.4 993,060 1,168.2 1,274.2
1996 (April revision) 983.3 990.8 993,060 990.1 997.7
1996 (June revision) 1,050.7 1,122.1 993,060 1,058.0 1,129.9


Table 6
Percentage Changes in Aggregate and Per Capita Income in the Gaza Strip, 1992-1996
(figures indicate changes from previous year)

Real GDP Real GNP Population Per Capita GDP Per Capita GNP
1992 --- --- --- --- ---
1993 -0.9% -15.1% 6.2% -6.7% -20.1%
1994 1.6% -4.1% 7.2% -5.2% -10.5%
1995 (estimate) 16.4% 6.2% 6.8% 8.9% -0.6%
1996 (estimate) The 1996 per cent changes in estimate and revisions for 1996 are based on the 1995 estimate.
4.9% 6.3% 6.3% -1.2% 0.05%
1996 (April revision) -11.0% -16.7% 6.3% -16.2% -21.6%
1996 (June revision) -4.9% -5.6% 6.3% -10.5% -11.2%
1992-1996 (estimated) 11.4% -18.5% 29.4% -13.8% -37.0%


While it is too early to speculate on the exact changes in per capita incomes for 1996, it is safe to say that there will be further erosion. With population growth for 1996 expected to be near 6 per cent, the 1996 real GDP and GNP would have to grow by a rate higher than 6 per cent to achieve positive growth in the per capita figures--an unlikely scenario. If we use the latest Ministry of Finance estimates, the rates of decline in the two figures for the West Bank are 4.8 per cent and 6.1 per cent and for Gaza 4.9 per cent and 5.6 per cent respectively. These declines would further compound the already considerable losses incurred in the 1992-1995 period.
Figure 4


Taking the 1992-1996 period as whole, Gaza’s aggregate and per capita incomes, while experiencing significant declines across the board, have not fallen as fast as those of the West Bank. Gaza’s real GDP in this period is estimated to have grown 11.4 per cent while real GNP fell 18.5 per cent. The West Bank suffered an 8.5 per cent decline in real GDP and a 24.5 per cent decline in real GNP. Estimates of per capita GDP and per capita GNP losses for Gaza in this period are 13.8 per cent and 37.0 per cent while the respective losses for the West Bank are estimated to have been 26.5 per cent and 39.4 per cent.
Figure 5



Figure 6


II. POPULATION, EMPLOYMENT and WAGES: LABOUR FORCE STRUCTURE and DYNAMICS

While macroeconomic statistics can give a general indication of economic activity, the relative scarcity of reliable data for the WBGS, as well as the aggregate focus, limits its explanatory power regarding trends in well-being. To better gauge economic conditions, it is useful to supplement the broad trends suggested by the macroeconomic data with an examination of the underlying labour market. Such a combination can provide a more nuanced picture of the trajectory of economic an social conditions. It is in the labour market where the vast majority of the Palestinian population earns its income and where families receive the basis for their material well-being. Fortunately there have recently been published the results of extensive field surveys which shed light on the employment, income and levels of living over the last 6-9 months. PCBS Current Status Report No. 1: Demography of the Palestinian Population in the West Bank and Gaza Strip, December 1994; PCBS Labour Force Survey: Main Findings September-October 1995 Round (April 1996); PCBS Labour Force Survey April-May, 1996 Round (August 1996) ; PCBS Expenditures and Consumption Levels; A Quarterly Report (October-December, 1995), April 1996; PCBS Levels of Living in the West Bank and Gaza Strip: Selected Statistical Indicators, April 1996. These surveys, supplemented by other sources, allow us to sketch a rough picture of economic and social conditions in the WBGS.


1. Labour Force Growth

The total population of the WBGS grew by an estimated 75,000 persons between late 1995 and mid-1996 (about 3 per cent) while the working-age population (15-64) grew by about 35,450 (2.9 per cent) during the same period. PCBS Demography of the Palestinian Population in the West Bank and Gaza Strip; ILO Report of the Director General, 83rd Session, 1996 appendix. While both rounds of the PCBS labour force survey define the working-aged population as 15+ years, an alternative definition is used here which better reflects the lived reality of Palestinians in the WBGS, where retirement age is nominally 60 years of age. The is definition is also used by the PCBS in its publication Expenditures and Consumption Levels; A Quarterly Report , April 1996, p. 15. The labour force participation rate (LFPR), the proportion of the working-age population working or seeking work, grew 1.1 percentage points in the same period to 42.4 per cent. It is interesting to note that the LFPR during the previous decade averaged under 38 per cent. See World Bank Developing the Occupied Territories; An Investment in Peace, Volume 2, (Washington, DC, 1993), p. 165. As indicated in Table 7, a larger population, coupled with a larger portion of that population economically engaged, resulted in a 5.6 per cent increase in the total labour force during the first half of 1996--nearly double the growth rates of the general population and the working-age population over the same period. In absolute terms, the labour force in the WBGS grew by some 27,800 persons or an average of over 4,600 persons per month. In the context of the macroeconomic depression described above, the higher LFPR suggests an increasing effort on the part of Palestinians to offset the decline in incomes by sending more family members into the labour market and, to a lesser extent, probably reflects the continuing repatriation of Palestinians to the WBGS from abroad and their entry into the local labour market.

While the labour force grew at a 5.6 per cent rate, employment in the WBGS actually fell 8.3 per cent during this six-month period. The unemployment rate--defined as the percentage of the labour force which did not work a single hour for pay during the survey week--averaged about 18.5 per cent at the end of 1995 and climbed to 29.2 per cent by mid-1996. This 57.8 per cent relative increase in the unemployment rate is in large part the direct and indirect result of the 25 February 1996 closure imposed by the Israeli authorities.


Table 7
Population, Labour Force, Employment and Unemployment Estimates for the Working-Age Population of the WBGS,
End-1995 and Mid-1996

End-1995 Mid-1996
Total Population WBGS Population figures are from PCBS Demography of the Palestinian Population, pp. 167-168, 216. In all cases the medium series population projections have been used. End-1995 data is derived by averaging the mid-1995 and mid-1996 figures as given in the cited report. All numbers are rounded.
2,460,000 2,535,000
Working-Age Population (15-64) 1,195,000 1,230,000
LFPR The LFPR figures cited here were derived by calculating the weighted average LFPR of the population segments aged 15-64 and therefore differ from the broader definition used by the PCBS, but consistent with the definition of the working population used in this report. 41.3% 42.4%
Unemployment Rates WBGS Unemployment rates are derived by taking the sum of the products of the percentage of each age group in the working-aged population (15-64) in the total labour force and their respective unemployment rates.
18.5% 29.2%

Total Labour Force 493,800 521,600
Total Employed 402,350 368,850
Total Unemployed 91,450 152,750


2. Closure and the Palestinian Labour Market

Estimates of the Palestinian Ministry of Finance and the IMF suggest there were an average of 32,000 Palestinian workers in Israel on a monthly basis during 1995 when adjustment is made for closure days. Palestinian Authority Ministry of Finance and IMF “West Bank and Gaza Strip--Report on Fiscal Developments during October 1995-February 1996 and on Preliminary Macroeconomic Outcome for 1995,” 8 April, 1996, p. 13. By February 1996 there were an estimated 70,000 such workers. Palestinian Authority Ministry of Labour data suggests there were only about 59,300 Israeli work permits issued at the time. The difference between the 70,000 employment estimate and the lower number of permits is some indication of Israeli estimates of the number of illegal workers from the WBGS in Israel. Within three weeks of the 25 February closure all these workers were disemployed. In addition to the employment losses in Israel, some 80,000 workers employed in the WBGS itself lost their jobs due to the “second-round” effect, which is the decline in employment caused by reduced family income and, therefore, purchasing power for goods produced and/or sold in the local economy.

Figure 7


In addition there were production stoppages due to the unavailability of essential inputs imported from Israel, such as construction and raw materials. Finally, Palestinian producers lost their ability to export agricultural and other goods to Israel, their main external market, contributing to the second-round employment effects. The disemployment shock, and the secondary effects, elicited responses reflected in the changing structure of employment.


3. Labour Market Adaptations to Closure

Comparing 1995 and mid-1996 labour market data sheds light on how Palestinians have responded to the economic shock caused by the closure. For one, there was a reduction in the proportion of employers and wage-workers in the labour force and an increase in the proportion of unpaid family labour and self-employed persons (defined as those engaged in economic activity not entailing the employment of others). This suggests two trends: the failure of businesses whose proprietors may have moved into the ranks of the marginally employed or unemployed and more people working on family farms or in family businesses as unpaid labourers. These trends are suggested in Table 8.


Table 8
Social Composition of Employed WBGS Labour Force,
End-1995 and Mid-1996 Percentages are found in PCBS Labour Force Survey September-October 1995 and April-May 1996 Rounds. Numbers are rounded.

End-1995 Mid-1996
Employers 27,350 (6.8%) 20,650 (5.6%)
Unpaid Family Labour 40,630 (10.1%) 45,370 (12.3%)
Self-employed 84,885 (21.1%) 85,940 (23.3%)
Wage-workers 247,815 (61.6%) 216,885 (58.8%)
Total Employed Persons 402,300 (100%) 368,850 (100%)


The economic branch distribution for the WBGS provides a more detailed view of labour market adjustment to closure. While the proportion of the labour force engaged in agriculture, public sector and informal (including self-employment) activities has swelled during 1996, the proportion of employment accounted for by the secondary sector (which includes the mining, quarrying, manufacturing and construction branches) fell from 36.2 per cent to 29.6 per cent. Most of this was due to the sharp decline in the construction branch where the bulk of Palestinians employed in Israel worked, and a which accounts for a significant proportion of private sector employment in the WBGS itself. Some part of the relative decline in the secondary sector employment is probably due to the reduction in private sector investment which is sensitive to political risk factors such as closures. Such a response to repeated closure is detrimental to the future of the WBGS economy as private investment, rather than than donor funds, must be the primary source for capital accumulation and sustainable employment needed to place the WBGS economy on a more stable growth path.

Table 9
Employed Labour Force Branch Distribution in the WBGS
Including Employment in Israel,
End-1995 and Mid-1996 Percentages are found in PCBS Labour Force Survey September-October 1995 and April-May 1996 Rounds. Numbers are rounded and may not sum exactly to total.


WBGS(E95) WBGS (M96)
Agriculture, Hunting, Forestry and Fishing 50,285 (12.5%) 61,970 (16.8%)
Mining, Quarrying and Manufacturing 70,805 (17.6%) 64,180 (17.4%)
Construction 74,830 (18.6%) 45,000 (12.2%)
Commerce, Hotels, Restaurants 78,450 (19.5%) 69,345 (18.8%)
Transportation, Storage, Communication 19,715 (4.9%) 16,970 (4.6%)
Service and Other 58,970 (14.6%) 43,135 (11.6%)
Palestinian Authority Employees 49,250 (12.2%) 68,260 (18.5%) Late 1995 figure is for October, roughly coterminous with the first PCBS labour force survey. See World Bank “Size and Quality of Civil Service; Executive Summary,” July 1996 (draft). Mid-1996 figure is an estimate based on an end-March figure of 63,400 (given in Ministry of Finance “West Bank and Gaza Strip--Report on Fiscal Developments during the First Half of 1996 and Revised Macroeconomic and Fiscal Projections for the Second Half of 1996" 26 June, 1996, p. 5) and a Ministry of Finance estimate of 71,500 as of end- September. The number in the table is obtained by adding the average monthly growth to the end-March figure to arrive at an end-June estimate.
Total Employed Persons 402,300 (100%) 368,850 (100%)


Table 9 also shows absolute and relative increases in employment in the primary (agriculture mainly) and tertiary (commerce, hotels and restaurants, transportation, storage, communications and public and private services) sectors of the economy. Agricultural employment stood at about 12.5 per cent of the labour force at the end of 1995, rising to about 16.8 per cent at mid-year with an absolute increase of over 11,600 workers. Table 10 shows that employment growth in the agricultural sector took place exclusively in the West Bank, suggesting that agriculture still serves as an economic “shock absorber,” providing employment (much of it unpaid or poorly paid) when alternative employment is unavailable. This was a recurrent pattern in the West Bank throughout the 1970s and 1980s. Agricultural employment in Gaza actually shrank due to the closure, indicating the relatively high dependence of Gaza’s agriculture on export markets, unlike West Bank agriculture which is more geared to home or local consumption but which also has easier border access to export markets.
Figure 8


Table 10
Regional Employed Labour Force Branch Distribution in the West Bank and Gaza Strip Excluding Employment in Israel,
End-1995 and Mid-1996 PCBS Labour Force Survey September-October 1995 and April-May, 1996 Rounds. Numbers are rounded and may not equal totals.

West Bank (E95)West Bank (M96) Gaza Strip (E95) Gaza Strip (M96)
Agriculture, Hunting, Forestry, Fishing 30,740 (13.3%) 46,750 (19.0%) 11,470 (10.8%) 9,450 (10.9%)
Mining, Quarrying, Manufacturing 43,450 (18.8%) 44,035 (17.9%) 16,140 (15.2%) 13,610 (15.7%)
Construction 46,920 (20.3%) 32,720 (13.3%) 16,355 (15.4%) 7,715 (8.9%)
Commerce, Hotels, Restaurants 46,995 (19.9%) 46,745 (19.0%) 19,755 (18.6%) 15,085 (17.4%)
Transport, Storage, Communication 11,555 (5.0%) 11,810 (4.8%) 5,095 (4.8%) 3,640 (4.2%)
Service and Other Because a regional breakdown of Palestinian Authority employment was not available, this figure is inclusive of those employees. 52,235 (22.6%) 63,965 (26.0%) 37,385 (35.2%) 37,270 (43.0%)
Total Employed Persons 231,130 (100%) 246,025 (100%) 106,200 (100%) 86,680 (100%)


In Gaza, and to a lesser extent in the West Bank, Palestinian Authority civil and security service employment, like agriculture in the West Bank, has served to absorb unemployed labour. The high concentration of Palestinian Authority institutions in Gaza, and their growth over the last nine months, has provided Gazans with a sort of employment safety net. However, given fiscal constraints, this cannot continue indefinitely. Moreover, unlike West Bank agriculture, public sector employment will not, in general, recede as the employment picture improves. Public sector growth in the WBGS over this period has been conditioned by two factors. The first is the need to staff the new Palestinian ministries and agencies, a natural part of creating self-rule. The second factor is the security imperative, especially after the suicide bombings of early 1996. Employment growth in the public sector seems to be the main reason behind the relative growth in the tertiary sector.

Table 10 also shows that total employment in the West Bank, excluding employment in Israel, actually grew in the six-month period under study. Employment in the agriculture and service branches more than offset the declines in construction (mainly lost jobs in Israel). In Gaza, excluding employment in Israel, there was an absolute decline in total employment with losses in every economic branch except for services (probably the effect of growing public sector employment). Thus, while overall employment in the WBGS, excluding employment in Israel, fell by 4,625, there was a net gain of 14,895 jobs in the West Bank and a net loss of 19,520 jobs in Gaza.

While this is some indication of the ability of the West Bank economy especially to withstand labour market shocks, two points must be made. First, the growth in employment within the WBGS occurred at the same time that unemployment rose significantly, due to the rapid growth of the number of people seeking employment among the working-age population and to the reduced numbers of people permitted to work in Israel. Thus while there was a relatively small decline in employment in the WBGS, excluding employment in Israel, there was also an overall 61,250-person increase in the number of unemployed. Second, the employment gain in the West Bank was mainly in agriculture where productivity, wages and incomes are well below what they were in construction work where most of the decline in employment occurred. As discussed below, this may be one part of the explanation for declining average worker incomes in the WBGS.


4. Alleviating Unemployment: Emergency Employment Measures and Partial Lifting of the Closure

Responding to the dire unemployment situation caused by the closure, the Palestinian Authority, acting through the Palestinian Economic Council for Development and Reconstruction (PECDAR), the World Bank, UNSCO, UNDP and UNRWA, through the Sectoral Working Group on Employment Creation, developed an emergency employment programme. While jobs programmes for the WBGS have been in place since 1994, the disemployment caused by the closure intensified the urgent need for such initiatives. Funded by the World Bank-administered Holst Fund, the Bank’s own funds, bilateral assistance from donor countries and a 5 per cent “solidarity charge” on Palestinian Authority employee wages, the emergency employment projects sought to generate short-term employment through labour-intensive projects.

The employment creation programmes were designed to combat the disemployment effects of the closure, to generate income for those directly affected by the closure, to clean up public spaces and to rehabilitate and/or expand public infrastructure through small-scale projects all over the WBGS. The largest of the programmes is the World Bank’s in which PECDAR serves as the main implementing agency. The World Bank/PECDAR programme began with direct hire clean-up and public infrastructure maintenance projects paying workers US$10 per day. Employment consisted of 10, 18 or 26-day work cycles. The programme is scheduled to last to the end of 1996 with the intent of spreading the work around to benefit the largest number of persons possible. By June, the World Bank/PECDAR had also begun some lower labour-content infrastructural rehabilitation micro-projects.

The second largest programme was that of UNDP in collaboration with PECDAR and municipal authorities, consisting mainly of small-scale infrastructural projects: rehabilitating village council buildings, youth and social centers and water systems, constructing and improving roads in rural areas, tiling sidewalks and assisting agricultural workers. These projects will last 3-15 months, to June 1997 and pay an average of US$10 per day. UNRWA’s programme, the main portion of which lasted through August, included hiring some 600 sanitation workers for clean-up activities as well as training or employing an additional 2,000 recent graduates in the fields of health, education, engineering, law and the sciences to build and staff schools, clinics and engage in other infrastructural and environmental projects paying workers US$12 per day. UNSCO “Emergency Employment Programme,” 31 August, 1996. With the assistance of UNDP. See also UNSCO Employment Generation Programme: An Overview of Unfunded United Nations Activities, Gaza, 1 June, 1996 and Secretariat of the Ad Hoc Liaison Committee The Employment Generation Programme in the West Bank and Gaza, 5 September, 1996. With assistance from World Bank, PECDAR, UNDP and UNRWA.


5. Evaluating the Emergency Employment Measures

The preliminary employment evidence suggests that the effect of the emergency programmes over the six-month period from early April to the end of September was to directly employ an average of about 13,400 workers on a monthly basis--equal to about one-fifth the number of workers who lost jobs due to the February closure. This result was magnified somewhat by both the employment effects of hiring contractors and purchasing materials and equipment as well as the indirect, second-round effects of increased worker (and contractor and material supplier) purchasing power in the local economy.

On the whole, the emergency employment effort has been a significant contribution to combating short-term unemployment, contributing to the rehabilitation of infrastructure and instilling hope in the development effort during difficult days of closure and economic depression. With dwindling funding levels, projections for the rest of the year (October-December) indicate that these programmes will directly employ an estimated 4,650 workers on a monthly basis, about one-third of the direct employment impact during their first six months. On a yearly basis, the programmes generated the equivalent of over 6,700 full-time job equivalents by September and are projected to produce a total of nearly 7,900 such jobs by the end of 1996. See Table 11.

It should be noted that the programmes’ impact on worker incomes, while important, has been modest when measured against the wage income losses due to the closure. With daily wages for most workers in the projects set at US$10, average monthly incomes were US$250. This was well below the daily wage rates and average monthly wages of other employed Palestinians in the West Bank, Gaza and Israel, even with a decline in average wage rates in all three regions during the period after the closure.

With 13,400 workers receiving an average of US$250 each per month in the employment generation programme, total monthly labour income was approximately US$3.3 between April and September. The weighted average monthly income of a WBGS worker at the end of 1995 was US$398 falling (for reasons discussed below) to US$322 Refer to the wage data in Table 13. US$ equivalents are calculated at the prevailing average NIS/US$ exchange rate during the last quarter of 1995--i.e. 3.04--as given in Ministry of Planning and International Cooperation Department of Statistics Annual Statistical Abstract, Gaza, March 1996 and the average rate for the first quarter of 1996--3.21--as given in PCBS Consumer Price Index, Ramallah, July 1996. by mid-year--still over a quarter more than those working in the emergency employment programme. It should be noted that workers in the WBGS worked an average of about 22 while those employed in Israel worked an average of 18 days. For the purpose of the comparison, we assume that those in the emergency programmes are employed for 25 days, even though their actual work cycles were 10, 18 or 26 day cycles. At the lower mid-year monthly average income, the total labour income generated by 13,400 average workers would be over US$4.3 million, US$1 million more than the employment programme on a monthly basis during the six-month period from April to September.

Thus, while the emergency programme has certainly helped to combat unemployment and provided income during the particularly difficult period after the February closure, it has only partially compensated for income losses. Monthly incomes of participating workers were under only 77 per cent of the average employed workers in the WBGS and, during April-September, workers engaged in the programme were only about one-fifth the number of workers disemployed by the closure. On the other hand, the effects of the high-labour content projects have served as a means to provide income to poorer segments of the population, those who most readily accept the relatively lower-paying jobs in the programme. Estimates indicate that the programme directly injected nearly $21 million into worker households in its first six months (see Table 11). Thus the programme seems to have had short-term poverty alleviation effects while lacking long-term employment effects. Samia Al-Botmeh “Employment Generation Schemes in the WBGS” a presentation at the MAS Economic Seminar Series, Palestine Economic Policy Research Institute, Ramallah, 19 September, 1996. Al-Botmeh suggests that lower-labour content projects generally have longer term employment effects. This is not surprising given the emergency programme was never intended to be a substitute for sustainable job creation which will require economic stability and unimpeded access to input and output markets.

Table 11
Preliminary Estimates of Results and Projections for Employment and Worker Incomes
of the Emergency Employment Programme, April-December 1996

April May June July August September October November December
Monthly Employment
EEGP (World Bank/
PECDAR) 6,939 8,835 16,056 11,671 5,272 4,730 4,602 3,575 1,577
UNDP/PECDAR 824 2,375 2,640 2,449 2,407 2,551 2,524 368 360
UNRWA 2,560 2,604 2,638 2,736 2,678 630 336 317 290

Total Monthly
Employment (1) 10,323 13,814 21,334 16,856 10,357 7,911 7,462 4,260 2,227

Person Days (2) 258,075 345,350 533,350 421,400 258,925 197,775 186,550 106,500 55,675
Year Job
Equivalents (3) 860 1,151 1,778 1,405 863 659 622 355 186
-------------------------------------------------------------------------------------------------------------------------------------------
Running Total 860 2,011 3,789 5,194 6,057 6,716 7,338 7,693 7,879
-------------------------------------------------------------------------------------------------------------------------------------------
Wages
EEGP (World Bank/
PECDAR) (4) $1.735 2.209 4.014 2.918 1.318 1.183 1.151 0.894 0.394
UNDP/PECDAR (5) 0.205 0.593 0.660 0.612 0.601 0.637 0.631 0.092 0.090
UNRWA (6) 0.768 0.781 0.791 0.820 0.803 0.189 0.100 0.095 0.087
Total Wage Costs $2.708 3.583 5.465 4.350 2.722 2.009 1.882 1.081 0.571
-------------------------------------------------------------------------------------------------------------------------------------------
Running Total $2.708 6.291 11.756 16.106 18.828 20.837 22.719 23.800 24.371
-------------------------------------------------------------------------------------------------------------------------------------------

Notes
(1) Indicates the number of persons working for 25 days during the month.
(2) Derived by multiplying the number of monthly job days by 25 working days per month.
(3) Derived by dividing the person days per month by 300 work days per year.
(4) In millions of US$, derived by multiplying monthly employment by $250 per person per month ($10 per worker per day, the average daily wage in World Bank/PECDAR projects, for 25 days).
(5) In millions of US$, derived from UNDP staff estimates for individual projects, evenly distributing wage costs over the life of the projects.
(6) In millions of US$, derived by multiplying person days in UNRWA projects by $12 (the daily wage rate in these projects) and evenly distributing wage costs over the life of the projects.

Sources: World Bank, EEGP Project Employment Summary (draft), 9 September, 1996; PECDAR, Job Creation Programme: Status Report, n.d.; UNDP estimates; UNRWA estimates; UNSCO, Emergency Employment Programme, Gaza, 31 August, 1996.


In addition to the emergency measures implemented by the Palestinian Authority and donor countries, the Israeli authority’s gradual lifting of the February closure also helped to improve the employment picture. By early April, restrictions on labour and commodity flows began to be eased with an increasing number of work permits issued as shown in Table 12.

It must be emphasized, however, that the issuance of permits does not necessarily result in the same number of employment opportunities. First, there is the problem of permit-holders being turned back at the borders for one reason or another. Israeli border guards have reportedly turned back permit-holding workers who were a few days or weeks under the required minimum age. There is also a lack of coordination between Israeli employers and border authorities regarding how many workers and of what skill types are required and to a lack of coordination on the Palestinian side in distributing the permits. Actual crossings during June and July in Gaza, for example, were 5-12 per cent below the number of permits issued. Palestinian Authority Ministry of Labour, Gaza; District Coordination Office, Gaza. Other reasons for the permit/employment discrepancy have to do with the complete closure imposed in the latter half of May during the run-up to the Israeli elections, the fact that Palestinians in Israel face competition for jobs from foreign workers in Israel and to the fact that some Israeli employers are reluctant to hire Palestinians whose employment may be interrupted by border closures.


Table 12
Israeli-Issued Work Permits to WBGS Residents,
Figures from Palestinian Authority Ministry of Labour “Employment Situation in Palestine” June 1996 (addendum) with the assistance of the Ministry of Labour in Gaza. Figures include permits for work in Israeli settlements.
April - September, 1996
West Bank Gaza Total

April 10,279 7,908 18,187
May 11,666 9,586 21,252
June 21,720 13,396 35,116
July 25,067 18,332 43,339
August 25,751 18,650 44,401
September 26,950 19,500 46,450


Comparisons between permits issued and estimates of actual employment give some sense of the discrepancy. While there were some 40,000 permits issued in June and July respectively, the Palestinian Authority Ministry of Finance estimate of Israel-employment was about 20,000. Ministry of Finance estimates at the 9 July 1996 Local Aid Coordination Committee meeting. Likewise, there were 43,339 permits issued in July, but the PCBS, in a survey of 1,200 randomly selected and geographically disbursed households in the WBGS during 13 July-8 August estimated a total Palestinian workforce in Israel (legal and undocumented) of around 40,000. PCBS Labour Statistics Office. The PCBS findings suggest that, given an unknown number of undocumented workers (estimated by Israeli officials during the summer at between 11,000 and 22,000), actual legal employment may be well below the number of permits issued.

Israeli officials, on the other hand, have tended to report that actual employment of Palestinians in Israel or Israeli-controlled parts of the West Bank and Gaza Strip is higher than the number of permits. For example, while 44,401 permits were issued in August, an Israeli official stated there were a total of 46,500 Palestinians legally employed in Israel that month plus an estimated 20,000 undocumented workers. Israeli estimates provided by an official of the Israeli Foreign Ministry at the 2 August 1996 Local Aid Coordination Committee and 1 September 1996 Joint Liaison Committee meetings. The official gave the following breakdown on 2 August: 15,000 from the West Bank, 17,000 from Gaza, 12,000 in Israeli settlements in the West Bank and 2,500 in the Erez Industrial Zone, in addition to the 20,000 undocumented workers. At 1 September meeting, he stated that of 47,000 Palestinians legally employed, 15,000 worked in Israeli settlements or the Erez Industrial Zone. Whatever the actual employment figures, mid-year estimates of total unemployment in the WBGS stood at about 153,000 workers, with unemployment rates in Gaza at about 39.2 per cent and in the West Bank at 24.3 per cent (as compared to 31 per cent and 13 per cent, respectively, in late 1995).


6. Work Effort, Wage Rates and Incomes

In comparison to the end of 1995, the mid-year work effort and wage data indicate that Palestinian workers, except those in Israel, are working fewer hours per month, probably due to underemployment caused by the slowdown in economic activity after the closure. Multiplying average weekly hours by four, we see that workers in the West Bank put in 1.6 per cent fewer hours on the job on a monthly basis, Gazans 1.4 per cent fewer hours, while those who still had jobs in Israel actually increased their monthly hours by about 7 per cent which may indicate a seasonal variation in the construction industry, where the bulk of them are employed.

A disturbing trend is the absolute decline in average daily wage rates and monthly incomes for all workers. Average daily wage rates declined 16.1 per cent, 8.3 per cent and 8 per cent respectively in the West Bank, Gaza and Israel during the first half of 1996. Likewise, multiplying average daily wages by average monthly days worked reveals that monthly labour incomes were reduced by 16.8 per cent, 3.6 per cent and 10 per cent respectively. Even the modest increase in monthly work days in Israel, where wages were considerably higher than those in the WBGS, could not offset the decline in the incomes of Palestinian workers after the onset of the closure.

Table 13
Average Monthly Days, Daily Wage Rates and Monthly Wages
for Employed Palestinians in the West Bank, Gaza and in Israel,
End-1995 (E95) and Mid-1996 (M96) PCBS Labour Force Survey: Main Findings September-October 1995 Round (April 1996), pp. 72, 74, 76; PCBS Labour Force Survey April-May, 1996 Round (June 1996) with assistance from the PCBS Labour Statistics Office. Calculations of nominal and real monthly wages are those of the ESMU.

WB(E95) WB(M96) GS(E95) GS(M96) Israel (E95) Israel (M96)
Weekly Hours 43.0 42.3 43.2 42.6 38.9 41.6
Monthly Days 22.0 21.8 21.7 22.8 18.3 17.9
Daily Wage According to the PCBS Labour Statistics Office, the form of the question on wage rates in the field surveys and the responses given by members of worker households suggest these figures should be considered net wages after tax deductions and transportation costs. NIS56.5 NIS47.4 NIS44.5 NIS40.8 NIS81.5 NIS75
Monthly Hours 172 169.2 172.8 170.4 155.6 166.4
Monthly Wage NIS1,243 NIS1,033.3 NIS965.6 NIS930.2 NIS1,491.4 NIS1,342.5

Change in Nominal Daily Wage -16.1% -8.3% -8%
Change in Real Daily Wage -22.1% -14.3% -14%

Change in Nominal Monthly Wage -16.8% -3.6% -10%
Change in Real Monthly Wage -22.8% -9.6% -16%


It must be emphasised that the absolute declines in wages indicated by the data do not include the effects of inflation on the real levels of daily and monthly incomes, that is, on the purchasing power of incomes. Given the IMF estimate of a 12 per cent rate of inflation for 1996, and assuming half this inflation has occurred in the first half of the year, then working Palestinians have suffered an additional 6 per cent average decline in the purchasing power of their incomes since the beginning of the year. This half-yearly rate of inflation is reasonable given the consumer price index data given in PCBS Consumer Price Index, June 1996 , July 1996. This means the average West Bank worker has lost about one-fifth, the average Gazan about one-tenth and the average Israel-employed Palestinian one-sixth of his/her real income in the last six months, most of this after the February closure.

There are probably several reasons behind this sharp decline in real wages. First, there is the rapid growth rate of the labour force, already described above. Second, there has been sluggish indigenous job-creation over the last several years combined with greatly reduced access to the Israeli labour market due to the Israel’s cumulative closure policies and the expulsion of Palestinians from the Arab Gulf countries in 1991. Therefore the WBGS has been experiencing increased labour supply relative to labour demand, leading to higher unemployment rates, a formula for falling real wages in the absence of effective minimum wage laws or strong labour unions. Average unemployment rates during the 1980s were under 10 per cent, rising to nearly 30 per cent by mid-1996. The February closure has exacerbated this problem, at least in the short term. As for workers’ wages in Israel, there the problem seems to be competition from some 200,000 foreign workers (half of whom do not hold legal work permits), allowed in by the Israeli authorities during the early 1990s as the early stages of the closure policy began to take shape. This seems to have driven wages down in the construction and agricultural branches of the Israeli economy where foreign and WBGS workers are concentrated.

7. Wage Differentials Between Regions

Not only were nominal and real daily and monthly labour incomes declining but there was also a significant increase in wage differences for workers employed in the three regions. In 1990 Palestinians employed in Israel earned 49 per cent more in daily wages than those employed in the West Bank and 26.6 per cent more than those employed in Gaza. World Bank Developing the Occupied Territories; An Investment in Peace, Volume 2, (Washington, DC, 1993), pp. 168, 170. By late-1995, the premium for employment in Israel had risen sharply to an average of 44.2 per cent more in daily wages compared to the West Bank and 83.1 per cent more as compared to Gaza. This seems to have been due mainly to the drop in wages in the WBGS rather than increases in wages paid in Israel. Average monthly wage incomes of the Israel-employed in late 1995 were about 20 per cent higher than those employed in the West Bank and 54.4 per cent more than in the Gaza Strip.
Figure 9


By mid-1996, with significantly higher unemployment rates and absolutely declining wage rates, the daily wage advantage for work in Israel rose from 44.2 per cent to 58.2 per cent over the West Bank and rose slightly from 83.1 per cent to 83.8 per cent over work in Gaza. On a monthly basis, the disparity grew from 20 per cent to 30 per cent as between the Israel-employed and West Bank-employed but fell from 54.4 per cent to 44.3 per cent as between Israel-employed and Gaza-employed Palestinians. Thus while daily wages and monthly incomes were falling generally, the relative rewards, and therefore the incentives to seek work in Israel, remain high in the WBGS and have grown significantly for West Bank workers.

Implicit in the information above is both the absolute and relative decline of Gaza wages. In 1990 average daily wages in Gaza were actually 17.6 per cent higher than those in the West Bank World Bank Developing the Occupied Territories; An Investment in Peace, Volume 2, (Washington, DC, 1993), pp. 168, 170.--a phenomenon that emerged in the mid-1980s and attributable to the relative scarcity of labour there due to the larger share of Gaza’s labour force working in Israel. By the end of 1995, there had been a reversal of this situation; West Bank average daily wages were 27 per cent higher than those in Gaza. By mid-1996, the differential was only 16.1 per cent in favor of the West Bank as wages there fell much faster than in Gaza. West Bank wage rates seem to be converging on those of Gaza’s whose fall may be in a process of stabilizing. This apparent leveling process seems to indicate that the negative impact of the depression and the closure are more severe in the West Bank. PCBS Labour Force Survey: Main Findings September-October 1995 Round (April 1996); Labour Force Survey April-May, 1996 Round (June 1996); World Bank Investing in Peace, volume 2, pp. 168-70 One indication of this is the fact that the unemployment rate in Gaza between late 1995 and mid-1996 increased by about one-third in relative terms but nearly doubled in the West Bank.

The policy significance of these trends are clear: not only should the rates of unemployment and underemployment be of concern, but the purchasing power of the wage incomes of the employed should also receive serious attention from the parties involved in the economic and social development process in the WBGS. One way to partly mitigate these real wage declines would be to raise the daily wages paid to Palestinians in the employment generation schemes. Another would be for more permits to be issued to Palestinians for employment in Israel where wages haven’t fallen as rapidly and for Palestinians to again be given access to labour markets in the Arab Gulf. A third response could be for the Palestinian Authority to promulgate and enforce minimum wage laws in the WBGS.

Needless to say, two of these policies would impose prohibitive additional costs on donors, the Palestinian Authority and Palestinian taxpayers (whose incomes are already under significant downward pressure). Furthermore, employment in Israel alone, or elsewhere, will not solve the long-term employment problem. This points to the need for the Palestinian Authority, Israel, donor countries, the World Bank and the United Nations to develop a broader strategy for employment creation that encompasses and encourages private sector capital accumulation capable of sustainably absorbing future labour force growth.

8. A Note on the Particularities of Gaza’s Labour Market

Certain features of Gaza set it apart as a distinct economic and social region. For one, over three-quarters of Gaza’s population derives from 1948 refugees dispossessed of land and other forms of wealth (as compared to about 25 per cent of the West Bank population). The effects of dispossession persisted and were exacerbated by further land and water confiscations during the period of Israeli occupation. In early 1996, a survey showed that nearly one-fifth of West Bankers had access to land or farm animals as sources of income compared to only about one-tenth of Gazans; on the other hand 62 per cent of Gazans had no access to either as compared to only 56 per cent of West Bankers. PCBS Levels of Living in the West Bank and Gaza Strip: Selected Statistical Indicators April, 1996, p. 19. This explains in part why the estimated poverty rate in Gaza was twice that of the West Bank, 20 per cent versus 10 per cent according to a research conducted by the Palestine Economic Policy Research Institute in 1995. Radwan A. Shaban and Samia Al-Botmeh Poverty in the West Bank and Gaza Strip , Jerusalem: Palestine Economic Policy Research Institute (MAS), November 1995.

Even more significant, Gazan participation in wage-labour in Israel did not mitigate the disparity. During the 1970s and 1980s the proportion of Gaza’s labour force employed in Israel exceeded that of the West Bank by about ten percentage points. Gaza workers’ average daily wages--both in Gaza and in Israel--exceeded those of West Bank workers during most of the latter half of the 1980s, partly due to their more persistent participation in the Israeli labour market. Moreover, private remittances to Gazans from family members living abroad consistently exceeded those of West Bankers throughout the 1980s. World Bank Developing the Occupied Territories; An Investment in Peace, Volume 2, (Washington, DC, 1993), pp. 156-7. Despite these higher income flows, estimated per capita income in Gaza was still one-third lower than the West Bank as recently as 1993.

This disparity in per capita income is partly due to the disparity in non-labour sources of income as between Gazans and West Bankers, i.e. the greater access of the latter to land and livestock. Another part of the explanation is Gaza’s more rapid population growth rates which means income must be spread more thinly. A third part of the explanation are Gaza’s consistently lower labour force participation rates, lower employment rates and consistently higher unemployment rates since the inception of Israel’s closure policy in the early 1990s. This would be expected in a region whose labour force had been more dependent on jobs in Israel.

Before the February 1996 recent closure, the unemployment rate in Gaza was 29.4 per cent as compared to the West Bank’s 13.9 per cent. (The lower unemployment rates in the West Bank have to do mainly with access to alternative sources of employment--namely agriculture.) In addition, the absolutely higher Gazan unemployment rates are probably due in part to West Bank workers’ (and business’) ability to circumvent Israeli restrictions and find employment in Israel or its settlements even during closures. For Gazans this is nearly impossible, given the stricter border controls. These historic, demographic and geographic factors explain in large part the relatively low per capita incomes in Gaza and the wage differentials between Gaza and the West Bank, especially during a closure. PCBS Levels of Living in the West Bank and Gaza Strip: Selected Statistical Indicators April, 1996, p. 19; Labour Force Survey: Main Findings September-October 1995 Round (April 1996); Labour Force Survey April-May, 1996 Round (June 1996); World Bank Investing in Peace, volume 2, pp. 168-70.

9. Underemployment and the WBGS Labour Force

The accepted definition of labour force participation includes those who engaged in paid employment for at least one hour during the survey week or actively sought work during that week. The employed labour force therefore includes people working what is considered a full work week, i.e. 35+ hours, and those working less hours per week. During late 1995, the PCBS found that 26.4 per cent of the employed were working less than a full 35-hour week, the bulk of these working 15-34 hours per week and this figure rose to 28.9 per cent by mid-year. PCBS Labour Force Survey September-October 1995 Round, p. 66 with assistance of Labour Statistics Office. But these figures do not indicate the extent of underemployment since some portion of the employed work less than 35 hours voluntarily or because it is normal for the types of jobs they hold.

Underemployment, strictly defined, is a condition in which workers desire to work a full 35-hour week but hold jobs entailing fewer hours. It is the underutilization of the available work force’s capacity. Using this definition, the PCBS found that 21.8 per cent of the labour force (107,825 workers) were underemployed in the WBGS in late 1995, dropping to 14.8 per cent (77,150 workers) by mid-1996. This means that underemployment affected about one in four workers in late 1995 and about one in five workers by mid-1996.

It is interesting to note that the unemployment and underemployment rates grew inversely related; as the former rose significantly after the February closure, the latter dropped significantly, indicating that part-time jobs were being eliminated more quickly than full-time jobs during the period of the crisis. (In fact, public sector employment, significantly increased the number of full-time jobs during this period). This is confirmed in the estimates in Table 14: the absolute number of employed fell 8.3 per cent while the number of underemployed fell 28.4 per cent during the period.

Table 14
Employment, Underemployment and Unemployment in the WBGS,
End-1995 and Mid-1996

End-1995 Mid-1996
Total Labour Force 493,800 521,600
Total Employed 402,350 368,850
(of which Total Underemployed) 107,825 77,150

Total Unemployed 91,450 152,750
Underemployment Rates WBGS Underemployment rates are weighted averages based on age groups. See PCBS labour force surveys. 21.8% 14.8%
West Bank 20.7% 15.0%
Gaza Strip 22.0% 12.7%

The labour force surveys make a distinction between visible underemployment--a quantitative measure of labour underutilization and invisible underemployment--i.e. the degree to which employed workers underutilize their formally- and informally-acquired skills--which is a qualitative measure of the underemployment of available human resources. Invisible unemployment is difficult to measure but a first approximation might be to compare the amount of education a worker has attained with the amount needed to perform his or her job. Another is to ask the whether the worker’s skill level is suitable to their present employment.

The late 1995 survey indicates that underutilization of skills, rather than underutilization of time, was the more serious problem: 68.9 per cent of the total were invisibly underemployed while only 31.1 per cent were visibly underemployed. After the closure, the relative mix changed. The mid-1996 survey indicates that 46.1 per cent were invisibly underemployed with the proportion of visibly underemployed rising to 53.9 per cent. PCBS Labour Force Survey: Main Findings April-May 1996 Round (August 1996), p. 94. This suggests that the underutilization of skills among the underemployed diminished relatively while the underutilization of time increased as the total number of underemployed fell. One possible explanation for this might be the large increase in employment in Palestinian Authority agencies where, at least in the civil service, relatively educated people were being hired and, therefore, skills were being more intensively utilized. While more precise data on working hours and the skill match of job-holders are needed, underemployment is a significant problem, effecting about one-fifth of all employed workers .


10. Women In and Out of the Labour Market

More generally, the underutilization of Palestinian labour is reflected in the nearly 700,000 working-age persons (nearly 58 per cent of that population) who were outside the formal labour force in late 1995. Of this number, 42.5 per cent or nearly 300,000 persons were females. While the work of this large section of the female population is absolutely fundamental to the well-being of the Palestinian population, these women are not counted as part of the work force, nor is the implicit value of their output in the home and on the land calculated in estimates of GDP and GNP. Current systems of national income accounting used throughout the world exclude the very tangible and fundamental contributions of women to the material welfare of society, merely because much of women’s work takes place outside the formal, and restricted, definition of the labour market. Nonetheless, the very low female LFPR (11.7 per cent in late 1995) indicates that, under different social and economic circumstances, Palestinian women constitute a potentially large reserve of labour.

The closure has coincided with a heightened female formal labour market participation. In absolute terms the female labour force grew 8.5 per cent from 70,950 to 77,000 persons between end-1995 and mid-1996. By contrast the male labour force grew only 5.1 per cent in the same period. It is interesting to note that women in the formal labour market had an employment profile which, in part, looked somewhat better than that of males, as shown in Table 15. Except for their unemployment rates in late 1995, working women had significantly lower unemployment and underemployment rates, and significantly higher rates of full-employment, as compared to men. Furthermore, there was a disproportionately high concentration of female workers in relatively well-paid professional, technical and clerical positions (where they were 31.5 per cent of all workers). PCBS Labour Force Survey: Main Findings September-October 1995 Round (April 1996), p. 69.

In other ways, however, women’s labour force profile compares badly with men. The highest concentration of female labour was in agriculture (where they were about 35 per cent of all workers) PCBS Labour Force Survey September-October 1995 Round (April 1996), pp. 47, 58. where wages and working conditions tend to be less favourable. Women were also disproportionately represented among the “unpaid family member” category of employed persons (where they were 37 per cent of such employees), PCBS Labour Force Survey September-October 1995 Round (April 1996), pp. 70. reflecting mainly their work on family farms. It also appears from Table 15 that their wages were, on the whole, below that of men’s, pulling the averages down somewhat.


Table 15

Comparing Female and Male Labour Force Profiles for the
Working-Age Population in the WBGS,
End-1995 and Mid-1996 All data in Table 15 are taken from the PCBS labour force surveys with assistance from the PCBS Labour Statistics Office. Labour force participation, unemployment, underemployment and employment rates are weighted averages based on the 15-64 year working-age population.

End-1995 Mid-1996
LFPR (total) 41.3% 42.4%
Females 11.7% 12.4%
Males 71.4% 72.8%

Unemployment Rates (total) 18.5% 29.2%
Females 18.5% 22.6%
Males 18.5% 30.4%

Underemployment Rates (total) 21.8% 14.7%
Females 10.7% 6.9%
Males 23.6% 16.1%

Full-Employment Rates (total) 59.6% 55.9%
Females 70.9% 70.3%
Males 57.8% 53.4%

Wages (Mid-1996) Totals Males
Average Daily Wage in WB NIS47.4 NIS49.4
Average Daily Wage in GS NIS40.8 NIS41.5
Average Daily Wage in Israel NIS75.0 NIS75.6



Mid-1996 data indicate some telling effects of economic compression and closure on Palestinian women in the labour market. In relative terms the unemployment rate rose more slowly, the underemployment rate fell more rapidly and the full-employment rate dropped far less quickly for women as compared to men. Furthermore, women’s representation among unpaid family members shrank from 37 per cent to 30.5 per cent while the proportion of these rose from 10.1 per cent to 12.4 per cent in the general working population. PCBS Labour Force Survey April-May, 1996 Round (June 1996) with the assistance of the PCBS Labour Statistics Office.

What these trends suggest is that women’s increased labour force participation and average number of hours worked may be a response to higher unemployment and declining wage rates among men. Economic pressures on the family, combined with socio-cultural change, seem to be drawing greater portions of the adult female population into wage labour. One possible implication of this response to the current employment and income crisis may be that women generating additional family income in the formal labour market may become a more regular feature of the Palestinian economic and social landscape.
Figure 10


11. Children in the Labour Force

That landscape, unfortunately, increasingly includes working children. A survey of child labour conducted in late 1995 PCBS Labour Force Survey in the West Bank and Gaza Strip, September-October 1995 Round; Children Labour (Ages: 12-16): Main Findings, May 1996. found the LFPR of children 12-16 years of age was 6.6 per cent. Reflecting the fact that this is mainly a male phenomenon, the LFPR among boys was 11.5 per cent, i.e. higher than that of adult women, as compared to 1.3 per cent for girls. In total, there were an estimated 18,500 children in this age group in the labour force. The evidence also indicates a positive correlation between child LFPR rates and the size of the family. At the time of the survey, nearly 90 per cent of children in the labour force were not attending school, unemployment among them was 18.8 per cent and underemployment was 24.3 per cent (both slightly higher than the average for adults), about 60 per cent of them were paid labourers while 40 per cent worked as unpaid family labour (as compared to 61.6 per cent and 10 per cent respectively for adults).

The distribution of child labour among economic sectors was markedly different than adults at the end of 1995. The proportion of employed children in the primary sector of the economy (agriculture, fishing and forestry) was more than double that of adults at 28 per cent. This is consistent with the large proportion of unpaid family members among employed children, a relatively common phenomenon in rural areas of the West Bank especially. Child participation in manufacturing, mining and quarrying activities (the secondary sector) was significantly below that of adults (27 per cent of child employment versus 36.2 per cent for adults). The largest concentration of working children--45 per cent--was in the tertiary sector of services. At the level of specific occupations the evidence suggests that children are concentrated in low-skill “elementary occupations,” craft production and agricultural tasks. PCBS Labour Force Survey in the West Bank and Gaza Strip, September-October 1995 Round; Children Labour (Ages: 12-16): Main Findings, May 1996, pp. 26-27. Daily wages ranged from NIS21.9 in service sector work to NIS30.8 in secondary sector activities with an overall average of NIS25.7, less than half the average adult daily wage of NIS52.7 in the WBGS.


Table 16
Child Labour Force Profile, Ages 12-16, End-1995 All numbers from PCBS Labour Force Survey in the West Bank and Gaza Strip, September-October 1995 Round; Children Labour (Ages: 12-16): Main Findings, May 1996

Total Population (12-16) 282,900
Males 145,250
Females 137,650

Total Child Labour Force (LFPR) 18,490 (6.6%)
Males 16,700 (11.5%)
Females 1,790 (1.3%)

Total Child Labour Force 18,490 (100%)
Fully-Employed 10,520 (56.9%)
Underemployed 4,495 (24.3%)
Unemployed 3,475 (18.8%)
Total Employed Children 15,015 (100%)
unpaid family labour 6,005 (40%)
wage-workers 9,010 (60%)

Of Total Employed:
employed in primary sector 4,205 (28%)
employed in secondary sector 4,055 (27%)
employed in tertiary sector 6,755 (45%)

Average Daily Wages in WBGS NIS25.7


While the overall child LFPR was actually higher in the West Bank than in Gaza at the end of 1995 (6.6 per cent versus 6.0 per cent), a study in the spring of 1996 suggests that work activity, both formal and informal, was on the rise among Gazan children --especially since the February border closure. UNICEF Working Children in Gaza--A Rapid Assessment, Spring 1996 A random all-male sample of 300 children aged 8-15 conducted by UNICEF, found that two-thirds of the boys had begun working within the last year and nearly 45 per cent had begun in the previous six months. Over half the children said that they felt some amount of family pressure to work. This may have to do with the fact that 39 per cent of them had unemployed fathers, another 30 per cent had fathers who were wage-workers--probably subject to the pressures of falling incomes as described above--and 96 per cent had mothers who did not work outside the home.

Unlike the WBGS averages, only 4 per cent of these children were working in agriculture while 30 per cent were engaged, apparently as assistants, in tailoring, carpentry, construction, plumbing and black smithing (secondary sector activities). The rest were involved in services with mechanics assistants (30 per cent) and commercial trade (32 per cent) being the most prominent. Daily working hours were between 5 and 10 for 60 per cent of these workers with 28 per cent working 11-13 hours per day. For their considerable work effort, nearly two-thirds of the children earned NIS12-15 per day, about one-third of the average daily wage in Gaza and about half the average daily wage paid to children in the WBGS as noted in the late 1995 PCBS survey.

The economic and social implications of child labour are considerable. Not only do children serve as a potentially cheap and docile source of labour power, thereby undermining wages generally but, UNICEF concluded, they are also being deprived of their childhood and their education. The long-term impact of such a phenomenon may be to undermine the acquisition of formal skills on the part of a significant portion of Palestinian society. Moreover, at least two-thirds of the sample were engaged in occupations that are physically dangerous to the health and well-being of children. The effects of feeling pressured to work, as well as dangerous working conditions, will take their toll on the mental and physical health of these young people in the longer term, pointing to the need for the Palestinian Authority to carefully promulgate and enforce labour laws regarding children in the labour force.


III. WEALTH, INCOME and the LEVEL of LIVING in the WBGS

Thus far, this review of economic and social conditions has consisted of a macroeconomic view of output, employment and incomes. But a fuller accounting of economic and social conditions can be provided by an analysis at the level of the household. It is at that level that actual economic conditions of Palestinians can be assessed; changes in the level and composition of household consumption provide another dimension of understanding of the relative prosperity or distress facing Palestinian families.


1. Wealth and Sources of Income

Household income, the basis of household consumption, may derive either from accumulated real or financial wealth (in the form of rents, profits and interest), transfers from governments or individuals (in the form of social welfare payments or intra-family transfers) or from wage-labour (in the form of wages and salaries). Traditional forms of wealth among Palestinian families include ownership of land and livestock from which they derived direct household consumption as well as money income from sales of surplus home production. The dispossession of large segments of the Palestinian population over the last five decades has significantly reduced access to such stocks of wealth. As an early 1996 survey revealed, nearly six out of ten averaged-sized households in the WBGS had neither access to land nor to livestock, i.e. to traditional income-earning wealth, and less than one in five had access to both. PCBS Levels of Living in the West Bank and Gaza Strip: Selected Statistical Indicators, April 1996, p. 19.

Nor does the Palestinian population of the West Bank and Gaza Strip seem to have significant stocks of financial wealth. A 1995 study of the emerging banking system in the WBGS found that, while there was an increasing use of bank deposits as a form of savings, nearly 60 per cent of customer deposits were in non-interest bearing accounts, i.e. income was not being earned on these financial assets. This indicates that the bulk of the over $US825 million in deposits in banks in the WBGS at the time were being used not as savings, but for checking or expenditure purposes. It appears that a significant portion of those funds were probably deposited by the Palestinian Authority or governments and organizations providing assistance to the WBGS, rather than by households. Palestine Economic Policy Research Institute (MAS) and the Palestinian Monetary Authority Palestinian Banking Sector Statistical Review, Jerusalem, June 1995. The number refers to early 1995 deposit levels which were augmented significantly after the arrival of the Palestinian Authority and the commencement of significant funds transfers in the form of international assistance. Even if we were to make the unlikely assumptions that the total deposits in WBGS banks were household savings, that they were evenly distributed among households and that they were earning a generous 10 per cent rate of interest, the average-sized household would receive only about $275 or NIS850 in income per year from such wealth.

WBGS family income from government and private transfers, on the whole, are not significant either. Jerusalemites do receive some transfer payments from the Israeli government and eligible registered refugees and others in the rest of the West Bank and Gaza Strip receive social welfare assistance from UNRWA, WFP, NGOs and, increasingly, from the institutions of the Palestinian Authority. But these services are not enough, in the vast majority of cases, to support all the needs of these families, nor are the remittances from family members living abroad, an important source of income during the 1970s and 1980s. Such transfers were and are limited in terms of the proportion of families receiving them and have receded in importance since the expulsion of tens of thousands of Palestinian workers from the Arab Gulf states in 1991. Neither government transfers nor remittances, nor the combination of these, are sufficient to support the average family’s consumption needs.

Because stocks of income-earning wealth and transfers are limited for most families, wage-labour remains the principal means for providing sustenance for the vast bulk of the population and wages constitute the principal source of income. This is certainly true of the economically-engaged portion of the population, 60 per cent of which are wage-workers. Thus the level of wage rates and the availability of work are the main determinants of the level of living of Palestinian families.


2. Household Wage Incomes and the Level of Living

By using the employment and wage information presented above we can estimate the level and trend in family household incomes between late 1995 and mid-1996, assuming these households rely principally on wages as their source of income and that each household has only one full-time labourer. We can then relate levels and changes in wage incomes to the levels and changes in household consumption expenditures. Such expenditures, plus or minus any transfers and home-produced goods, define the level of living, i.e., the quantity of goods and services households are able to consume in a given period of time.

The weighted average monthly wage income for a worker in the WBGS in late 1995 was NIS1,222.7 falling to NIS1,041.2 in mid-1996, a decline of 14.8 per cent. Calculated by multiplying the weighted average daily wage rate by the weighted average number of days worked per month for each period. When the effects of inflation during included the real purchasing power of an average worker’s monthly income fell from NIS1,222.7 to NIS986.1-- a fall of 19.3 per cent. Preliminary results from the PCBS’s on-going year-long survey on household expenditures and consumption for late 1995 and mid-1996 indicate that an average-sized household (consisting of seven persons) was spending NIS2,509.0 in late 1995 and NIS2,471.2 in mid-1996 as shown in the Table 17. PCBS Expenditure and Consumption Levels; A Quarterly Report (October-December, 1995), April 1996. In addition, the PCBS has generously made available updates for the period January-June 1996. Using late 1995 prices as a base-line and adjusting for inflation, average real household expenditures at mid-year were NIS2340.3. In real terms, total household consumption declined 6.7 per cent with basic expenditures falling 9.0 per cent between late 1995 and mid-1996. The real value of purchases declined in every category except for housing, education, taxes and “other cash expenditures” (mainly inter-household transfers of cash). Spending on food, the largest component of household expenditures, dropped about 4.0 per cent and food purchases rose from 39.2 per cent to 40.4 per cent of total household cash outlays.


Table 17

Average WBGS Real Monthly Expenditures on
Basic and Secondary Commodities in Seven-Person Households in NIS,
End-1995 and Mid-1996 Figures for end-1995 are for October-December using the average NIS/JD exchange rate of 4.26. Figures for mid-1996 are for April-June using the average NIS/JD exchange rate of 4.503. PCBS Expenditure and Consumption Levels; A Quarterly Report (October-December, 1995), April 1996 and updated results for January-June, 1996 period. With the assistance of the PCBS.

Basic Expenditures
End-1995 Mid-1996
Figures for mid-1996 have been deflated using the average price index for each group of expenditures for the period April-June 1996, based on price levels prevailing in November 1995. Taxes, other cash expenditures and average income have been deflated by the overall average Consumer Price Index. All price indices are taken from PCBS Consumer Price Index, June 1996 , July 1996.
Housing 164.4 175.1
Food 985.7 946.6
Clothing and Footwear 214.3 181.8
Medical Care 34.0 33.6
Transportation and Communication 345.9 231.9
Education 60.9 61.6
Taxes 5.1 16.1
Basic Expenditures Sub-Total 1,810.3 1,646.7

Secondary Expenditures
Household Operations 34.0 33.8
Furniture and Utensils 171.2 108.8
Personal Care 56.2 52.3
Recreation 74.9 69.5
Tobacco 107.7 106.5
Other Cash Expenditures 254.7 322.7
Secondary Expenditures Sub-Total 698.7 693.6

Total Real Average Household Expenditures 2,509.0 2,340.3
Average Real Monthly Wage Income per Employed Worker 1,222.7 986.1

Average Real Monthly Wage Income as a Portion of Basic Expenditures 67.5% 59.8%
Average Real Monthly Wage Income as a Portion of Total Expenditures 48.7% 42.1%
A single average worker’s monthly income could only cover 67.5 per cent of basic needs and only 48.7 per cent of all expenditures in late 1995 and only 59.8 per cent of the reduced basic and 42.1 per cent of the reduced overall expenditures by mid-year. While this example excludes income earned by other family members, transfers received from government, United Nations agencies or NGOs, remittances received from family members abroad, the value of home-produced food and other goods (which are relatively insignificant) and the imputed value of rents on owned-homes (which economists consider part of household income), it nonetheless indicates that average-sized households may be experiencing significant economic distress.

The cumulative effects of the economic depression, combined with the disemployment caused by the February border closure, seem to have produced economic hardship at the level of the household. This is evident in the lower average levels of consumption and the reduced real incomes of wage-workers. The pressures from declining wages and higher prices partly explain the rising labour force participation rates, both in general and for women and children particularly.

Figure 11


While disaggregated regional data for mid-1996 are not yet available, evidence from late 1995 and early 1996 suggests there was, prior to the closure, a growing disparity between West Bank and Gaza living levels, based on household consumption expenditure patterns. Some indications of this were: 1) the absolute levels of average cash expenditures on food in the West Bank rose 8.3 per cent in the last quarter of 1995 while those in Gaza fell 15.2 per cent from a level already 10 per cent below that of the West Bank; 2) total food consumption (cash expenditures plus the value of home-produced food) rose 6.3 per cent in the West Bank and fell 14.7 per cent in Gaza from a level already 13.8 per cent below that of the West Bank; 3) total cash expenditures for clothing, medical care and education by the average family in the West Bank rose 4.3 per cent while in Gaza these expenditures fell 32.8 per cent from a level already 21.5 per cent below that of the West Bank. PCBS Living Levels in the West Bank and Gaza Strip (April 1996).


3. Household Adaptation to Economic Distress

Besides the increased tendency for more family members to seek wage-employment or income from small, oftentimes informal, commercial activities, there are indications of other responses to downward pressure on family living levels. Real expenditures on food, the largest single component of household expenditures, have declined due both to the effects of inflation and falling incomes. Indications are that food prices are rising more rapidly than prices generally. See PCBS Consumer Price Index (June, 1996), July 1996, p. 19. This is probably due to the fact that most food in the WBGS is imported from Israel and reflects Israeli inflation plus the higher transport costs caused by closure restrictions. At the same time, the relative composition of the average family’s food basket has also changed. Bread and cereal consumption, which accounted for about 17 per cent of total food consumption in late 1995, fell 1.2 per cent in real terms. Meat and poultry consumption, which accounted for 22 per cent of the food basket, fell 3 per cent. There were declines in nearly every other category of food consumption as well, with particularly large declines in oil, fish and restaurant meal consumption. The only increases in real terms were in the consumption of dairy products and eggs, vegetables and beverages. While this may not constitute a serious problem to the physical well-being of most families in the short-term, a deficiency of some nutrients threatens poorer families. See Reem Abu Iyyada and Jane Hannon Food Security: A Study to Assess the Impact of the Closure on Household Food Security in Gaza, Terre des Hommes, Gaza, July 1996.

Another response to the harder times, though it is difficult to say how widespread, has been the drawing down of existing stocks of savings both in the form of Jordanian dinars (the currency of choice for savers in the WBGS) and the sale of gold jewelry for the purpose of maintaining family consumption levels. Reports by moneychangers and jewelers in the West Bank are cited in World Food Programme’s bi-monthly update report, Gaza, 9 September 1996. See Abu Iyyada and Hannon Food Security for evidence of this phenomenon in Gaza. A third, apparently widespread, response to the income squeeze has been the taking on of debt in various forms. In Gaza, a study found that the proportion of surveyed families in debt doubled (to 56 per cent) after the February closure while the average debt load nearly tripled (to NIS1130). Credit extended by local shopkeepers for food purchases was the most common form of borrowing followed by loans from family or friends. See Abu Iyyada and Hannon Food Security and Husam Zomlot “Adaptation of Gazan Workers in Israel during the Security Closure,” (in Arabic) Department of Economics, Bir Zeit University, Spring 1996. There have also been reports of cash advances provided by moneychangers to workers employed in Israel. Less obvious forms of debt accumulation have been unpaid rent, electricity and water payments, all of which seem to have become more significant after the closure.

It is not yet clear if any interest--implicit or explicit--is charged to debtors through these informal credit channels. Anecdotal evidence suggests that this may not be a severe problem as yet, given the familial or personal nature of the borrowing. But evidence from one study does suggest that most lenders were asking for repayment of loans at least once per month which could indicate a growing reluctance on the part of creditors to continue to extend loans. See Reem Abu Iyyada and Jane Hannon Food Security. Over the longer term the accumulation of debt means future household consumption could be adversely affected as portions of current income are used to pay back these loans.

Finally, families have adapted to the economic pressures by increasingly seeking relief from whatever sources are available. Even prior to the closure, UNRWA was providing some 90,000 people with food and cash assistance. The United Nations World Food Programme (WFP) has reported increasing dependence of families on the United Nations, the Ministry of Social Affairs and on NGOs for such assistance since the February 1996 closure. WFP, on behalf of the Palestinian Authority Ministry of Social Affairs, increased its food distributions in Gaza by over 70 per cent to meet the needs of hardship cases and estimates that 20,000 families in the WBGS currently receive financial assistance from the Palestinian Authority Ministry of Social Affairs. Women heads of household are especially vulnerable and constitute two-thirds of WFP’s targeted beneficiaries.


IV. LOOKING AHEAD

The analysis presented above sheds some light on the trajectory of economic and social conditions in the WBGS over the last year. The macroeconomy has been in a state of depression for much of the last five years. Real aggregate and per capita incomes, as well as real wages have been severely compressed. Household consumption in 1996 has also fallen but not as rapidly, due to greater average labour market participation, especially of women, and the drawing down of accumulated savings and by informal borrowing. With Palestinians seeking work in historically high proportions, the labour force and unemployment have grown at historically rapid rates. All these trends seem to have been exacerbated since the February 1996 closure.

While the economic situation has generally been depressed, the West Bank, at least until 1995, seemed to suffer the effects of the depression less than Gaza. This is seen in the slower rates of decline in per capita GNP as well as household expenditures. In 1995, and especially after the February 1996 closure, the rate of deterioration in real monthly worker incomes was faster in the West Bank than in Gaza, despite the fact that Gazan unemployment rates were significantly higher. Without updated, regionally disaggregated data on family expenditures, it is difficult to say whether living levels have also deteriorated more rapidly in the West Bank. These trends may signal a bottoming out of incomes in Gaza, already well below those of the West Bank, and an intensification of income compression in the West Bank regional economy.

Evidence of abatement in the post-February 1996 macroeconomic decline appeared in August when estimates indicated that employment, unemployment and underemployment rates had stabilized at their mid-1996 levels. PCBS Labour Statistics Office, 11 September, 1996. Trade flows by then were near their pre-closure levels and there were over 40,000 WBGS workers employed in Israel. In September the Israel authorities gave public commitments to increase the number of work permits issued to Palestinians to at least 50,000. Under such a scenario, it appeared the magnitude of the projected decline in aggregate national income resulting from the February closure would be substantially reduced.

The violent clashes in the WBGS during late September, called this conclusion into question. The complete closure for two weeks which followed the violence resulted in losses in worker income from employment in Israel at a minimum of US$1 million for each day of closure. There were additional--probably higher--losses due to production and employment stoppages caused by the “internal closure” in the West Bank as well as export revenue losses. Labour flows from the WBGS to Israel and Israeli settlements as of the third week of October had returned to approximately their level just prior to the 26 September closure, although commodity flows had not fully recovered. While this is encouraging, more rapid movement on reversing the effects of both the 25 February and 26 September closures is needed to reduce the downward spiral in worker and business-owner incomes, as well as private sector confidence.

What the foregoing suggests is the centrality of Israel’s closure policy in determining economic growth rates, labour market conditions and, therefore, family living conditions in the WBGS. As already noted above, the real GDP in the 1992-1995 period (during which the closure measures were introduced) stagnated. Thus the indigenous economy of the WBGS, while it did not collapse, was unable to register any positive growth. On the other hand, the real GNP, which encompasses both the output of the indigenous economy and the value of worker incomes earned in Israel (and therefore the better measure of national income), lost about one-sixth of its value.

These results underscore the vital importance of Israel’s policies vis-à-vis labour and commodity mobility, as well as the establishment of industrial zones, for the immediate and medium term prospects of the WBGS economy. Since the closure policy began in 1993, the economy of the WBGS has been unable to register any positive growth and has contributed to large income losses and discouraged private sector capital formation. Such capital accumulation is the necessary prerequisite for the economy to begin to generate stable growth in income and employment sufficient to raise the level of living of the Palestinian population.

Closure has also made it more difficult for workers and producers to make full use of their comparative advantages by restricting the mobility of labour and commodities. This has distorted prices and led to wasteful misallocation of available human and natural resources. Continued use of the closure policy will result in greater waste and severely hamper prospects for sustained growth and economic and social development. This suggests that forecasting longer-term economic and social trends must be closely linked to expectations about the likelihood and severity of closures.

For the near term, estimates indicate that by the end of 1996, assuming the current LFPR persists, the WBGS labour force will grow to over 536,500 persons, 2.8 per cent higher than its size at mid-year. While this represents a halving of the growth rate as compared to the first six months of 1996, when the labour force grew at an 5.6 per cent rate, it means an additional 15,000 people in the job market as compared to mid-year, nearly 2,500 more per month. Getting beyond the closures, sustainably employing these new labour market entrants and increasing job opportunities for the currently unemployed and underemployed must remain a central task for all partners in the peace process and the development effort in the West Bank and Gaza Strip.

Statistical Appendix
End-1995 Mid-1996
Total Population WBGS 2,460,000 2,535,000
Male 1,242,000 1,280,000
Female 1,218,000 1,255,000

Working-Age Population (15-64) 1,195,000 1,230,000
Male 592,000 610,000
Female 603,000 620,000

Total Labour Force 493,800 521,600
Males 422,900 409,100
Females 70,950 77,000

Total Employed 402,300 368,850
Males 344,750 309,300
Females 57,550 59,550

(Total Underemployed) 107,825 77,150
Males 100,225 71,775
Females 7,600 5,375

Total Unemployed 91,450 152,750
Males 78,275 135,325
Females 13,175 17,425


Distribution List for Final Draft of Quarterly Report

UNSCO UNRWA UNDP WORLD BANK
Larsen Pollock Dakkak Khader
Vittachi O’Brien AbdelShafi Abu Dagga
Smit Mushasha
Hawkins Wattez
Khaledi Dushyant Joshi (Gaza)
Cook Jean Luc Bories
Ali Fernandez
Maas

SWGs through Lindsey
AHLC through Smit
UN agencies through Hawkins

IMF ILO WFP UNICEF ESCWA
Fayyad Bussi Sabra Abeysekera Abdalla
Calan Druccio

PCBS PECDAR MAS AEA MOPIC U.S. Consulate
Abu Libdeh Shtayyeh Kassis Abdallah Tartour Sutphin
Khawaja Amad Abdel Razeq Feltman
Shabanneh Daoud Jensen
Shunnar
NGOs
Save the Children (Patrick)
Terre Des Hommes (Reem and Jane)
CISS (Benadetta and Piero)
CRIC (Anne Cipicchia)
Palestinian Center for Human Rights (Serena Hoy)
Center for Jewish-Arab Economic Development (Sara Kreimer)

Donors through LACC (Smit)
Uys Viljoen, South Africa (Ramallah)
Mahmoud Kareem, Egypt (Gaza)
Bruce Lendon, Australian (Tel Aviv)
Michael Stahl, Sweden (Jerusalem)
Etham Todemir, Consul General of Turkey (Jerusalem)
Christopher Crowley, USAID (Tel Aviv)
Martin Kobler, Germany (Jericho)
Aldo Sicignano, Italy (Jerusalem)
MEDIA
Elena Hamsteensen, Morgen Bladet, Oslo
Nadia Rahman, BBC, Jerusalem
Anthony Shadid, AP, Cairo
Distribution List for Draft of ESMU Quarterly Report

UNSCOWORLD BANKPECDARUNICEFWFP
LarsenKhader25/9Shtayyeh27/9AbeysekeraSabra30/9
Vittachi26/9PCBSAmad30/9Abu Hein30/9MOPIC
Smit30/9Abu Libdeh27/9SherifUNDPKhaledi30/9
Hawkins30/9Khawaja30/9UNRWADakkak30/9Tartour
Khaledi30/9Shabanneh30/9Pollock30/9Abdul Shafi30/9
Cook30/9Shunnar30/9O’Brien30/9Fernandez-Taranco1/10
Ali30/9IMFILOAEA
Maas30/9Fayyad30/9Bussi30/9Abdallah

Housing
164.4 177.4
Food 985.7 1019.9
Clothing and Footwear 214.3 192.2
Medical Care 34.0 36.0
Transportation and Communication 345.9 242.2
Education 60.9 62.1
Taxes 5.1 17.1
Basic Expenditures Sub-Total 1,810.3 1,746.9

Secondary Expenditures
Household Operations NIS 34.0 NIS 36.0
Furniture and Utensils 171.2 108.5
Personal Care 56.2 55.3
Recreation 74.9 68.9
Tobacco 107.7 114.8

Other Cash Expenditures 254.7 340.8
Secondary Expenditures Sub-Total 698.7 724.3

Total Average Household Expenditures NIS2,509.0 NIS2,471.2
Average Monthly Wage Income per Employed Worker 1,222.7 1,041.2


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