Since the late 1980s, the authors have advocated liberal access of Palestinian goods and labor services to the respective Israeli markets.1 In the 1990s, notwithstanding the grim post-Oslo reality and the mounting of inter-territorial barriers, we have maintained that, given inter-territorial separation, border facilities should be streamlined and liberal access be preserved.2
In 2007 questions of security impediments to inter-territorial access seem less pressing than the internal obstacles to daily economic life caused by the numerous intra-territorial barriers placed by the IDF as security measures throughout the West Bank. Nevertheless, we find it useful to examine the supposedly less important inter-territorial dimension, because bilateral economic initiatives are back on the drawing boards, and apart from outright donations, trade remains the readily available key to Palestinian economic relief.
Within that framework we venture an attempt to present in simple, realistic terms the question of Palestinian access to Israel's labor market, including an assessment of the economic equivalent of the security burden incurred.
1. Exports and the Palestinian Value Added, Past and Present

a) Trends - Since the late 1960s, the growth of the Palestinian national product reflected an underlying development in Palestinian exports of goods and services. Figure 1 below summarizes this phenomenon, relating approximations of the GNP per capita from 1968 to 2006 to the concurrent value added per capita incorporated in Palestinian exports of goods and services. In other words, the Figure relates the Palestinian national income per capita to the contribution of exports of goods and services to that income.3

Figure 1:
GNP per Capita, Related to Value Added per Capita Incorporated in Exports of Goods and Labor Services, the Palestinian Economy, 1968 - 2006

A long-term trend which prevailed from 1968 to 1992 is reflected in Figure 1 by a straight line, the gradient of which is indicative of a "multiplier" effect characteristic of a small, trade-dependent economy. As indicated by the dotted line, after 1992 the quantitative effect of trade with or through Israel has been reduced. This happened for two reasons: a) Following the establishment of the Palestinian Authority (PA), foreign exchange donations, positively affecting public sector employment, shared with exports the "multiplier" effect on the generation of Palestinian value added; and b): adverse developments in the political-institutional framework may have reduced the effect of exports on the Palestinian GNP.

b) Composition - As indicated by Figure 2, value added to the Palestinian GNP through trade consisted of two components - goods and labor services.
Figure 2:
Value Added per Capita Incorporated in Exports of Goods and Services, the Palestinian Economy, 1968 - 2006



The goods exported were traditional as well as sophisticated farm products, finished and intermediary goods manufactured by the clothing, food, woodcraft, metal and other Palestinian industries. Some goods were exported with slight Israeli interference. By and large, goods were exported to or through Israel, involving varying degrees of business cooperation between Palestinians and Israelis, in the production, processing, transporting and marketing of the end-products.
Services were, by far, labor services rendered by Palestinians with access to Israel's labor market and, before the first Gulf War, limited access to labor markets in the Gulf.

c) Critique and Reality: A Palestinian Perspective - The lopsided pattern of Palestinian exports to and through Israel, reflected in Figure 2, has been criticized in Palestinian as well as Israeli circles. Some Palestinian and international experts rightfully claim that excessive reliance on employment in Israel determines relatively high wage rates in the Palestinian territories, thus hampering Palestinian industrial development. However, these claims were in the background five years ago, when World Bank experts contemplated optimistic scenarios for the Palestinian economy, featuring the employment of 165,000 Palestinians in Israel. Now, when actual figures have dropped to 30,000-35,000 and optimistic scenarios forecast employment in Israel to be less than 50,000, the original claim becomes disproportionately unwarranted.4
d) Critique and Reality: An Israeli Perspective - The range of wage rates prevalent in Israel reflects, at the upper end, the opportunities and rates of remuneration in the Silicon Valley. At the lower end, the range is being extended by the presence of transient Palestinians and foreign workers, who contribute to unemployment and drag down wages. Israeli experts and are inclined to conclude that the presence of foreign workers should be minimized.
Indeed, from the late 1990s to the mid-2000s Israel did manage to ease the problem of Palestinian and foreign workers. As Figure 3 indicates, Israel reduced its annual dollar spending on foreign workers by $700-850 million.5 However, it did so at the expense of the Palestinians, whose losses amounted to $700-800 million per year, the equivalent of 75,000 jobs.

Figure 3:
Annual Dollar Spending on the Remuneration of Palestinian and Foreign Workers from Abroad, Israel, 1999 - 2005

2. Recovery of Palestinian Exports

a) Palestinian Goods - As Figure 2 indicates, Palestinian exports of goods have been damaged considerably between the mid-1990s and 2006. Further decline took place following Israel's withdrawal from and Hamas' takeover of Gaza. At present, Palestinian value added incorporated in exported farm products and manufactured exportables originating in Gaza hardly materializes. Realization of that value seems pre-conditioned by the removal of the present regime. However, once that regime is removed, recovery of exports of goods originating in Gaza is bound to be expensive and time-consuming.
For example, a certain portion of the lost Palestinian value added originated in the disbanded Erez industrial park. Recovery in that case would require substantial investments and a span of three years or more, long enough for the establishment of a new functioning "industrial park" capable of employing 4,000 industrial workers. Also, a substantial decline in the Palestinian value added may follow a looming paralysis of the export-oriented flori-horticultural facilities, employing 25,000 Palestinian operators and hired hands. Recovery in this case, including realignment with the Israeli and European outsourcing allies, might require a certain amount of investment and a span of 1-2 years.
Unfortunately, only marginal sweatshops are capable of inexpensive and instantaneous recovery. In principle, the recovery of export-oriented facilities, let alone the generation of new facilities, in the West Bank as well as in Gaza, is costly and time-consuming.

b) Palestinian Labor Services - Needless to say, the recovery and further development of the Palestinian capacity to produce and deliver exportable goods should be part and parcel of any program originating at the Palestinian-Israeli interface. However, a bilateral program aimed at the Palestinian export of goods is not enough. Considering the time dimension, a rehabilitation of the exports of goods, must be complemented by a certain recovery of the Palestinian export of labor services to Israel.
At any rate, a bilateral program aimed at the recovery of the Palestinian economy is inconsistent with the declared policy of marginalizing the presence of Palestinians in Israel's labor market toward the end of the decade.

c) Market Capacity - The latest figure for Palestinian employment in Israel stands at approximately 30,000. This figure could be increased, almost instantaneously, if Israel's construction industry were permitted to absorb an increment of 10,000 Palestinian employees. Within 6-18 months that industry could release10,000 foreign workers and absorb additional Palestinian employees instead. Prevailing attitudes toward this move in and around that industry seem favorable. Nonetheless, some government support could help expedite that reinstatement process.
Israel's farm employment today totals approximately 75,000. One-third of these are foreign and Palestinian workers, of whom the latter accounts for only 10%; the remainder is Thai labor. At least 15,000 of the farm workers from abroad could be replaced by Palestinian employment within a span of 6-12 months.
Prevailing attitudes toward this move in the farm sector are unfavorable. Political pressure and government intervention by way of licensing out and/or taxing out foreign labor from abroad as well as considerable material support would be necessary to implement this reinstatement process.
Yet, all in all, Israel could offer the Palestinians 35,000 pre-designated jobs and perhaps an additional 5,000-15,000 occasional jobs within 6-18 months. In terms of the Palestinian GNP, this addition would be equivalent to $400-500 million per annum.

d) Security, the Burden - In considering the need for material government support, a major factor concerns carrying the burden of the employers' security, that is, security as perceived by the potential Israeli employer. Should the program of reinstatement of the Palestinian workers opt for paradigms of security as perceived by a very cautious employer, that burden could be quite significant.
For instance, a paradigm of that nature was implemented in the employment of Palestinians in (now dismantled) Jewish farming settlements in Gaza. It called for a mobile and well-equipped accompanying officer for the entire day. The cost of such an officer would amount to 12,500 Israeli shekels (NIS) per month. Within the framework of a similar paradigm implemented in agriculture in Israel proper, an officer or an operative of a manpower cum security agency could accompany 10-15 Palestinians generating an income worth NIS 50,000 per month. In other words, the burden of on-site employers' security is equivalent to 25% of the income generated by Palestinian employees. Daily passage through near-fool-proof border facility and other off-site arrangements will add 2.5-5%. All in all, the cost of security arrangements may amount to 30% of the value added.
If this paradigm were implemented in the construction sector, the equivalent percentage-expenses would be smaller, for two reasons: 1) the larger number of employees per site; and 2) value added per employee, which is 40% higher than in agriculture. In that case the calculated overall burden of security may drop to 10-15% of the generated value added.
It should be understood that this theoretical paradigm is not intended for practical implementation. Its sole purpose is to allow for the approximation of an upper-limit (perceived) cost burden. The individual employer or employee is not necessarily meant to carry that cost. Calculating security costs as a percentage of the wage-bill is merely a way to point out that the claimed wage-tax is not prohibitive. In view of the alternative - high Palestinian unemployment - it seems a bearable percentage.

3. Concluding Remarks

The "heyday" of Palestinian employment in Israel cannot be restored. The physical barrier between the territories, with the best conceivable passage facility, will not allow the revival of the pre-1987 practically free movement of private cars carrying workers from the Palestinian territories into the metropolis of Greater Tel Aviv. That kind of trust is lost.
Moreover, the Israel of 2007 is not the Israel of the late 1980s or early 1990s. At present, agriculture and construction account for 7% of Israel's total employment, as compared with 12% in the "good old days." Furthermore, employment in other receptive industries like garment and textiles, which engaged thousands of Palestinian employees, has dropped from 16% of Israel's total industrial employment to 6%.
We cannot revive the past. Still, we can and should do our best under the present circumstances.


Endnotes

1 For instance: Sadan, E., "Employment of Palestinians in Israel" and "Prompt Industrial-Economic Development in Gaza," reports prepared for the Minister of Defense, May 1989, August 1991; and "The Best Way for Both Sides," Palestine-Israel Journal, Vol.1, No.1, 1994.
2 Sadan, E. & Lowental, R. "Save the Union," Palestine-Israel Journal, Vol. 4 No.3/4, 1997; and "Reversing the Tide", Palestine-Israel Journal, Vol. 6 No.3, 1999.
3 Data employed in Figure 1 from 1968 to 1995 are current dollar values adjusted to price levels in the mid-1990s. Data from 1995 to 2006 are dollar values at current prices. The approximated values were derived from series and occasional communications of Israel CBS and the IDF, the Palestine CBS, the World Bank and the International Monetary Fund, UNCTAD and the CIA.
4 Compare, for example , the employment figures contemplated in: The World Bank (2002), Long-Term Policy Options for the Palestinian Economy; the World Bank (2005), The Palestinian Economy and Prospects for its Recovery; and the International Monetary Fund - the World Bank (2007), West Bank and Gaza, Economic Developments in 2006 - A First Assessment. Note that the actual figure consistent with the statistics underlying Figure 3 below is 31,500.
5 Source: Israel CBS, Balance of Payment Accounts, 2006. Note that the outlay of $2 billion indicated by Figure 3 for foreign workers from abroad represents 185,000 workers (45% illegal).