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
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
GNP per Capita, Related to Value Added per Capita Incorporated in
Exports of Goods and Labor Services, the Palestinian Economy, 1968
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.
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
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
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.
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
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
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
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
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
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.
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,
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).