Wage Differential between Palestinian Non-refugees and Palestinian Refugees in the West Bank and Gaza

Sameh Hallaq

Al-Quds Bard College Al-Quds University

Full Article:  http://www.ijdc.org.in/uploads/1/7/5/7/17570463/2_hallaq.pdf

Abstract

This paper measures the wage differential between Palestinian non-refugees and Palestinian refugees in the West Bank and Gaza over the years 1999–2012. First, the main individual and occupational differences between the two groups in the two regions are presented. Then, the wage differential is decomposed into two components: a “human capital effect, explained part” and a “coefficient effect, unexplained part.” Second, findings suggest that though the wage gap has always existed and favored non-refugees in the West Bank, it has a more substantial impact among low-skilled workers and those in the private sector. Furthermore, most of this gap is attributed to the unexplained part of the wage decomposition model. In Gaza, the wage gap favored refugee workers. Most of this wage gap among unskilled workers is attributed to the endowment/human capital effect, while for skilled workers most of the wage gap is due to the unexplained part, the “coefficient effect,” after 2006.

The paper emphasizes the importance of investing in human capital to help reduce dependence on the Israeli labor market. It also recommends formulating new policies to help absorb refugees into the private and public sectors, especially in the West Bank. Finally, the results point to the importance of education and the expansion of public sector employment as contributors to the mitigation of this wage gap.

This article addresses an important and sensitive issue that has been affecting Palestinian society for more than 7 decades.  Approximately more than 40% of the Palestinian population living inside the Palestinian territories has official refugee status, as they and their parents were displaced from their land and lost their home and their means of livelihood in the 1948 war. This research attempts to answer why those  Palestinian refugees, living inside the Palestinian territories are suffering from wage penalties, despite their higher education level compared to non-refugees.  The current study analyzed the trend of the wage gap separately in the two parts of Palestine, the West Bank and the Gaza Strip taking into consideration the major economic shocks affecting the two regions such as the second Palestinian Intifada, and the political division between the West Bank and Gaza strip until the recent period.  First, the research presents the main individual and occupational differences between the two groups in the two regions. Then, the wage differential is decomposed into two components: a “human capital effect, explained part” and a “coefficient effect, unexplained part.” The findings suggest that though the wage gap has always existed and favored non-refugees in the West Bank, it has a more substantial impact on low-skilled workers and those in the private sector. A substantive part of the wage gap is due to the fact that refugees are less likely to work in Israel. Furthermore, most of this gap is attributed to the unexplained part of the wage decomposition model In Gaza, the wage gap favored refugee workers whereas the public sector provides many opportunities there.  Most of this wage gap among unskilled workers is attributed to the endowment/human capital effect, while for skilled workers most of the wage gap is due to the unexplained part, the “coefficient effect”, in particular, after 2006.  The paper emphasizes the importance of investing in human capital to help reduce dependence on the Israeli labor market. It also recommends formulating new policies to help absorb refugees into the private and public sectors, especially in the West Bank. Finally, the results point to the importance of education and the expansion of public sector employment as contributors to the mitigation of this wage gap.