Role of the palestinian industrial sector in employment : an econometric investigation

Abstract EN

The purpose of the study was to estimate labor demand function of the Palestinian industrial sector using regression analysis of a cross-section data.

The major result was that labor demand by industrial firms in Palestine was inelastic in relation to both wage rate and output.

Even though the elasticity of labor demand, with respect to output and value added, was less than one, employment was indeed responsive to product demand shocks.

Another result indicated that economic structures appeared to be not suitable for rapid absorption of increasing labor in industry.

Weak linkages and other structural weaknesses have resulted in rigidities in the economy thus frustrating adjustment in production.

The main policy recommendation that can be made, depending on the results, is that improving the labor absorptive capacity of the Palestinian industrial sector requires focusing on policies, measures that aim at increasing output, domestic value added in the first place, and on relative factor prices in the second place.