Wage differential between urban and rural Palestine : the shadowof Palestinian-Israeli conflict

Abstract EN

The objective of this paper is to explore the impact of Israel's development restrictions on average wages in area C, in Palestine.

Utilizing an extensive labor force data, we show that area C workers earn 8 percent less than workers in A & B areas.

When controlling for worker's observed characteristics, the area C wage differential estimate drops by a half.

We extend our analysis to compare average rural wages between area C and non-area C workers.

We provide evidence that the wage difference between area C and non-area C rural workers is statistically insignificant, indicating that the area C wage differential we observe is attributed to rural effect.

This particular result indicates that the impact of the Israeli restrictions on area C wages is neutralized.

Evidently, we show that negative labor supply shock (commuting) is a potential mechanism to neutralize wages.

Specifically, we show that area C residents are more likely to commute than their peers in other rural areas.