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Abstract
This paper measures and analyzes the dynamics of the public–private wage differential in the West Bank and Gaza for the period before and during the ‘second Intifada’ using data from the Palestinian Labour Force Survey (PLFS) of the Palestinian Central Bureau of Statistics (PCBS). Because the distribution of workers’ individual characteristics, such as skills, and the ‘returns’ to these characteristics may differ across workers, the wage differential is decomposed into two components: an ‘endowment’ effect and a ‘returns’ effect. The results show that in the pre-Intifada period, the wage gap between the public and private sectors narrowed in both the West Bank and Gaza. However, a sharp increase is seen after the outbreak of the Intifada. Moreover, most of this increase comes from an increase in ‘returns’ to skills composition in the public sector, (unexplained effect), rather than a change in the skills composition of public sector workers, (explained effect). Using recent econometric quantile regression techniques, the analysis of the public–private sector wage gap from 1998 to 2006, at various points along the wage distribution, shows that the wage premium, (penalty), for the public sector varies across the distribution, being higher, (lower), at the lowest end of the wage distribution and decreasing (increasing) along the wage distribution; it becomes negative in the top percentiles.
Acknowledgements
I am deeply grateful to the Palestinian Central Bureau of Statistics for providing the Palestinian Labour Force Survey data; I owe special thanks to Michael Beenstock, Massimiliano Cali, Esteban Klor, Hani Mansour, Daniele Paserman, Robert Sauer, Eytan Sheshinski, Avichai Snir, Asaf Zussman, and Noam Zussman for their helpful suggestions and comments.
Notes
1. Source: International Monetary Fund data files.
2. The Palestinian political and economic situation is unique in many ways, and international experience should be interpreted with care when applied to the Palestinian context.
3. This is contrary to Leping (Citation2005, 2006). Some of this difference can be attributed to the different timeframe for the data of these papers, which is 2000 and 1989–2005, respectively, compared to 2008 for Christofides and Michael (Citation2013). We also know from Leping (Citation2006) that the negative public sector premium became less negative with time.
4. Wage employment represents approximately 55% of total employment in the West Bank, and two-thirds of total employment in Gaza, percentages that have remained fairly stable since the outbreak of the Intifada. The other three types of employment are ‘employer’, representing approximately 5% of total employment in the West Bank and 3% in Gaza; ‘self-employed,’ amounting to roughly 28% in the West Bank and 23 percent in Gaza; and ‘unpaid family member,’ which accounts for approximately 11% of employment in the West Bank and 9% in Gaza. These three groups were not asked about their wages in the PLFS.
5. Including Palestinians workers in Israel would give a confused picture of the public-private wage gap in the Palestinian local market, because Palestinian workers in Israel are generally paid more than those employed in the Palestinian local market.
6. The female labour force participation rate in 1998–2006 averaged 14.4% for females from the West Bank and 8.4% for females from Gaza.
7. The PLFS questionnaire on hours worked asks, ‘How many hours did the household member work in all jobs last week?’ This number was multiplied by 4.35 weeks per month, and then divided by the number of reported workdays in the month to calculate hours worked per day.
8. Thereby removing the most extreme responses, which in some cases are simply the results of incorrect data entry.
9. According to the World Bank report in Citation2006a ‘West Bank and Gaza Update’: ‘Between Q3 of 2000 and Q4 of 2000, the number of wage employees working in the private sector in the West Bank fell by 28,500; by Q2 of 2002, a further 27,900 West Bank private sector wage employees were no longer working, a decline of 48% from the last quarter prior to the Intifada, when 117,600 workers enjoyed regular wage employment. In Gaza, the reduction was more sudden: Whereas 43,000 Gazans held regular wage employment in Q3 of 2000, that number fell to 22,600 in Q4 of 2000; a further 2900 were without regular private sector wage jobs by Q3 of 2002, a decline of 59%.’.
10. According to the same report, public sector employment increased by 13% through 2007–2013, making it likely that for the period studied in this paper, the public sector was also not very large by international standards.
11. For instance, the UNSCO database shows that the number of comprehensive closure days imposed in the West Bank increased from 53 in 1998 to 260 in 2006; and in Gaza from 28 days to 77 days during the same period.
12. According to the World Bank report in May 2003, ‘The negative impact on domestic employment of job losses in Israel was aggravated by the difficulties in conducting business within the West Bank and Gaza: Internal closures and curfews are attended by significant transaction costs, disruption in production cycles, losses of perishable output, and lower economies of scale. Regional variations in unemployment and labor participation between the West Bank and Gaza are significant. By Q3/2002, 51,000 of the 327,000 eve-of-intifada private sector jobs had been lost in the West Bank (16%), and 54,000 of 164,000 in Gaza (33%).’.
13. Miaari and Sauer (Citation2011) document the large and statistically significant negative effects of the Israeli-Palestinian conflict on Palestinian employment rates in Israel and mean monthly earnings, regardless of work location, (Israel or the West Bank and Gaza), following the outbreak of the Intifada.
14. External closures consist of restrictions on the movement of Palestinians and Palestinian goods between the West Bank, Gaza, and Israel (as well as third countries). Internal closures consist of restrictions on the movement of Palestinians within the territories.
15. Controlling for occupational affiliation in the wage regressions would eliminate inter-occupational wage gaps.
16. Adding and subtracting the term in Equation (3).
17. We also use (a) pooled regression non-discriminatory wage coefficients because the source of the wage gap might stem from both positive discrimination of one sector and negative discrimination of the other, and the two often occur together (Jann Citation2008). In our case, the positive ‘discrimination’ is the extra funds allocated towards public sector employment, while the negative one is the effects of the second Intifada on the private sector.
18. See Reimers (Citation1983) and Neuman and Oaxaca (Citation2004a) for more details on choosing the ‘correct’ selectivity decomposition.
19. A greater number of jobholders in the same household increases the probability of joining the private sector, without affecting the worker’s wage. A higher share of public sector employees in a locality facilitates access to jobs in the public sector.
20. The number of Palestinian labourers in Israel falls from a high of 146,000 just prior to the start of the uprising, (116,000 from the West Bank and 30,000 from Gaza), to around 50,000 in Q4 of 2004; since then, the number of Palestinian workers in Israel and in the settlements has been relatively stable, fluctuating with the extent of closure imposed by Israel.
21. Note that there is also great similarity between the trends of the returns effect and those of the selectivity-corrected wage gap for skilled workers.
22. See Bassett snd Koenker (Citation1978; Citation1982) for details on quantile regressions.