The Effects of Labor Supply Shocks on Wages During The Second Intifada Wafa Sabbah Majed Musa

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Introduction

Political instability as many economists see have a strong adverse effect on economic propensity. September, 2000 as consequences of the second intifada, many restrictions had been affected the movement of goods and workers due to closures and curfews

In

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Purpose of the study

paper will examine one of the cost of conflict by examining the effect of labor supply shocks on labor market outcomes during the second intifada . it focuses on the effect in West Bank .

and

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Theoretical Framework :
Numerous

empirical studies trying to examine the effect of labor supply on wages

The hypothesis was:

supply shocks negatively affect the mean wage of Palestinian workers in West Bank. will contribute to the literature by examining this effect using quarterly data for the period of 2000-2004 for each city in the West Bank.

We

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Methodology
-Data
-

Model

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Data
The

data used is in the individual level for Palestinian workers obtained from the Palestinian Labor Force Survey (PLFS) for the years 2000-2004 by Palestinian central Bauru of statistics. sample restricted for males in the labor force between the ages of 18 and 64. surveyed during the twenty-four quarters between quarter one of 2000 and quarter four of 2004
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The

and

ContData
sample

has 81,464 observations at the individual level. focus on the labor market in the West Bank, excluding East Jerusalem and Gaza from the analysis.

we

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Descriptive Statistics
Table 1 show the main characteristics of Palestinian labor market for the period 19992004 for men.
The figures shows that employment in west bank remain almost stable. The case for worker supply in Israel was slightly different, where the percentage of employment fluctuate from time to time, it was 31% in 1999 and drop to 8% in 2004. This reduction is due to political events

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Table 1: Descriptive statistics of Palestinian based on work location (1999-2004)

Work in the West Usually work in Unemployed with Bank Israel no work location Year 1999 2000 2001 2002 2003 2004 Percentage 45 46 40 35 43 45 Percentage 31 31 21 8 11 12 Percentage 5 5 17 28 21 19

Note the sample include men aged 18-65 , resident of West Bank. East Jerusalem is excluded. 5/22/12

Comprehensive Closure Days

the number of closure reached its maximum by 244 days in 2001 and it decreased slightly in 2003 and 2004 to reach 170 days on average.

NEXT FIGURE

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Figure 3: Number of comprehensive closure days (2000-2004)

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Palestinian and foreign worker employment in Israel by sector :

the second Intifada Israel decreased the number of work permits issued to Palestinians and restrict it regarding to different characteristics such as age and marital status. That was supported by Israeli policies through decrease demand for Palestinian workers and allow importation of foreign workers
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Table 3: Palestinian and foreign worker employment in Israel by sector

Year

Agriculture

Construction

Manufacturing

Commerce Hotel

Transport storage

Services

Residents of the West Bank 1999 2000 2001 2002 2003 2004 .073 .075 .066 .075 .066 .075 .522 .522 .506 .409 .466 .410 .131 .123 .146 .173 .154 .167 .144 .159 .179 .208 .196 .209 .018 .018 .018 .025 .021 .029 .082 .074 .085 .111 .098 .111

Foreign workers 1999 2000 2001 2002 2003 2004 .155 .105 .099 .097 .113 .135 .332 .309 .336 .318 .268 .267 .012 .011 .010 .011 .088 .078 .040 .056 .063 .060 .062 .060 .000 .000 .000 .000 .000 .000 .502 .519 .492 .514 .549 .530

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Model
We

formulate an empirical model to estimate the effect of supply shocks on wages

Stage Stage

Second

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Second Stage

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Estimation Results
Table

4 shows the effect of supply shocks on the mean wage in west bank. where the coefficient of supply is - 0.3040 and its statistically significant from zero. suggesting that the mean value of wage decrease by 0.30 per one percent increase in supply and this go in line with our expectation. NEXT
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Table 4: Estimation Results the effect of labor supply shocks on the mean wage in the West Bank.

Main Results Constant

0.0513 (0.0252)

Supply

- 0.3040 (0.0991)

0.034 Number of observation 5/22/12 220

 The

Estimated Results is due to Different reason:

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ContEstimation Results
First: Israeli measurement restrict worker mobility to Israel. as a result most workers would have had to look for jobs in their city of residence, so the labor supply have been absorbed locally. Second: as a consequences of second intifada, the economic situation in west bank became worse due to closure as well as other restrictions where many businesses shut down .Thus, decrease the demand for labor .
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Finding and interpretation of results

The identifying assumption is that the change in the number of workers reporting Israel as their work location from each city varies over time for reasons that are uncorrelated with the underlying or current city-specific economic conditions as shown in Figure 2 (a), (b).

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Figure 2 (a) :Supply share for Palestinian workers in Israel different cities (2000-2004)

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Figure 2 (b) :Supply share for Palestinian workers in Israel different cities (2000-2004)

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ContFinding
share

of Palestinian employment in Israel remained high until the third quarter of 2001. high proportion of unemployed workers who continued to report Israel as their work location in 2001, when workers still expected to go back. labor supply did not actually occur until the third quarter of 2001, and continued to vary through 2004 5/22/12

domestic

Finding ..Mean Log Wage

figure shows a sharp decrease immediately after the outbreak of the second Intifada in the fourth quarter of 2000. The wages increase slightly towards the beginning of 2001 and then continue to decrease gradually throughout 2002-2003 and stabilize at a lower rate by 2004

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Figure 4: Mean Log Wages

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Conclusion
The

results suggest that the mean value of wage decrease by 0.30 per one percent increase in supply and this go in line with our expectation. supply share fluctuate during the period of our study where the share of Palestinian employment in Israel remained high until the third quarter of 2001 where workers still expected to go back to their work in Israel.
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The

Cont.Conclusion
the

effect may vary across cities according to the difference in closure and sanctions imposed in each one. quarterly mean log real daily wages for residents of the West Bank who were employed locally for the years 2000-2004 shows a sharp decrease immediately after the outbreak of the second Intifada in the fourth quarter of 2000
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The

THANK YOU

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