West Bank and Gaza: Selected Issues

This Selected Issues paper explores Palestinian labor market outcomes, dynamics, and policies. The Palestinian economy did not create enough jobs to absorb new labor market entrants. This even as labor force participation rates remained stubbornly low and among the lowest in the world for Palestinian women. Female labor outcomes are particularly disappointing. For both sexes, there are high disparities in labor market outcomes across governorates and cities, reflecting geographic fragmentation and spatial mismatch between labor force and employment growth. Moreover, the gap in labor outcomes between the West Bank and Gaza has widened over time. Further facilitation of private sector job creation in high-productivity tradable services sectors could help absorb well-educated labor market entrants, while Palestinian Authority (PA) policies could raise female labor force participation and employment. However, PA policies alone will not suffice to tackle job market challenges, as growth remains tepid in ambitious policy scenarios, barring easing of Israeli-imposed restrictions on the movement of people. Overall, a high elasticity of jobs to growth of 0.7 suggests improved labor market outcomes and higher growth would go hand in hand.