## 1. Palestinian labor market outcomes are on the whole disappointing. Labor force

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### Key findings — aggregate labor market outcomes
- Labor force participation is low: "45 percent at end-2022."
- More than half of the working age population is outside the formal and informal labor force and only a third of the working age population is employed.
- Another third is not in education, employment, or training, including "860,000 people, all women, whose occupation is labeled 'housekeeping' in Palestinian Central Bureau of Statistics (PCBS) labor force surveys."
- Unemployment is high: "23.4 percent at end-2022."
- Employment distribution: "Two-third of the employed are in the Palestinian private sector, while 21 percent are public sector employees, and 13 percent work in Israel and settlements."

### Labor supply–demand dynamics and trends
- Labor force growth and job creation (2000–2021):
  - The Palestinian labor force expanded by "around 35,000 workers per year."
  - The domestic labor market created "about 20,200 new jobs" annually.
  - "1,800 more Palestinians took jobs in Israel and settlements each year."
  - Unemployment rose from "14.3 percent in 2000 to 26.4 percent in 2021."
- Regional divergence (West Bank vs Gaza):
  - Unemployment gap widened: in 2000 Gaza "19 percent" vs West Bank "12 percent" (a 7 percentage point gap); by 2021 Gaza "47 percent" vs West Bank "15.5 percent" (a 31 percentage point gap).
  - Average duration of unemployment: in 2000 both regions "6½ months"; by 2021 West Bank "7.2 months" and Gaza "17 months."
  - The 16-year blockade prevents Gazans from traveling to the West Bank for work.
- Gender and youth disparities:
  - Female unemployment rose from "12.4 percent in 2000 to 43 percent in 2021."
  - Female labor force participation averaged "15.5 percent over the past two decades."
  - Male unemployment rose from "14.6 percent in 2000 to 22.4 percent in 2021."
  - In WBG only "1 in 10 women aged 15 and over is employed."
  - Most unemployed women are young ("34 or younger") and highly educated ("93 percent of them completed 13 or more years of schooling, while only 30 percent of males attained the same level of education").
  - Average unemployment duration: women "around 20 months" versus men "only 10" months.
  - Youth unemployment is "more than 33 percent at end-2022 (and over 60 percent in Gaza)," with young women facing "53 percent unemployment."

### Sectoral job creation, productivity, and the growth–employment nexus
- Employment–growth elasticity:
  - "A 1 percent growth in output correlates with a 0.74 percent increase in Palestinian employment on average during 1990–2021," compared to "0.66 percent on average for MENA countries."
  - WBG’s employment-growth elasticity is significantly higher than for comparable countries.
- Sectoral job shifts (2000–21):
  - Some "10,000 jobs were lost in the agriculture sector."
  - "43,000 new jobs were created in the mining and manufacturing sectors."
  - "50,000 in the domestic construction sector."
  - "Six times more were created in services."
- Contributions to per capita value-added growth:
  - Low employment and labor productivity growth have been a drag on per capita value-added growth and are projected to continue weighing on it in the medium term under unchanged policies; positive contributions from demographic change and increased labor participation rates are not projected to offset negative impacts from employment and productivity.
- Labor productivity levels and trends:
  - West Bank average labor productivity hovered around "US$6 (in 2015 US$) per hour worked" for the past two decades.
  - West Bank construction sector: "US$3 (in 2015 US$)."
  - West Bank services other than commerce, hotels, and restaurants: "US$9 (in 2015 US$)."
  - Gaza average labor productivity during 2000–21: "about US$5 (in 2015 US$)."
  - Gaza sectoral contrasts: transportation and storage saw an annual "5.5 percent decline" in labor productivity, while agriculture and fishing registered a "7.3 percent annual increase."

### Spatial mismatch and barriers to mobility
- Jobs are not created where they are most needed; governorate-level variation is large.
- Labor force grew faster in the Gaza Strip even as jobs were lost in most Gaza governorates.
- Governorates with highest annual domestic employment growth (except Nablus and Ramallah) were places where "more than 10 percent of the labor force worked in Israel or settlements," suggesting incomes from employment in Israel/settlements boosted local job creation.
- Female labor market outcomes are more affected by geographic mismatch because:
  - Women are less likely to travel for work and most jobs in Israel and settlements are "not seen as suitable."
  - Commuting is difficult for women due to "Israeli checkpoints and other restrictions"; social norms and family constraints further discourage commuting and relocation.

### PA policies, programs, and gaps
- Legal and regulatory reform:
  - "Some 30 bylaws and amendments were added to Palestinian Labor Law No. 7 since it was adopted in 2000."
  - A final new labor law is still being drafted; consensus has yet to be reached on "maternity rights, working time, managing enterprise restructuring and dismissals, and severance pay."
  - Around "40 percent of those currently employed in the private sector earn less than the minimum wage."
  - There is a need to "establish dedicated labor courts."
- Social security and pensions:
  - Authorities are overhauling the 2016 social security law that was suspended in 2019; need to lay foundations for new private schemes to extend pension coverage to private sector workers.
- TVET and ALMPs:
  - There are "76 TVET centers, more than 200 educational and cultural centers providing TVET services, and more than 130 ALMPs," operating under a fragmented framework and lacking coordination with the private sector.
  - TVET challenges: misalignment with market needs, weak oversight, staff sometimes lack proper teaching qualifications, low student enrollment, limited capacity.
  - Institutional reforms: creation of the national TVET council in 2021 to formalize TVET center management and coordination.
  - Palestine Employment Fund outcomes (2021): created "around 7,000 job opportunities" (a large portion in the IT sector), financed "around 600 micro, small and medium enterprises (MSMEs)," trained "around 1,500 individuals," and "around half of the fund’s beneficiaries were women." The fund also created a portal matching job seekers with potential employers.
  - The Ministry of Labor provides services through "16 employment offices in the West Bank" that are "not well staffed, have weak links to employers and are mostly ignored by job seekers."
- Effectiveness and financing gaps:
  - PA supply-side interventions (TVET, ALMPs) have produced modest job creation and have not addressed larger labor demand constraints.
  - The Palestinian economy generates "about 20,000 new jobs per year," while TVET, ALMPs and other existing PA initiatives under the National Employment Strategy together comprised "about a third of that total in the past year."
  - National Employment Strategy cost estimates: total projected cost "US$243 million," of which "US$175 million remains unfunded."
  - The large funding gap could be partially filled by donors; improved donor coordination and focus on strategy priorities could reduce fragmentation.
  - Demand-side facilitation is needed to promote private sector job creation in high-productivity tradable services and to boost employment and productivity in traditional sectors.
- Barriers to female participation and legal constraints:
  - Regulatory improvements (e.g., removal of barriers to formalize home-based businesses) may increase formal female employment, but other barriers remain rooted in social norms and law.
  - Corporate leadership representation: only "1 percent of members of the Board of Directors of the Chambers of Commerce, Industry and Agriculture are women," and only "2 percent of directors of companies listed on the Palestinian capital market are women."
  - The labor law explicitly prohibits discrimination but also restricts female employment by prohibiting women from:
    - "dangerous or hard work as defined by the Minister of Labor,"
    - "extra working hours during pregnancy and during the first six months after delivery,"
    - "work during night hours except as defined by the Council of Ministers."
  - The law "does not include any clear definition of discrimination and does not provide protection for women against sexual harassment," it "does not mandate equal pay across genders," nor "does it require employer provision of childcare for working parents."
- Policy conclusion:
  - Transformational reform is needed to achieve substantial job gains and improved labor productivity. Supply-side initiatives must be complemented by measures that relax labor demand constraints, facilitate private sector job creation in higher-productivity sectors, address funding gaps in the National Employment Strategy, and remove barriers to female labor force participation.

### The authorities have started to deal with some of these issues, but more is needed
- Legal and institutional reforms for gender equality:
  - Current efforts:
    - Ministry of Women’s Affairs and the Ministry of Labor are working to establish a national committee on pay equity.
    - Article 103 of the labor law provides for 10 weeks of employer-paid maternity leave and prohibits post-partum dismissal.
  - Remaining legal gaps and enforcement needs:
    - Changes to family law, the penal code, and the personal status code are needed to explicitly prohibit gender discrimination in hiring, promotion, and pay and provide further legal protection to women, including from harassment, and allow and encourage women to file claims in court.
    - Enforcing new provisions will be crucial: only half of the women eligible for maternity leave in 2022 took it, even as employers were less likely to hire women of child-bearing age, for fear of having to bear maternity leave costs.
    - Female students should be encouraged to study in fields other than social sciences to gain skills more in line with market demand.
- Gender bias in taxation:
  - Tax laws are generally not explicitly biased against women, but exemptions and deductions for household dependents are typically granted to the man (or husband for married couples) rather than equally divided among spouses.
  - Women can only claim these personal income tax deductions and exemptions if they head the household, are divorced, or widowed.
  - Reference: Palestine Fair Tax Monitor 2018.

### Scenario analysis: female labor force participation and growth
- Growth impact of raising female labor force participation:
  - A scenario in which the female labor force participation rate increases by 1 percent a year and these new female job market entrants are gainfully employed could bring growth to 3 percent on average during 2023–28, compared to 2.4 percent in the baseline.
  - This would bring the female labor participation above MENA and peer averages, though still significantly below the 2020 emerging market and developing economies average.
  - For comparison, this growth impact is comparable to a very significant 10 percent of GDP boost in annual total investment each year during the same period.
  - A somewhat unrealistic 3 percent annual increase in the Palestinian female labor force participation rate would raise Palestinian annual average output growth to 4.4 percent on average over 2023–28.
- Modeling note:
  - The scenario analysis was conducted using a growth accounting model in which annual output is a function of capital and labor, Yt = At Ktα Lt(1- α), with α set at 0.3. The perpetual inventory method was used to estimate WBG’s capital stock. Changes in female labor force participation rates’ implications for total labor force participation rates were estimated using a simple linear function.

### Job creation needs, labor market projections, and growth requirements
- Jobs required to absorb entrants:
  - An estimated 209,000 additional jobs (or 41,800 additional jobs each year) need to be created between 2023 and 2028 to absorb all expected new labor market entrants.
  - This is more than double the annual average number of new jobs that the Palestinian economy generated over the past two decades.
- Baseline projection and elasticity assumption:
  - Assuming a constant employment-growth elasticity of 0.74, the Palestinian labor market will only absorb half of entrants during 2023–28 and unemployment would rise to an estimated 29.4 percent by 2028 in the baseline scenario.
- Growth required under different objectives:
  - An annual growth of 4.8 percent on average over 2023–28 is required to absorb all new entrants.
  - If growth reaches 6 percent on average over 2023–28, the unemployment rate would be projected to gradually decline to 18 percent.
  - To halve the unemployment rate and bring it in line with the 12 percent peer average would require a 7.5 percent annual growth on average over 2023–28.
- Conditionality:
  - Such higher growth is achievable if Israeli-imposed restrictions on movement of goods, capital and people and investment were eased.
  - Reducing disparities in labor market outcomes across governorates and cities will also require easing these restrictions on the movement of people.

### Policy recommendations and priorities
- PA policy actions needed:
  - Revise labor laws and regulations to make them gender neutral.
  - Introduce legislation against sexual harassment in the workforce and allow and encourage women to file claims in court.
  - Explicitly prohibit gender discrimination in hiring, promotion, and pay.
  - Encourage female higher education in fields other than social sciences.
  - Provide affordable childcare.
- Broader policy and external actions:
  - Boost employment and labor productivity in both traditional sectors (mining, quarrying, and manufacturing, and construction) and in high-productivity tradable services sectors.
  - Improved donor coordination around, focus on, and funding of the National Employment Strategy would be opportune.
  - PA action alone is unlikely to solve unemployment; easing Israeli-imposed restrictions on the movement of people, goods, and capital is important for raising labor productivity growth and investment.

*Source: IMF staff summary of chapter content.*

### 1.      Palestinian labor market outcomes are on the whole disappointing. Labor force

### 1wbgea2023002 - 1.      Palestinian labor market outcomes are on the whole disappointing. Labor force

### Key findings — aggregate labor market outcomes
- Labor force participation is low: "45 percent at end-2022."
- More than half of the working age population is outside the formal and informal labor force and only a third of the working age population is employed.
- Another third is not in education, employment, or training, including "860,000 people, all women, whose occupation is labeled 'housekeeping' in Palestinian Central Bureau of Statistics (PCBS) labor force surveys."
- Unemployment is high: "23.4 percent at end-2022."
- Employment distribution: "Two-third of the employed are in the Palestinian private sector, while 21 percent are public sector employees, and 13 percent work in Israel and settlements."

### Labor supply–demand dynamics and trends
- Labor force growth and job creation (2000–2021):
  - The Palestinian labor force expanded by "around 35,000 workers per year."
  - The domestic labor market created "about 20,200 new jobs" annually.
  - "1,800 more Palestinians took jobs in Israel and settlements each year."
  - Unemployment rose from "14.3 percent in 2000 to 26.4 percent in 2021."
- Regional divergence (West Bank vs Gaza):
  - Unemployment gap widened: in 2000 Gaza "19 percent" vs West Bank "12 percent" (a 7 percentage point gap); by 2021 Gaza "47 percent" vs West Bank "15.5 percent" (a 31 percentage point gap).
  - Average duration of unemployment: in 2000 both regions "6½ months"; by 2021 West Bank "7.2 months" and Gaza "17 months."
  - The 16-year blockade prevents Gazans from traveling to the West Bank for work.
- Gender and youth disparities:
  - Female unemployment rose from "12.4 percent in 2000 to 43 percent in 2021."
  - Female labor force participation averaged "15.5 percent over the past two decades."
  - Male unemployment rose from "14.6 percent in 2000 to 22.4 percent in 2021."
  - In WBG only "1 in 10 women aged 15 and over is employed."
  - Most unemployed women are young ("34 or younger") and highly educated ("93 percent of them completed 13 or more years of schooling, while only 30 percent of males attained the same level of education").
  - Average unemployment duration: women "around 20 months" versus men "only 10" months.
  - Youth unemployment is "more than 33 percent at end-2022 (and over 60 percent in Gaza)," with young women facing "53 percent unemployment."

### Sectoral job creation, productivity, and the growth–employment nexus
- Employment–growth elasticity:
  - "A 1 percent growth in output correlates with a 0.74 percent increase in Palestinian employment on average during 1990–2021," compared to "0.66 percent on average for MENA countries."
  - WBG’s employment-growth elasticity is significantly higher than for comparable countries.
- Sectoral job shifts (2000–21):
  - Some "10,000 jobs were lost in the agriculture sector."
  - "43,000 new jobs were created in the mining and manufacturing sectors."
  - "50,000 in the domestic construction sector."
  - "Six times more were created in services."
- Contributions to per capita value-added growth:
  - Low employment and labor productivity growth have been a drag on per capita value-added growth and are projected to continue weighing on it in the medium term under unchanged policies; positive contributions from demographic change and increased labor participation rates are not projected to offset negative impacts from employment and productivity.
- Labor productivity levels and trends:
  - West Bank average labor productivity hovered around "US$6 (in 2015 US$) per hour worked" for the past two decades.
  - West Bank construction sector: "US$3 (in 2015 US$)."
  - West Bank services other than commerce, hotels, and restaurants: "US$9 (in 2015 US$)."
  - Gaza average labor productivity during 2000–21: "about US$5 (in 2015 US$)."
  - Gaza sectoral contrasts: transportation and storage saw an annual "5.5 percent decline" in labor productivity, while agriculture and fishing registered a "7.3 percent annual increase."

### Spatial mismatch and barriers to mobility
- Jobs are not created where they are most needed; governorate-level variation is large.
- Labor force grew faster in the Gaza Strip even as jobs were lost in most Gaza governorates.
- Governorates with highest annual domestic employment growth (except Nablus and Ramallah) were places where "more than 10 percent of the labor force worked in Israel or settlements," suggesting incomes from employment in Israel/settlements boosted local job creation.
- Female labor market outcomes are more affected by geographic mismatch because:
  - Women are less likely to travel for work and most jobs in Israel and settlements are "not seen as suitable."
  - Commuting is difficult for women due to "Israeli checkpoints and other restrictions"; social norms and family constraints further discourage commuting and relocation.

### PA policies, programs, and gaps
- Legal and regulatory reform:
  - "Some 30 bylaws and amendments were added to Palestinian Labor Law No. 7 since it was adopted in 2000."
  - A final new labor law is still being drafted; consensus has yet to be reached on "maternity rights, working time, managing enterprise restructuring and dismissals, and severance pay."
  - Around "40 percent of those currently employed in the private sector earn less than the minimum wage."
  - There is a need to "establish dedicated labor courts."
- Social security and pensions:
  - Authorities are overhauling the 2016 social security law that was suspended in 2019; need to lay foundations for new private schemes to extend pension coverage to private sector workers.
- TVET and ALMPs:
  - There are "76 TVET centers, more than 200 educational and cultural centers providing TVET services, and more than 130 ALMPs," operating under a fragmented framework and lacking coordination with the private sector.
  - TVET challenges: misalignment with market needs, weak oversight, staff sometimes lack proper teaching qualifications, low student enrollment, limited capacity.
  - Institutional reforms: creation of the national TVET council in 2021 to formalize TVET center management and coordination.
  - Palestine Employment Fund outcomes (2021): created "around 7,000 job opportunities" (a large portion in the IT sector), financed "around 600 micro, small and medium enterprises (MSMEs)," trained "around 1,500 individuals," and "around half of the fund’s beneficiaries were women." The fund also created a portal matching job seekers with potential employers.
  - The Ministry of Labor provides services through "16 employment offices in the West Bank" that are "not well staffed, have weak links to employers and are mostly ignored by job seekers."
- Effectiveness and financing gaps:
  - PA supply-side interventions (TVET, ALMPs) have produced modest job creation and have not addressed larger labor demand constraints.
  - The Palestinian economy generates "about 20,000 new jobs per year," while TVET, ALMPs and other existing PA initiatives under the National Employment Strategy together comprised "about a third of that total in the past year."
  - National Employment Strategy cost estimates: total projected cost "US$243 million," of which "US$175 million remains unfunded."
  - The large funding gap could be partially filled by donors; improved donor coordination and focus on strategy priorities could reduce fragmentation.
  - Demand-side facilitation is needed to promote private sector job creation in high-productivity tradable services and to boost employment and productivity in traditional sectors.
- Barriers to female participation and legal constraints:
  - Regulatory improvements (e.g., removal of barriers to formalize home-based businesses) may increase formal female employment, but other barriers remain rooted in social norms and law.
  - Corporate leadership representation: only "1 percent of members of the Board of Directors of the Chambers of Commerce, Industry and Agriculture are women," and only "2 percent of directors of companies listed on the Palestinian capital market are women."
  - The labor law explicitly prohibits discrimination but also restricts female employment by prohibiting women from:
    - "dangerous or hard work as defined by the Minister of Labor,"
    - "extra working hours during pregnancy and during the first six months after delivery,"
    - "work during night hours except as defined by the Council of Ministers."
  - The law "does not include any clear definition of discrimination and does not provide protection for women against sexual harassment," it "does not mandate equal pay across genders," nor "does it require employer provision of childcare for working parents."
- Policy conclusion:
  - Transformational reform is needed to achieve substantial job gains and improved labor productivity. Supply-side initiatives must be complemented by measures that relax labor demand constraints, facilitate private sector job creation in higher-productivity sectors, address funding gaps in the National Employment Strategy, and remove barriers to female labor force participation.

*Source: IMF staff summary of chapter content.*

### 16.      The authorities have started to deal with some of these issues, but more is needed.

### 16.      The authorities have started to deal with some of these issues, but more is needed.

### Legal and institutional reforms for gender equality
- Current efforts:
  - Ministry of Women’s Affairs and the Ministry of Labor are working to establish a national committee on pay equity.
  - Article 103 of the labor law provides for 10 weeks of employer-paid maternity leave and prohibits post-partum dismissal.
- Remaining legal gaps and enforcement needs:
  - Changes to family law, the penal code, and the personal status code are needed to explicitly prohibit gender discrimination in hiring, promotion, and pay and provide further legal protection to women, including from harassment, and allow and encourage women to file claims in court.
  - Enforcing new provisions will be crucial: only half of the women eligible for maternity leave in 2022 took it, even as employers were less likely to hire women of child-bearing age, for fear of having to bear maternity leave costs.
  - Female students should be encouraged to study in fields other than social sciences to gain skills more in line with market demand.

### Gender bias in taxation
- Tax treatment issue:
  - Tax laws are generally not explicitly biased against women, but exemptions and deductions for household dependents are typically granted to the man (or husband for married couples) rather than equally divided among spouses.
  - Women can only claim these personal income tax deductions and exemptions if they head the household, are divorced, or widowed.
- Reference:
  - Palestine Fair Tax Monitor 2018.

### Scenario analysis: female labor force participation and growth
- Growth impact of raising female labor force participation:
  - A scenario in which the female labor force participation rate increases by 1 percent a year and these new female job market entrants are gainfully employed could bring growth to 3 percent on average during 2023–28, compared to 2.4 percent in the baseline.
  - This would bring the female labor participation above MENA and peer averages, though still significantly below the 2020 emerging market and developing economies average.
  - For comparison, this growth impact is comparable to a very significant 10 percent of GDP boost in annual total investment each year during the same period.
  - A somewhat unrealistic 3 percent annual increase in the Palestinian female labor force participation rate would raise Palestinian annual average output growth to 4.4 percent on average over 2023–28.
- Modeling note:
  - The scenario analysis was conducted using a growth accounting model in which annual output is a function of capital and labor, Yt = At Ktα Lt(1- α), with α set at 0.3. The perpetual inventory method was used to estimate WBG’s capital stock. Changes in female labor force participation rates’ implications for total labor force participation rates were estimated using a simple linear function.

### Job creation needs, labor market projections, and growth requirements
- Jobs required to absorb entrants:
  - An estimated 209,000 additional jobs (or 41,800 additional jobs each year) need to be created between 2023 and 2028 to absorb all expected new labor market entrants.
  - This is more than double the annual average number of new jobs that the Palestinian economy generated over the past two decades.
- Baseline projection and elasticity assumption:
  - Assuming a constant employment-growth elasticity of 0.74, the Palestinian labor market will only absorb half of entrants during 2023–28 and unemployment would rise to an estimated 29.4 percent by 2028 in the baseline scenario.
- Growth required under different objectives:
  - An annual growth of 4.8 percent on average over 2023–28 is required to absorb all new entrants.
  - If growth reaches 6 percent on average over 2023–28, the unemployment rate would be projected to gradually decline to 18 percent.
  - To halve the unemployment rate and bring it in line with the 12 percent peer average would require a 7.5 percent annual growth on average over 2023–28.
- Conditionality:
  - Such higher growth is achievable if Israeli-imposed restrictions on movement of goods, capital and people and investment were eased.
  - Reducing disparities in labor market outcomes across governorates and cities will also require easing these restrictions on the movement of people.

### Policy recommendations and priorities
- PA policy actions needed:
  - Revise labor laws and regulations to make them gender neutral.
  - Introduce legislation against sexual harassment in the workforce and allow and encourage women to file claims in court.
  - Explicitly prohibit gender discrimination in hiring, promotion, and pay.
  - Encourage female higher education in fields other than social sciences.
  - Provide affordable childcare.
- Broader policy and external actions:
  - Boost employment and labor productivity in both traditional sectors (mining, quarrying, and manufacturing, and construction) and in high-productivity tradable services sectors.
  - Improved donor coordination around, focus on, and funding of the National Employment Strategy would be opportune.
  - PA action alone is unlikely to solve unemployment; easing Israeli-imposed restrictions on the movement of people, goods, and capital is important for raising labor productivity growth and investment.

---


_Source: https://www.imf.org/-/media/files/publications/cr/2023/english/1wbgea2023002.pdf_