MEYI Policy Outlook 3
As with youth across the Middle East, youth in the Palestinian Territories are experiencing increasingly prolonged school-to-work transitions. In fact, the median waiting time for recent graduates in the West Bank and Gaza Strip is now two years, and nearly a quarter of graduates still do not have jobs five years after finishing school. While some of the increasing delay has its roots in the macroeconomic and political uncertainties that have plagued the Palestinian Territories, Palestinian law has also played a role in effecting longer waiting periods. The Palestinian Labor Law of 2000 has bolstered the legal protections provided to workers in several ways, including an increase in mandated severance payments to older workers.
Subsequently, the costs of dismissing workers for Palestinian firms have increased substantially. This has made firms less likely to bring on new workers because the cost of eventually dismissing them is so high. This implies the need for adopting more flexible labor law provisions that would encourage the startup, growth, and expansion of firms in the private sector, and potentially lead to increased employment opportunities for young people, while at the same time providing protection to workers from the vagaries of a competitive labor market.
This brief investigates the effects of the Palestinian Labor Law on unemployment duration for young Palestinians entering the labor market. The first section describes the Palestinian labor market in general and provides an overall analysis of unemployment duration among Palestinian youth. The second section provides a theoretical overview of the potential effects of rigid labor laws on unemployment among youth, as well as a description of specific clauses of the 2000 Palestinian Labor Law and the coverage rates of the law in different sectors of the economy. The third section identifies a correlation between the coverage rates of the law in different sectors of the economy and unemployment duration therein, using a “difference in difference” approach to determine the effects of the labor law on unemployment and unemployment duration among Palestinian youth. Our analysis concludes with some policy implications and areas for further research.