The labour market impact of mobility restrictions: Evidence from the West Bank

The efficient mobility of goods and labour is one of the most important features of a functioning economy. Using data on Israeli closures inside the West Bank, we provide new evidence on the labour market effects of conflict-induced restrictions to mobility. These restrictions operated through a system of checkpoints, roadblocks and other barriers installed by Israel inside the West Bank. Such a system is part of the broader 'closure' regime which was initially put in place by Israel after the first Palestinian uprising in 1987 and was eventually expanded during the second Palestinian uprising in the first half of 2000s. To identify the effects we exploit the fact that, as we show, the placement of physical barriers by Israel was exogenous to local labour market conditions. In addition we use a measure of conflict intensity to control for the likely spurious correlation between local unrest, labour market conditions and barriers' placement. We find that these barriers to mobility have had a significant negative effect on employment, wages and days worked per month. Wages are most negatively affected by the barriers, suggesting that labour markets have adjusted to the restrictions more through prices than quantities. On the other hand the barriers have raised the number of hours per working day. These effects are almost entirely accounted for by the checkpoints, while the other barriers have more limited impact. The analysis also tries to distinguish between the two main channels through which we argue the restrictions affect the labour market outcomes. The first concerns the role of barriers in restricting the movement of labour mainly (but not only) within the West Bank, which directly affects the ability of the workforce to supply labour. The second channel is more indirect and operates through the negative effect of the restrictions on the movement of goods and labour on the economic activity, which eventually reduces the demand for labour. We can only test explicitly for the first channel using a variety of methods and find that this explains a tiny part of the labour market effects of the checkpoints. Therefore we hypothesise that the bulk of the closures' effect on the labour market would be driven by the reduced firms' profitability and labour demand. However further research using firm level data would be needed to explicitly test for this hypothesis. Despite being an under-estimation of the actual effects, the overall costs of the barriers on the West Bank labour market are substantial: in 2007 for example these costs amounted to 6% of GDP.