Abstract:
The article examines the wage impact of Israel’s constraints on economic activities and infrastructure development in the West
Bank’s Area C. We provide evidence to show that Area C workers suffer a wage penalty of about 8 percent relative to workers
in Areas A and B. The results also show that when controlling for worker characteristics, the magnitude of the Area C wage
differential drops by about half. We then extend our analysis to compare average wages between Area C workers and other
rural workers and show that the wage difference is statistically insignificant. This indicates that the Area C wage differential
we observe can be attributed primarily to a rural environment effect rather than to Israeli economic restrictions placed on Area
C per se. This result indicates that the effect of Israeli restrictions on Area C wages is neutralized. We show that negative labor
supply shocks (commuting) serve as a potential transmission mechanism. Specifically, we show that Area C residents are more
likely to commute than their peers in other rural areas.
