LABOR DEMAND AND THE WAGE GAP IN THE WEST BANK AND GAZA STRIP

The returns to schooling for Palestinian men in the West Bank and Gaza Strip declined sharply from 1981 to 1987 but recovered slightly from 1987 to 1991. This article examines the degree to which these returns were associated with the demand for Palestinian labor. Contrary to previous research, the current study finds that labor demand and not just the increased schooling of Palestinians determined the returns to schooling. Specifically, increased demand for unskilled Palestinian labor in Israel and decreased demand for Palestinian workers in other Arab states combined to explain one-fifth to one-quarter of the decline in the wage gap from 1981 to 1987.