The Public-Private Wage Differential in the West Bank and Gaza: Before and During the Second Intifada

Abstract

This paper measures the public-private wage differential in the West Bank and Gaza and describes its dynamics before and during the second Intifada using data from the Palestinian Labour Force Survey (PLFS) of the Palestinian Central Bureau of Statistics (PCBS). Because the distribution of individual characteristics and their returns might differ across workers, the wage differential is decomposed into two components: a “human capital” effect and an “unexplained” effect. The results show that in the pre-Intifada period, the wage gap between the public and private sectors had narrowed both in the West Bank and Gaza. However, a sharp increase is seen in the post-Intifada Period. Moreover, most of this increase comes from an increase in “returns” to skill composition in the public sector (unexplained effect), rather than a change in the skill composition of public sector workers (human capital effect). An analysis of the public-private sector wage gap from 1998 to 2006 at various points along the wage distribution using recent quantile regression econometric techniques shows that the wage premium (penalty) for the public sector varies across the distribution, being higher (lower) at the lowest end of the wage distribution and decreasing (increasing) along the wage distribution; it becomes negative in the top percentiles.