The Case Of Palestine Economics Essay

The first minimal pay policy for private-sector employees has been announced by the Palestinian authorities, it will be approved by the cabinet on the October, 15, 2012. The minimal pay degree has been set at 1450 NIS monthly, which is tantamount to 65 NIS daily, and 8.5 NIS hourly. The pay degree was set by the Palestinian authorities who in their official statement said that the degree of the minimal pay was set after audience with assorted private sector representatives and utilizing the records of the Palestinian cardinal agency of statistics.

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ILO defines the minimal pay as “ the lowest degree of wage permitted which in each state has the force of jurisprudence and, which is enforceable under menace of penal or other appropriate countenances, ” and it is set to and states in general have different grounds for using a minimal pay policy, about all of them highlight the societal facet of the minimal pay policy, and general the grounds for using a minimal pay. policy are:

Protection of employees and cut down poorness.

Supply a safety cyberspace for employees to be able to supply the minimal life conditions for them and their households.

Fair completion among houses in the economic system.

Macroeconomic stableness.

The Palestinian population faced rough economic conditions during the last decennary. After the 2nd intifada economic status worsened in Palestine, and after which the political instability and the Israeli limitation on motion of people and goods, played a major function in impeding economic development..

Theoretical background

Minimal pay effects employment, income and monetary value degree. Empirical consequences in big figure of states during assorted historical periods indicate that there is no clear relationship ( whether positive or negative ) between lower limit pay and unemployment. However, it is agreed that minimal pay consequence the pay distribution in favour of the low-paid workers.

In a Keynesian paradigm, aggregative demand is the driver for equilibrium in the labour market, among other factors. The aggregative demand depends on the outlooks of houses and families in the economic system, on assorted financial and pecuniary policies implanted by the authorities, and besides, on the distribution of income. Higher minimal rewards lead to equality in the income distribution, and a positive demand consequence can be anticipated as low-income families consume more of their income.

Changes in the pay distribution will take to alterations in the monetary value construction, and will impact the monetary value degree in the economic system. And therefore, it is non possible for find a clear reply on the effects of minimal pay statute laws on unemployment, since there will be two forces working against each other in the economic system, hence, minimal pay can hold both positive and negative effects.

The neoclassical school of idea concludes that lower limit pay have negative effects upon employment. Their analysis chiefly focuses on the force of supply and demand in the labour market, these forces achieve equilibrium in the labour market, and the pay degree and unemployment is determined by them. this analysis screen two instances ; the instance of a homogeneous labour market, where all workers are equal, and information about the pay degrees is available to all companies and workers. In this instance minimal pay will raise unemployment in the whole economic system. As for the instance of a heterogenous labour market, lower limit pay will impact merely the low-paid workers, therefore, it will increase unemployment in this section.

Literature reappraisal

Minimal pay was assumed to hold negative effects for decennaries Stigler ( 1946 ) ; Brown et Al. ( 1982 ) . It was in the 1990s were this position was argued ; Card and Krueger ‘s ( 1995 ) shows that this statement was questionable, and harmonizing to their survey, lower limit pay did non hold negative effects, and sometimes had positive effects on employment. Neumark and Wascher ( 2006 ) show that the minimal pay effects vary from state to state, and even if there were negative effects, it was sometimes undistinguished, and the consequences can non be generalized. Recently, some surveies have found big negative effects of minimal pay on employment Abowd et Al. ( 2000 ) , while others found positive effects Hyslop and Stillman ( 2007 ) .

Minimal pay literature revolves about advanced states, Hamemesh ( 2002 ) . Most of the developing states ‘ literature is focused at Latin America states, and these surveies found that minimal pay effects have been stronger in developing states compared with developed states as El-Hamidi and Terrell, ( 2002 ) indicate.

Taylor and Rebitzer ( 1995 ) showed that in a conventional efficiency pay theoretical account, minimal pay statute law could cut down the degree of unemployment in the low-wage occupations. The logic of their theoretical account is similar to the instance of labour demand under monopsony.

Surveies sing Palestine are scarce. Since 2002, there have been two surveies look intoing these issues. Abu Hantash ( 2002 ) indicated that enforcing a minimal pay policy in Palestine will be good to the overall economic public presentation of the Palestinian economic system, based on the increased buying power of a big section of the on the job populations, hence, increasing ingestion. Missaglia et Al. ( 2010 ) , used a station Keynesian Dynamic Static General Equilibrium theoretical account, to bespeak that a minimal pay policy will hold negative effects on the economic system, and that the neo-classical consequence ( higher rewards, will diminish demand on labour, and cut down end product ) will rule the Keynesian consequence ( Higher rewards will increase ingestion and end product ) , and hence it is non recommended in Palestine.


The informations used for this paper was obtained from the cardinal agency of statistics, Labor Force Survey ( 2012 ) , and national history statistics. The information obtained is quarterly informations get downing 2002 until the 2nd one-fourth of 2012. A speedy secret plan of the information ( the figure below ) indicates the being of and turning tendency in the Consumer Price Index ( CPI ) , while the unemployment rate ( UN ) is slightly stable around 20 % with no discernible tendency. The mean pay secret plan shows a slow increasing tendency in the informations starting 2005, but in recent old ages, we can detect that the norm pay has non increased significantly, and is stable around 70 NIS per twenty-four hours figure. The concluding variable of involvement is the GDP, which is taken as a placeholder of the private ingestion figure in the Palestinian economic system.

Since we are utilizing clip series informations, we must look into if the information used is stationary or non, this is an of import measure to find the methodological analysis that will used to reply the research inquiry. A stationary series ca n’t be estimated utilizing the simple signifier VAR analysis ; it needs a Vector Error rectification Model ( VEC ) . Before we engage in the VAR analysis, we will foremost prove for unit root for the information at manus. This is done through the Augmented Dickey-Fuller trial ( ADF ) , which tests the information for a unit root. The following tabular array summarizes the consequences of the trial:



LagA A

Max Lag

Ob river


A 0.9922

A 4

A 9

A 38

Consumer price index

A 0.8176

A 2

A 9

A 39


A 0.7053

A 0

A 9

A 41

United nations

A 0.0317

A 0

A 9

A 41

GDP: Gross Domestic Product ( Changeless 2004 dollars )

Consumer price index: Consumer Price Index

ADW: Average Median Daily Wage

United nations: Unemployment Rate

The trial consequences reveal that the first three series of informations have a unit roots at the degree, and therefore, we need to take the first difference of the informations and trial once more. While the unemployment informations, does non hold a unit root and can be taken at the degree. The following tabular array summarizes the trial after taking the first difference for the three stationary series:



LagA A

Max Lag

Ob river


A 0.0000

A 0

A 9

A 40


A 0.0017

A 1

A 9

A 39

United nations

A 0.0317

A 0

A 9

A 41


A 0.0001

A 2

A 9

A 39

LGDP: Log of the first difference of the Gross Domestic Product ( Changeless 2004 dollars )

DCPI: First difference of the Consumer Price Index

DADW: First difference of the Average Median Daily Wage

United nations: Unemployment Rate

After proving unite root in the first difference in the informations, we can reason that the information does n’t hold a unit root at the first difference for GDP, CPI, and ADW, and at the degree of unemployment.


To mensurate the effects of the using the new minimal pay policy in Palestine, we will utilize a theoretical account based on a Keynesian economic system, where lower limit pay have two opposing forces. The first of which is the demand for labour, where increasing the lower limit pay will ensue in a diminution in the demand for labour, therefore diminishing the figure of new occupation chances, and increasing unemployment. The 2nd force is the ingestion force, which operates by increasing the aggregative demand for goods and services, because of the addition in income for a big section of the on the job population ; this will ensue in increasing aggregative demand, and increase the demand for occupations and finally increase employment.

To gauge the different effects of the minimal pay, we will utilize the Vector Auto-Regression ( VAR ) method, which captures the development and mutualities between the selected variables. All the variables used in the theoretical account are treated consistently by gauging each variable through including its ain slowdown, and those of the other different variables. This means that the variable might act upon each other through several P slowdowns, and each variable is explained by a separate equation. The mathematical representation of a VAR ( 2 ) with two variables is:

Yt = a11Yt-1 + a12Xt-1 + b11Yt-2 + b12Xt-2 + c1 + Iµ1t

Xt = a21Yt-1 + a22Xt-1 + b21Yt-2 + b22Xt-2 + c2 + Iµ2t

Where a11, a12, b11, b12, etc… are the coefeccient of the corresponding variables, c1 and c2 are the changeless intercepts, and Iµ1t and Iµ2t are the inventions that may be correlated at the same clip, but are uncorrelated with their ain lagged values and uncorrelated with all of the right-hand side variables.

In order to take the right slowdown length, there are several standards that suggest the order of the VAR theoretical account that should be used, such as:

FPE ( Final anticipation mistake )

AIC ( Akaike information standard )

SC ( Schwarz information standard )

HQ ( Hannan-Quinn information standard )

Where K is the figure of variables, T is the figure of observations, P is the slowdown length and the matrix is the determiner of the discrepancy covariance matrix of the estimated remainders.

The last two standards ( SC and HQ ) are better than the first two ( AIC and FPE ) , because the latter tend to overrate the true slowdown length. In add-on, the following dealingss are true:

We apply the chap choice standards to our theoretical account, but since we do n’t hold a big figure of observations, the upper limit lags that we can prove for are 8, and the following tabular array summarizes the trial consequences:

VAR Lag Order Selection Criteria

Endogenous variables: DADW DCPI UN LGDPA

Exogenous variables: CA

Date: 01/06/13 Time: 09:32

Sample: 2002Q2 2012Q2

Included observations: 34

A Lag










A A 0.205957*

A 9.771351

A A 9.950923*

A 9.832590



A 23.09326

A 0.240098

A 9.916208

A 10.81407

A 10.22240



A 23.40772

A 0.251885

A 9.921076

A 11.53722

A 10.47223



A 12.39121

A 0.400262

A 10.27219

A 12.60663

A 11.06830



A 11.83957

A 0.643950

A 10.51693

A 13.56965

A 11.55799



A 10.48518

A 1.137008

A 10.65155

A 14.42256

A 11.93757



A A 26.50490*

A 0.344772

A 8.647737

A 13.13703

A 10.17872



A 11.15353

A 0.505583

A A 7.358206*

A 12.56579

A A 9.134141*

A * indicates lag order selected by the standard

A LR: consecutive modified LR trial statistic ( each trial at 5 % degree )

A FPE: Final anticipation mistake

A AIC: Akaike information standard

A SC: Schwarz information standard

A HQ: Hannan-Quinn information standard

We will utilize the LR trial consequences to find the slowdown construction of our VAR theoretical account, which is at 6 slowdowns, that is we lose grades of freedom with every added slowdown, and because we do n’t hold much informations, we will gauge the theoretical account utilizing 6 slowdowns.

In order to look into the cogency of a VAR theoretical account, we need to prove for Granger causality, normalcy, consecutive correlativity and heteroskedasticity. The stableness of the VAR theoretical account is besides required, connoting the roots of the characteristic multinomial to lie inside the unit circle.

The tabular array above indicates that the variable mean pay and unemployment have a insouciant relationship between the two. This satisfies the chief demand for the VAR theoretical account to be stable.


Impulse response maps are dazes that are induced to the VAR maps, it besides identifies the reactivity of a dependent variable to a daze in the remainders, it is applied to each variable and their affects are measured over the following periods.

We found a insouciant relationship between unemployment and pay degrees.

An addition in pay will do an addition in the unemployment until the 3rd forecasted period, and after that the effects will be negative and unemployment will diminish until the seventh period and it will diminish in the 8th.

An addition in unemployment will do a lessening in unemployment in the forecasted periods until the fourth period ( first twelvemonth ) , and so the effects will stabilise and will make zero by the seventh period.

It is found that the current minimal statute law which addition norm pay by 3 % , would increase the growing of unemployment by 1 % in the 3rd one-fourth and would diminish by 0.6 % by the fourth one-fourth. But it will necessitate 7 quarters into the hereafter to stabilise the daze.


This study is far from complete ; I will direct the concluding version electronically in a hebdomad ‘s clip.

English Mentions

Andreica, Madalina Ecaterina, Larisa Aparaschivei, Amalia Cristescu, and Nicolae Cataniciu. “ Models of the minimal pay impact upon employment, rewards and monetary values: the Rumanian instance. ” In Proceedings of the 11th WSEAS international conference on mathematics and computing machines in concern and economic sciences and 11th WSEAS international conference on Biology and chemical science, pp. 104-109. World Scientific and Engineering Academy and Society ( WSEAS ) , 2010.

Brown, C. ; Gilroy, C. ; and Kohen, A. ( 1982 ) “ The Effect of the Minimum Wage on Employment and Unemployment. ” Journal of Economic Literature 20: 487-528.

Card, David, and Krueger, A. ( 1994 ) “ Minimal Wages and Employment: a Case Study of the Fast Food Industry, ” American Economic Review, Vol. 84, 772-93

Carneiro, F.G. and A. Henley ( 2000 ) Real Wages and the Lucas Critique: Can the Government Tax Policy Influence Wage Policy, Revista de Econometria, forthcoming.

Herr, Hansjorg, Milka Kazandziska, and Silke Mahnkopf-Praprotnik. “ The theoretical argument about minimal rewards ” . Fachhochsch. fur Wirtschaft, 2009.

Hyslop, Dean and Steven Stillman. 2007. “ Youth Minimum Wage Reform and the Labor Market. ” Labor Economics 14 ( April ) . No. 2: 201-30.

Lemos, Sara, 2004. “ The Effectss of the Minimum Wage in the Formal and Informal Sectors in Brazil, ” IZA Discussion Papers 1089, Institute for the Study of Labor ( IZA ) .

Missaglia, Calara Capeli and Wajih Amer, ( 2010 ) . “ The Effectss of a PNA Minimum Wage Policy ” , Palestine Economic Policy Research Institute ( MAS ) .

Neumark, David, and Wascher, W. ( 2000 ) “ Minimal Wages and Employment: A Case Study of the Fast-Food Industry in New Jersey and Pennsylvania: Remark, ” American Economics Review, Vol. 90 ( 5 ) , 1362-96.

Stigler, G.J. ( 1946 ) “ The Economicss of Minimum Wage Legislation. “ American Economic Review 36: 358-65.

Arabic Mentions

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