Israel’s plans to replace its Palestinian labor force could spell disaster for the Palestinian economy

On October 6, 2023, hundreds of thousands of Palestinians, primarily from the occupied West Bank, made their way through a network of militarized Israeli checkpoints and into Israel to complete their jobs as day laborers. 

Many of the workers had performed the same routine for years, even decades: wake up in the West Bank, cross a crowded checkpoint, work in Israel for the day, and come back home.

Less than 48 hours later, virtually all of those Palestinians, an estimated 200,000 laborers, would be out of work.

Following Hamas’ attack on October 7, the Israeli government canceled the work permits of thousands of Gazan workers and completely shut down the occupied West Bank, preventing the entry of some 200,000 workers – including ~160,000 permit holders and some ~40,000 undocumented workers –  from the West Bank.

Most Palestinians expected the move. Historically, in times of heightened “security threats,” Israel will wield its power over Palestinian borders and movement to effectively shut down the West Bank, which means that Palestinian laborers who work in Israel are often the first sector of the Palestinian labor force to be acutely impacted. 

But what many Palestinians also knew was that if the unprecedented assault on Gaza was any indication, things were going to be different this time around. The closures were not just going to last a few days, or a few weeks, with some Israeli politicians adamant about wholly restricting any Palestinian entry into Israel for the foreseeable future. Claims, which later proved to be false, that day laborers from Gaza aided Hamas in planning the October 7th attacks on southern Israel, only further fueled far-right ideologues who sought to completely rid Israel of its Palestinian labor force. 

And though politically, the idea of never letting Palestinians from the West Bank or Gaza into Israel ever again seemed like a great idea for many on the Israeli right and within Prime Minister Netanyahu’s ruling coalition, the reality on the ground was far less idealistic. 

Israel was in a bind: in addition to the sudden loss of some 200,000 Palestinian day laborers, the majority of whom worked in the Israeli construction sector, Israel also saw the departure of thousands of Thai laborers who worked as farmhands in the agricultural sector, after a number of them were killed and taken captive into Gaza on October 7.

The sudden vacuum of low-wage laborers was compounded by the fact that hundreds of thousands of young Israeli workers were being called up by the military to go to war.  

Though an estimated 20,000 foreign workers remained in Israel after October 7, The agricultural and construction sectors came to a screeching halt, with the latter operating at just 30% capacity due to its reliance on Palestinian labor, causing losses in the billions of dollars. 

Despite U.S. pressure and efforts by some in the Israeli security establishment to bring back the Palestinian labor force out of fear of further political repercussions, top ministers within Netanyahu’s coalition like far-right Finance Minister Bezalel Smotrich, remained adamant that Palestinian workers should not be allowed to return to work due to the alleged security risks they pose. 

To solve their problems, Israeli officials began pushing forward plans to replace Palestinian day laborers with foreign workers. In November, the Israeli Builders Association asked the Israeli government to approach India for somewhere between 50,000-90,000 workers, to replace an estimated 72,000 Palestinian workers. 

After months of mulling over different proposals, the government approved a plan in February to bring in 65,000 foreign workers from India, Sri Lanka, and Uzbekistan to replace Palestinians in the construction sector. As of March, Israeli media reported that just over a thousand Indian workers had arrived in Israel, and up to 10,000 were expected to arrive in the country by June as part of a rapid push by the Housing Industry. 

But the process of finding, vetting, and training foreign workers to take over Palestinian jobs will take a lot of time, and money. And until then, Israel is losing around $830 million a month in economic damages as a result of Palestinians not coming to work, according to estimates from Israel’s Finance Ministry.

Additionally, the Palestinian economy, encompassing Gaza and the West Bank, has taken a devastating hit, with losses exceeding $2.3 billion between October 2023 and January 2024, which both U.S. and Israeli officials have warned could destabilize their local partner in the West Bank, the Palestinian Authority. 

Though some in Israel seem intent on replacing at least some of its Palestinian workforce with foreign laborers, all the barriers – political, ideological, and economic – that stand in Israel’s way have left many wondering if it’s actually possible. And if it somehow does manage to replace the labor force it relied on for decades, what does that mean for the already struggling Palestinian economy?

Israel’s historic dependence on an ‘undesirable’ labor force

Israel’s dependence on Palestinian labor, and Palestinian dependence on the Israeli job market, dates back decades. Due to Israel’s theft of their land and resources, and the loss of their own personal wealth, over time many Palestinians were essentially forced into the Israeli labor market.

Up until the late 1960s, Palestinians were still mostly self-employed in the agricultural industry, and only 40% were considered wage workers. That changed after the Israeli occupation of the West Bank and Gaza, which led to the further loss of land and resources for Palestinians. 

In 1970, in an effort to bolster its economy on the heels of a recession and alleviate a shortage in labor supply, the Israeli military commander in charge of the newly occupied Palestinian territories (oPt) issued what was called a “general permit”, which essentially allowed anyone from the oPt to enter into Israel and work. 

While Palestinians provided a source of cheap labor for Israel, for Palestinians, jobs in Israeli industries offered them much better wages than what could be found locally. As a result, “what you saw in the 20 years after that, was around 40% of the Palestinian labor force working in the Israeli economy,” Ibrahim Shikaki, Palestinian economic researcher and assistant professor of economics at Trinity College, told Mondoweiss. 

“So what happens is basically this class formation from self-employed Palestinians in agriculture to wage workers primarily in the Israeli construction sector,” Shikaki said, describing this movement of human labor and resources (i.e. land, natural minerals, etc.) from the Palestinian economy to the Israeli economy as the beginnings of the “dependency” that has since shaped the relationship between the two economies. 

“That first twenty years is kind of what I call that first phase of Palestinian labor. But it was in those first 20 years that Israel actually first started thinking of replacing Palestinian labor with foreign labor,” Shikaki said.

In the late 1980s, as the First Intifada, or first Palestinian uprising, erupted, Palestinians engaged in a massive civil disobedience campaign, which involved widespread boycotts of Israeli goods and services. 

“A lot of Palestinians decided to boycott work in the Israeli economy and Israeli settlements, and at that time, Israel understood that there was now this dependency on Palestinian labor,” Shikaki said. 

According to Shikaki, Israel has “wanted to replace Palestinian labor for a long time,” but it has never been able to achieve it to the extent that it wants. 

Despite being deemed “security risks,” Palestinian workers continued to provide an easily accessible and cheap labor source, which meant more profitability for Israeli firms and companies.

The availability of cheap Palestinian labor, Shikaki noted, has also allowed certain classes within Israeli society to climb the socioeconomic ladder. Israelis were getting paid more and enjoying more socio-economic mobility, as long as Palestinians were forced into taking the low-paying jobs. 

The nature of daily labor work in the construction sector, where some 60% of Palestinian laborers in Israel work, has also meant that Palestinian workers do not have the ability to unionize, organize, or have the bargaining power to ensure better wages, or working conditions.

“Palestinian workers are easier to fire, and the Israeli permit system allows for exploitation where Israeli employers can tap into desperate laborers who will accept low wages and no benefits,” Shikaki said. 

Due to the nature of Israel’s permit regime and its control over Palestinian borders, when “security concerns” do arise, Israel can easily stop permits to entire villages or families as punitive measures, and deny the entry of Palestinian laborers at any time it sees fit.  

“There is also this ideological aspect of [Israel] not considering Palestinian workers as workers, but just kind of as this expendable group of people who ‘we use when we want’,” Shikaki said.  

Ideological fantasy, or feasible plan?

All of these conditions, Shikaki said, have created a reality wherein Israel may not like that it relies so heavily on Palestinian laborers, but the economic benefits have always outweighed any ideological drawbacks. 

But there was never a moment in Israeli history that really compares to the current moment. In the wake of October 7, Israeli society has moved even further to the right, with Israeli “security” and the dehumanization of Palestinians at the forefront of Israel’s collective demands for retribution for the Hamas attack. 

If there were ever a time to sell the idea of getting rid of Palestinians in as many aspects of life as is possible, including the workforce, now would be the time. 

Many have cracked up Israel’s plans to replace Palestinian workers with foreign laborers as nothing more than Israel’s far-right government pandering to its base, in an effort to garner more support for the genocide in Gaza and distract from the country’s worsening economic situation.

On the other hand, Israel has already put into motion bringing in foreign workers, signaling to some degree that the state wants to achieve, if not a full reduction in its dependency on Palestinian labor, at least a partial one. 

Shikaki says the reality is a combination of both, however, he adds that while Israel could try and replace its Palestinian labor force, he doesn’t think the government will follow through. 

“Technically it is feasible. In the next 5-10 years they can decide to completely reduce dependency on Palestinian labor,” he said. “But they would have to import huge amounts of foreign labor. Do I believe it will happen? No. This is a reaction to what is happening. It’s something for the consumption of the base,” Shikaki said. 

Economically, it will be a long, hard, and expensive process for Israeli firms to bring in foreign workers. 

“[Israel] will still try to import foreign workers, but historically Israel has faced issues integrating [foreign] workers. A lot of foreign workers eventually go back to their countries, so there’s higher turnover, which means higher costs. It might work in certain sectors, but not everywhere,” he continued. 

“Because it’s not just about replacing workers, but also skills and expertise. For better or worse now Palestinians are experts in the Israeli construction market in terms of materials, in terms of the know-how, etc,” Shikaki said. 

In addition to some 200,000 Palestinians working in the Israeli economy, Shikaki notes, there’s also been an increase in demand in the Israeli housing and construction sector over the past seven to eight years, with 40,000-50,000 new jobs and permits allocated for the industry. 

“So it’s not just the existing 200,000 to worry about replacing, Israeli firms would also need to hire based on an increased demand,” he said. 

But the appeal of Palestinian labor lies beyond just a cheap and accessible workforce, which, economically, is great for Israel. Though it may seem contradictory, given that they are treated as dormant “security threats” waiting to be activated, Palestinian laborers are also appealing to Israel from an ideological perspective. 

For Israel, the motivation behind most of its policies, especially towards Palestinians, can be boiled down to demographics. In order to maintain its identity as a Jewish State, Israel must maintain a Jewish demographic majority, by any means necessary. And that doesn’t just apply to Palestinians. 

“Israel is very particular in terms of Palestinians. You can get a permit to work, and you’re allowed to stay up until a certain hour of the night, but you’re not allowed to sleep [in Israel. So you have to go back home every day,” Shikaki said.

“This is called oscillating labor. So the idea is that they go to work in Israel, but they come back and sleep in their homes in the West Bank. Which means Palestinian laborers also have another sector [the Palestinian Authority] that takes care of their education, their healthcare needs, etc.,” he continued.

This oscillating labor system, where Israelis can essentially forget about Palestinian workers once they go home, is something that Israel wouldn’t be able to enjoy with foreign workers.

Foreign workers would be living in Israel, which would necessitate the state providing them with basic services like housing, healthcare, etc. Not only are those additional costs, but it threatens Israeli homogeneity, Shikaki says. 

Shikaki’s assertion isn’t far-fetched. A look back into recent Israeli history, and into Israeli policy towards foreign workers, indicates just how the state views and treats foreigners outside of the labor they provide. 

Israeli regulations stipulate that female foreign workers who become pregnant must send their babies home as a condition for their Israeli work visas to be renewed. Over the years, the state has embarked on a campaign to deport hundreds of Filipino families from Israel, including Israeli-born children to Filipino migrant workers. 

“From an ideological aspect of the ‘purity of the Jewish state’, to have foreign workers would mean to integrate all these non-Jewish people long term. Is Israel willing to do that? I would give an even stronger no than when it comes to why they won’t do it economically,” he said. 

What does this mean for the Palestinian economy?

Since October 7, as Israel has moved back and forth on whether it will, or should, replace its Palestinian labor force, the Palestinian workers themselves, and the Palestinian economy have taken a significant hit. 

According to a report from the International Labor Organization, as of January 2024, more than 500,000 Palestinian jobs have been lost in the occupied Palestinian territory. In Gaza, the ILO estimates that roughly 200,000 jobs were lost in Gaza, accounting for two-thirds of total employment in the Strip.

In the West Bank, some 306,000 jobs have been lost, representing one-third of total employment there. By Shikaki’s estimates, some 200,000 of those jobs were West Bank laborers working in Israel. 

“What does it mean when those people don’t have jobs? This is not a mystery. These people don’t have jobs, so they don’t have their source of income, they’re not going to be able to pay any private debt that they owe, they’re not going to have the ability to support their families, etc,” Shikaki said, adding that Israel’s restrictions on movement in the West Bank are also affecting local workers who work inside the West Bank, as many people face difficulties getting to and from work due to Israeli checkpoint closures. 

While the acute effects of the labor shortages are already being felt, with unemployment in the OPT expected to reach 42.7% by the end of March, should Israel continue moving forward with its plans, there would be far-reaching consequences for the entire Palestinian economy, not just for Palestinian laborers. 

“Nowadays with the Palestinian economy, you have 17% of Palestinian labor working in Israel, and another 18% that work in the public sector, who are dependent on the Palestinian Authority, which relies heavily on international aid, and tax revenues which Israel routinely withholds as a political tool,” Shikaki said. 

“So in essence, you really have 35% of the Palestinian economy that work in Israel and in the public sector that are extremely dependent, if not fully dependent on external factors,” he continued.

With 17% of the labor force out of work, and another 18% being paid partial wages by the PA due to Israel’s withholding of Palestinian tax revenues, the purchasing or consumption power of the Palestinian public have been significantly reduced, which will in turn, affect the demand for goods and services within the Palestinian private sector, which makes up the remaining 65% of the economy. 

“If demand is going to decrease, then production is going to decrease, and if production is going to decrease, then private Palestinian firms will hire less or fire more people, which means we’re going to get into this vicious cycle of underdevelopment and de-growth,” Shikaki warned. 

“So on an individual basis this is going to have a humanitarian and social ramification. But in terms of the macroeconomy, this will also create a vicious cycle, if this were to be implemented in the way Israel wants, with no Palestinian workers in its economy.”

The effects on the Palestinian private sector, and the overall Palestinian GDP are already being felt, close to 6 months into Israel’s genocide in Gaza. According to a report from the Palestine Central Bureau of Statistics, between October 2023 and January 2024, the Palestinian economy suffered losses in production amounting to 2.3 billion USD. 

PCBS also estimated that the GDP of Gaza and the West Bank contracted by one-third during the last quarter of 2023, and that it will decline by another 15 percent across both areas if Israel’s war continues until mid-2024. 

“In addition to the devastating and catastrophic loss of life and with the people of Gaza on the brink of mass starvation, the war in Gaza has also caused an economic and social crisis that is unprecedented in the Occupied Palestinian Territory,” said ILO Regional Director for Arab States Ruba Jaradat. “In Gaza, entire neighborhoods have been wiped from existence. Infrastructure, energy and water facilities have been demolished. Schools, medical facilities, and businesses have been destroyed. This has decimated entire economic sectors and paralyzed labor market activity, with untold repercussions on the lives and livelihoods of Palestinians for generations to come.”

A weakened economy will mean a destabilized Palestinian Authority

Israel’s deliberations on bringing in foreign workers to replace Palestinian workers haven’t all been smooth sailing. Rifts within the security and political establishment, as well as between Israel and the U.S. on the matter, have centered around a key point: the “strengthening of the Palestinian Authority.”

The PA is the administrative body in less than 40% of the occupied West Bank, and while it is regarded as the state representative of the Palestinian people, the PA has become increasingly unpopular amongst Palestinians in recent years, and is regarded by many as a “subcontractor” of the Israeli occupation due to widely condemned policies like security coordination. 

Since October, the PA has come under intense criticism by Palestinians for its silence and inaction in response to Israel’s genocidal war in Gaza. It’s also come under pressure from the U.S. and other countries to reform itself in the hopes that the PA will take over an administrative role in governing a “post-war” Gaza. 

When it comes to the economy, both Israeli and American officials have warned that a weakened Palestinian economy – whether due to unemployment, or the withholding of tax revenues – will inevitably weaken an already fragile PA, and thus, American and Israeli interests in the West Bank. 

In January, Israeli Defense Minister Yoav Gallant warned against a prolonged block on the entry of Palestinian laborers from the West Bank into Israel and against the withholding of PA tax revenues, saying “a strong Palestinian Authority is in the best security interests of Israel.”

In late February, Israel reportedly agreed to resume tax transfers to the PA to fund basic services in the West Bank following U.S pressure, and reports that PA officials had expressed that “their ability to govern has been effectively blocked,” Reuters reported. 

When it comes to what effects a devastated Palestinian economy would have on the PA, Shikaki was much more blunt. 

“I don’t think this was always the case, but I think today, the Palestinian Authority will cease to exist if it does not play the security role that Israel wants it to play. In the last 20 years, there are two things that have kept the PA existing: its importance for Israel and the financial role of providing some sort of financial stability for millions of Palestinians,” Shikaki said. 

Shikaki pointed to the fact that currently, it is estimated that roughly 1 million Palestinians depend on the Palestinian Authority for their daily livelihood. And while those people may disagree with the PA politically, the PA has offered them fianancial security and a way to feed their families. 

“In any kind of colonial history, it’s very important that the colonized people are in some sort of balance. It’s not the case where they have absolutely nothing to lose, which means that they’re going to revolt. And it’s not the point where they have that luxury which allows them to think self-determination,” Shikaki continued, describing the PA as being largely responsible for maintaining that “balance” within the occupied Palestinian population in the West Bank. 

“The PA plays this role of, in one sense, complementing and helping out the occupation in terms of controlling Palestinians, but also providing their basic services.”

But when the PA is unable to provide those services to the people under its control, or unable to pay its public servants proper wages, that delicate balance begins to crumble. 

“That sense of financial stability that the PA has played a role in maintaining for millions of Palestinians is declining,” Shikaki said. “And that means that Palestinians are slowly realizing that this is not going to be a long-term solution, and we have to think of solutions elsewhere,” he continued, pointing to the rise of armed resistance groups in the West Bank in recent years, which have signaled a growing frustration with the PA and the status quo. 

“More than the majority of Palestinians say that the PA should be dissolved or that it is not playing the role that it’s supposed to,” Shikaki said, adding that if the current trajectory continues, it will spell certain disaster for the PA. “It’s a very bleak picture, but this is the reality.”