The labor market impact of mobility restrictions: Evidence from the West Bank

Using data on Israeli closures inside the West Bank, this paper provides new evidence on the labor market effects of conflict-induced restrictions to mobility. To identify the effects, the analysis exploits the fact that the placement of physical barriers by Israel was exogenous to local labor market conditions and uses a measure of conflict intensity to control for the likely spurious correlation between local unrest, labor market conditions, and the placement of barriers. The study finds that these barriers to mobility have a significant negative effect on employment, wages, and days worked per month. The barriers had a positive impact on the number of hours per working day. These effects are driven mainly by checkpoints while other barriers, such as roadblocks and earth mounds, have a much more limited impact. Only a tiny portion of the effects is due to direct restrictions on workers' mobility, suggesting that these restrictions affect the labor market mainly by depressing firms' production and labor demand. Despite being an underestimation of the actual effects, the overall costs of the barriers on the West Bank labor market are substantial: in 2007, for example, these costs amounted to 6 percent of gross domestic product. Most of these costs are due to lower wages, thus suggesting that the labor market has adjusted to the restrictions more through prices than quantities.