The Effect of Labor-Demand Shocks on Women’s Participation in the Labor Force: Evidence from Palestine

Abstract

Two interesting facts emerge from the Palestinian labor market. Educational attainment for women swiftly expanded during the 1999-2011 period, but the labor force-participation rate (LFPR) for educated women stagnated—and disproportionately so for young educated women. We investigated whether changes in labor demand contributed to women’s sluggish labor-force participation (LFP). Our empirical analysis used quarterly labor-force data published by Palestine Census Bureau of Statistics (PCBS) between 2005 and 2011. To explore the causal effect of labor demand, we employed a fixed-effects model using the instrumental-variable approach. We provide evidence that changes in demand for educated women workers affect their LFP, indicating that the negative demand shocks that young educated women have encountered in recent years may have contributed to their sluggish LFP. Interestingly, the decrease in the demand for educated women is not driven by job competition with similarly situated men. This research has important implications for policy regarding the economic empowerment of educated women in Palestine and suggests that enhanced labor demand for educated women is vital to boost their labor-force participation.

Keywords: labor economics, labor demand, labor-force participation

JEL Classification: J21, J01