The Effect of Labor Demand Shocks on Labor Force Participation

The Effect of Labor Demand Shocks on Labor Force Participation

For Young Educated Females: Evidence from Palestine.

Research Policy Brief

Belal Fallah

Marcelo Bergolo

Mohammad Hattawy

Arwa Abu Hashhas.

Iman Saadeh

Two interesting stylized facts emerges from the Palestinian labor market. Education attainment for female has swiftly expanded during the 1999-2017 period. The share of females who completed more than twelve years of education has doubled rising to 17%. With improvement in education attainment, labor market attachment is expected to improve. Still, labor force participation rate (LFPR) for young educated female (aging between 19 and 29) has stagnated.

In this research, we focus on the demand side (job opportunity). Over the past two decades, job opportunity becomes scarcer for young educated females.Theoretically, LFP is expected to be higher (lower) when labor market is tight (slack). With poor labor market conditions (e.g. recession), workers give up searching for job and become discouraged.The aim of this research is to empirically show the extent to which the decrease in employment causes the sluggish LFP for young educated females.

The findings of this research show the sluggishLFP pattern forthis cohort is not affected by overall employment growth (overall changes in the economy). Yet, the findings show that only changes in labor demand (employment) that are particular to young educated females matter.This research also explains why labor demand has decreased for the young educated females. The data shows the mechanism hinges ondecreases in demand for young educated female in the most growing private service sector (commerce) as well as employment decline in the public sector, that mostly affect educated females.

In this context, a candidate policy is to urge the Palestinian government to hire more of this cohort. Though, expanding public employment beyond the current capacity might be challenging due to chronic financial stress that have inflicted the government. Still, the government can adopt more gender balanced policy to boost employment for young educated females.

Another potential intervention is employment/wage subsidy. This policy boosts labor demand via sharing employment cost with firms. This can be implemented via different channels including tax cuts for firms that hire, say, a minimum number of young educated females, or adopt gender balanced employment practices. The government can also cooperate with international donors to initiate temporary (contract based) employment programs for young educated females.

Read full details in the upcoming printed version in March 2019.

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