Palestinian labor in Israel was one of the early attributes of the relationship of dependency between Israelis and Palestinians. It was also one of the clearest features of the Israeli economic exploitation of occupied Palestinians.
It was thus part of a comprehensive and systematic cluster of policies that aimed at achieving the maximum level of economic exploitation, including the stealing of water from Palestinian aquifers, the using of Palestinian tourist sites for the benefit of the Israeli economy, the confiscating of Palestinian land for the benefit of Jewish settlers, and the overall restructuring of the Palestinian economy to become the second largest importer of Israeli products.
A Palestinian researcher once described the Israeli occupation as being the second most profitable project in the Middle East after oil. That might be a bit exaggerated, but not by much.
Most of the Palestinian workers in Israel used to come from rural areas. In particular, they tended to be farmers who lost their land–their only source of income–due to confiscation, or who became unable to make a living off of their land due to the unfair competition created by Israeli agricultural products. Ironically, many of these workers found themselves employed as inexpensive labor on their own land that had been confiscated and had become Jewish settlements. The phenomenon of Palestinian labor in Israel entailed denying workers certain rights, which rendered them both cheap and convenient.
They were cheap because Israelis deprived them of the various social benefits to which any worker in Israel is entitled. Moreover, many worked without official permits, allowing their employers to exploit their irregular status in order to give them low salaries.
They were convenient because Israel could benefit from a large number of non-Israeli workers without having to cope with the usual social or ethnic problems experienced by countries that depend upon immigrant labor. Although the number of Palestinians working in Israel was huge–even reaching 200,000 at a certain point in time–most of these workers did not have to stay overnight and thus did not become an ethnic community inside Israeli society. Rather, they would come in the morning and at night return to their own communities in the Palestinian territories.
This phenomenon carried another disadvantage for the Palestinian economy. It created an artificially high level of wages that put Palestinian employers in a difficult situation of competition over Palestinian workers. Palestinian employers had to compete with Israeli employers, who could afford high wages given Palestinian standards (albeit very low wages by Israeli standards). This reduced incentives for investment in Palestine, and consequently hindered economic growth.
When confrontations began between Palestinians and Israelis in September 2000, Israel suddenly began to prevent Palestinians from working in Israel. This policy coincided with many other measures of economic collective punishment that discouraged investment and caused many businesses to collapse. The result has been a huge increase in unemployment, ranging from one third to one half of the Palestinian labor force during the first four years of confrontations. With the Israeli unilateral disengagement plan, Israel is planning to bring the number of Palestinians from Gaza working in Israel to zero. That might have been a positive step, were Israel not accompanying such policy with a continuous closure over Gaza and restriction of persons and goods from Gaza to the West Bank, from Gaza to the rest of the world, and vice versa. Such ongoing closure will only lead to further deterioration of the economic and social situation.
The interests of the Palestinian economy, and Palestinian welfare more broadly, could require a gradual reduction of the number of Palestinians working in Israel, but only if paralleled by the opening of Palestinian borders with the outside world as necessary to attract investments of the kind that can increase production and exports. Any country with as small a market as that of the Palestinian territories would suffocate economically, unless it was able to export either its extra labor force or the products of its workers. Improvement in work opportunities and the reduction of unemployment, and consequently economic recovery, are not only of economic and social interest for Palestinians, but also a necessary prerequisite for security and political stability. This is especially the case given the significant statistical correlation between an increase in poverty on the one hand and an increase of radicalization and extremism, on the other.