Israeli Economy Reels From Gaza Conflict as Labor Pool Shrinks
Outlook dims as Palestinian workers are barred from entering and Israelis are called for military duty
RAMALLAH, West Bank—Nir Yanushevsky heads a real estate and construction firm north of Tel Aviv that before the war had about 1,000 employees. But Israel’s decision to suspend Palestinian work permits after the Oct. 7 attacks has upended his business.
“You wake up one morning and one-third of your workers are gone,” he said.
So is Mustafa Irzikat’s job. The father of four had crossed into Israel from the West Bank to work in construction for more than 16 years, but now he is living off loans from friends. “Without them, I wouldn’t be able to pay for food for one day.”
Israel’s war in the Gaza Strip is transforming its economy and that of the West Bank.
The decision to bar more than 100,000 Palestinian workers from entering Israel has shrunk the pool of low-cost labor in a country of roughly nine million people that is known for relatively high wages and strict immigration laws that make it harder for non-Jews to live in Israel.
At the same time, the Israeli military has called up roughly 400,000 reservists and officials estimate that 250,000 Israelis have been relocated at least temporarily from their homes, particularly from areas seen as potentially vulnerable to attack, preventing many from going to work.
About 20% of Israeli employees aren’t working due to military duty or relocation, according to Israel’s Ministry for Economy and Industry, which estimated that the cost to the economy due to the absence of Israeli workers had reached around 13 billion shekels, or roughly $3.6 billion, by mid-November.
In Israel’s tech sector, a driving force in its economy, an average of 10% to 15% of the workforce has been called up for reserve duty, according to an estimate by the Israel Innovation Authority.
“Businesses aren’t operating as smoothly, people aren’t spending as much money. There’s an accumulated impact to this,” said Yossi Mekelberg, a Middle East analyst at Chatham House, a think tank based in London.
The Israel Federation of Small Business Organizations and the Tel Aviv-based Macro Center for Political Economics jointly forecast that the war would directly contribute to the closure of some 30,000 small- and medium-size businesses in various sectors.
The economy’s outlook is dimming as a result. The Bank of Israel last month lowered its growth forecast,
estimating that the economy would grow 2% annually—down from the
previous forecast of 3% annually—in 2023 and 2024. The bank forecast
that government expenditures due to the war would total about $43.2
billion by the end of 2025.
The
suspension of work permits, restrictions on freedom of movement for
Palestinians and import limits have all hurt the West Bank’s economy as
well. The Palestinian Central Bureau of Statistics estimates that the
war has resulted in a 37% decline in production—amounting to about $500
million a month—in the territory. Over a quarter of businesses in the
West Bank were partially or fully closed in November due to the war,
according to the Palestinian Ministry of National Economy.
Abdallah Al Dardari, the director for Arab states at the United Nations Development Program, said the suspension of Palestinian work permits has contributed to an economic crisis in the West Bank.
Initial estimates suggest that around a quarter of Palestinian employment in the West Bank has been lost, equivalent to about 208,000 jobs, including 56,000 due to reduced regional economic activity, according to a November report from the International Labor Organization, a U.N. agency.
Some
130,000 Palestinians from the West Bank had permits to work in Israel,
including its West Bank settlements, with roughly 40,000 others entering
Israel without a permit to work in the third quarter of this year,
before the war, according to the statistics bureau.
The
Israeli government last week said it would continue to bar Palestinian
workers from entering Israel, citing security concerns.
“There
is a war, and war has consequences. We will make a concerted effort of
all the government offices…to find a solution,” said Bezalel Smotrich, Israel’s finance minister and the head of an ultranationalist religious party.
The
suspension of work permits for Palestinians is particularly hitting
Israel’s construction industry, which employed over 60% of Palestinians
working in the country, and the agriculture sector.
The
Israeli Ministry of Construction and Housing said last month that
Israel has signed a bilateral agreement with India for workers and said
it is seeking to promote similar agreements with other countries as it
seeks to replace Palestinian workers.
The government approved a proposal to bring in 10,000 foreign workers for the construction industry before the end of the year and is taking steps to increase the quota of foreign construction workers by 23,000. It said it is also seeking to extend visas of foreign workers already in Israel and shorten bureaucratic procedures. The prewar quota of foreign non-Palestinian construction workers was 30,000 a year.
Israel allows Jews from around the world to immigrate and receive citizenship. The country restricts immigration for non-Jews. Many migrant workers, even if they have lived lawfully in Israel for years, don’t have the right to acquire permanent legal status and risk losing their work permits if they have children, according to rights groups. Palestinians from the Gaza Strip, the Israel-occupied West Bank and some in Jerusalem generally aren’t granted Israeli citizenship or full rights.
“Migrant workers represent an extremely vulnerable population group within Israeli society,” according to Unitaf, an Israeli organization that focuses on migrant children’s rights.
At the end of 2022, 136,000 foreign nationals—mainly from south and southeast Asia—had entered the country on work visas over the years, according to the Israel Central Bureau of Statistics.
The Israel Builders Association said the government’s decision to prevent Palestinian workers from entering Israel would impede the construction sector from returning to full activity for many months.
“The meaning on the ground will be the collapse of many contractors and business owners,” the association said.
Yanushevsky, the construction firm owner, said that even if the war stops immediately and Palestinian workers return, it would take at least six months to reach prewar development levels. The number of foreign workers the government is trying to replace Palestinians with is insufficient, he said.
“It’s like trying to save a sinking ship by throwing the water out with a spoon,” he said.
Irzikat, the Palestinian worker, said there is no space for him in the current Palestinian market, despite his extensive experience, including overseeing construction projects with more than a dozen workers. He said he is concerned about the future if poor economic trends continue in the West Bank.
“Today people are patient, tomorrow people are patient, but what about after that?” he said.
Ari Flanzraich contributed to this article.
Write to Omar Abdel-Baqui at omar.abdel-baqui@wsj.com