CHAPTER 18THE MARKETS FOR THE FACTORS OF PRODUCTION407An episode from Israel illustrates how a shift in labor supply can alter theequilibrium in a labor market. During most of the 1980s, many thousands of Pale-stinians regularly commuted from their homes in the Israeli-occupied West Bankand Gaza Strip to jobs in Israel, primarily in the construction and agricultureindustries. In 1988, however, political unrest in these occupied areas induced theIsraeli government to take steps that, as a by-product, reduced this supply ofworkers. Curfews were imposed, work permits were checked more thoroughly,and a ban on overnight stays of Palestinians in Israel was enforced more rigor-ously. The economic impact of these steps was exactly as theory predicts: Thenumber of Palestinians with jobs in Israel fell by half, while those who continuedto work in Israel enjoyed wage increases of about 50 percent. With a reduced num-ber of Palestinian workers in Israel, the value of the marginal product of the re-maining workers was much higher.
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Marginal product, Palestinian Territories, gaza strip, Palestinian National Authority