A high number of Palestinian workers used to work in Israel for decades. These people are mostly employed in low-skilled jobs in Israeli sectors which are highly dependent on foreign labour, namely agriculture and construction. With the beginning of the second Intifada in 2000, border restrictions increased severely due to security concerns, limiting employment possibilities for Palestinians and leaving Palestine with severe unemployment and loss of income. Israeli employers have substituted Palestinian workers with an increasing number of foreign workers, mostly from Asia. Growing unemployment among Israeli unskilled workers caused Israel to impose quotas on the employment of foreigners. The weak enforcement of the permit system leads to a growing number of foreign workers which are working illegally without a valid permit in Israel. Regularly the Israeli government enunciates to decrease the number of non-Israeli workers in Israel. The purpose of this paper is to estimate the effects which would accrue to Israel and the West Bank from enforcing the Israeli labour law and restricting the number of Palestinian workers and workers from the rest of the world to the amount of working permits issued. Therefore, we use an extended version of the single country CGE model STAGE (McDonald, 2009), adapted to a Social Accounting Matrix (SAM) of Israel for the year 2004 (Siddig et al., 2011) to simulate the effects of different Israeli labour policy regimes.
