THREE ESSAYS ON UNEMPLOYMENT AND WELFARE IN PALESTINE

Abstract In this thesis, we tackle three interrelated issues, and derive empirical evidence that adds some knowledge concerning growth in public spending, growth in output and unemployment in the Palestinian occupied territories. First, in chapter one, we examine the relationship between GDP and government expenditure over the period 1972-2015. The major objective of this study was to examine the direction of causality between government public expenditures and gross domestic product in Palestine. We test whether Palestine is consistent with the Wagner’s law that emphasizes growth of GDP as the primary determinant of Government size (Wagner, 1893). In contrast, The Keynesian macroeconomic model advocates an active government intervention in the economy through an increase in government spending is conducive to growth GDP, thus stimulating the demand for goods and services during periods when there is a lack of effective demand and putting the unemployed back to work. This illustrates the importance of aggregate demand in the Keynesian macroeconomic framework to determine the level of output and income in the economy (Chipaumir.et al., 2014). In addition, we expect that international aid was an important variable significant on income and on government expenditure. The main question of this paper: whether government expenditures in Palestine cause economic growth or vice versa? The answer to the question, we used a trivariate VAR model methodology. The model finding positive and strong effect of Wagner in trivariate was due to the advent of Palestinian National Authority which increased the supply of goods and services needed by the modernization process. This was in addition to the requirements of rent seekers in the Palestinian economy. Further examination of the results presented also revealed that the PNA‘s management of public finance had a positive and significant effect on government expenditure. On the other hand, the reverse hypothesis had significant levels too. In particular, there was a significant effect of the size of the government on growth. This is consistent with an economy in which growth is followed by expansion in public sector activity that feeds into the growth process in short run. To look further into the issue of weak association between government spending and economic growth, I investigated the channel effect on growth and investment through unemployment. In particular, I looked into how public spending and private investment spending affects unemployment over the period 1972-2013. The relationship between unemployment and government expenditures and the investment is examined in Chapter two. The methodology used in the chapter is cointegration and error correction, which is hoped to account for a potential long-term relationship between unemployment and government spending as proportion in GDP. The model’s findings indicate that the size of the government is significantly positively related to unemployment. However, the relationship between unemployment and investment as proportion in GDP was found to be insignificant. The unemployment and conditions of the labor market is another interest of this thesis. Specifically, we conclude this thesis by having a closer look at the social security programs available in the Palestinian labor market. In this thesis, I investigated social security programs in the Palestinian occupied territories. The aim was to provide a description of the current situation of the social security systems in Palestine. Second, introducing some international experiences pertinent to pension fund, particularly in countries of economic hierarchy similar to Palestine’s. Eastern European and South (Latin) American countries are cases in point. Third, studying the Palestinian pension fund for the sake of evaluation and identification of any existing gaps. Fourth, analyzing empirically the results of a questionnaire administered by MOWATEN to SMs workers to join the pension fund identifying the most important causes and factors which impact employees’ decisions in small enterprises to join social security system, by used Logistic Model and Artificial Neural Network Model (ANN) implemented over the sample. And fifth, establishing a Palestinian pension fund capable of serving all the West Bank and the Gaza Strip employees, and providing programs for all sectors. We contribute in two directions: first we looked into the characteristics of that determine the chance of participation in a probable social security plan; second, we analyze raw questionnaire data collected by MOWATEN, by used Logistic model and Artificial Neural Network Model (ANN) implemented over the sample. The results show that there is significant difference between the attitude of workers to pensions in both the West Bank and the Gaza Strip when it comes to joining the social security system. Moreover, there is no difference between males and females in terms of the decision to join social security in small enterprises. There is a positive effect of knowledge of pensions and education on the possibility of joining a social security program. In the ANN model, it is found that the years of work (experience) is the most important as it obtained the highest weight, followed by the location, the number of dependents, secondary education, knowledge of social security, mutual status, graduate education and finally the age of the person. However, in the logistic model, the location obtained the highest weight, followed by graduate education, knowledge of social security, mutual status, the years of work, secondary education, the number of dependents and finally age of person.