Since the Hamas massacre, almost no Palestinians are allowed to work on Israel’s construction sites. If nothing changes, the entire country’s economy is at risk of crashing.
It is surprisingly quiet on the construction site just outside Beit Shemesh. There are hardly any construction workers in any of the almost completed buildings, only one of the vehicles standing around is in use. “We have only been building again for three days,” says Aharon Galili as he trudges through the mud in the medium-sized Israeli city near Jerusalem. “I have recruited a group of 10 Arab workers from the north of Israel, and that is the only reason why things are slowly moving forward again.”
For seven months, there has been a standstill on the eight apartment blocks that the construction company wants to complete. “I normally employ 120 workers from the West Bank here,” says the 73-year-old with an expansive hand gesture. “But since October 7, none of them have come.”
Almost all building contractors in Israel feel the same way as Galili. Hardly any other sector in the country is so dependent on Palestinian labor. Around 200,000 Palestinians worked in Israel before the Gaza war broke out, an estimated half of them on Israeli construction sites.
After the Hamas massacre, almost all work permits were frozen from one day to the next due to security concerns – and in Israel the excavators, jackhammers and bulldozers were largely at a standstill. The abandoned construction sites are a ticking time bomb for the Israeli economy – and an economic catastrophe for the West Bank.
“I have never experienced such a difficult situation”
Aharon Galili is convinced: Things cannot continue as they are now. He would have to pay the newly recruited Israeli workers a wage that was twice as high as those from the Palestinian territory. “And in comparison, they only do half the work,” says the man with short white hair, shaking his head. In his 35-year career in the construction industry, he has never experienced such a difficult situation, says Galili in front of a house that he actually wants to complete in a year. “I’m losing a lot of money,” says the older gentleman in the checkered shirt. He doesn’t want to say how big his loss is, but it is substantial.
This is a problem not only for Galili, but also for the entire Israeli economy. Because Israel’s population is growing, the country must build an average of 60,000 housing units per year just to meet demand. At the end of 2023, the number of new buildings fell by 95 percent compared to the same period last year. In addition, the construction sector is extremely important to the national economy. It accounts for around 10 percent of Israel’s entire economy. For comparison: In Switzerland, the construction industry only contributes half as much to economic growth.
Israel wants to recruit workers from Asia
Work permits for Palestinians were also suspended in previous wars and during intifadas. But after a few weeks they were able to come back. This time it’s different. This is not just due to the extent of the Hamas massacre on October 7th. But also in the current government, which includes right-wing extremist politicians such as Finance Minister Bezalel Smotrich.
He absolutely wants to prevent the return of Palestinian workers to Israel – from the finance minister’s point of view, they represent a security risk. Workers from Gaza are said to have provided Hamas with information in the run-up to the terrorist attack. However, according to a preliminary report from Israel’s domestic intelligence service in March, there are no signs that this has happened on a large scale. Smotrich’s plan is to recruit workers from India, China and other Asian countries instead of the Palestinians.
However, these have not yet come to Israel in sufficient numbers. Construction contractor Galili does not believe that workers from Asia can replace the Palestinians. “First of all, there are hardly any there. Secondly, I would have to pay them almost three times as much,” he says. “There is no other solution than to bring the Palestinians back.”
Galili ran into Finance Minister Smotrich at a conference a few months ago and asked him about the massive problems in the construction sector. “It was like I was talking to a wall,” remembers the entrepreneur. Smotrich is an ideologue who only pursues his own agenda.
The crisis will worsen in two to three years
The use of workers from Asia also makes no economic sense, says economist Esteban Klor from the Hebrew University of Jerusalem. He thinks it’s a “terrible idea,” says Klor in an interview. Workers from India or China impose additional costs on the entire economy because they have to be housed, their children educated and their families treated in Israeli hospitals. The Palestinian workers, on the other hand, come to Israel in the morning and return to the West Bank in the evening.
Klor sees dark clouds gathering for the entire Israeli economy due to the crisis in the construction sector. “80 percent of the workers needed in the first phase of a construction project come from the Palestinian territories,” says the economist. “That means: without the Palestinian workers we can still complete buildings, but we can hardly build any new ones.”
Israel will only notice the effect in full force in two or three years. He sees a particularly threatening mix emerging in the near future. Because of the war, Israelis are currently buying fewer houses and apartments, and new construction has almost completely come to a standstill.
“I assume that the demand for houses will increase as soon as the war is over – only then the supply will be even lower because we are not building houses now,” says Klor. The effect: Housing prices could explode. And of all places like Tel Aviv. The Mediterranean metropolis has had a firm place in the top ten most expensive cities in the world for years. “In two to three years we will experience a huge crisis,” says Klor. But because the problems in the construction sector will only worsen for some time, politicians are not yet forced to act.
In the West Bank, almost every second person is unemployed
In the West Bank, however, the economic collapse has already hit hard. Estimates suggest that Palestinians working in Israel contributed around a quarter of the Palestinian territories’ total economic output. The unemployment rate in the West Bank has doubled to more than 40 percent since the outbreak of war. According to the International Labor Organization (ILO), it is expected to rise to 57 percent in the first quarter of 2024.
“These unemployed people can still stay afloat through a social network,” says Raja Khalidi, head of the Palestine Economic Research Institute in Ramallah. “They are not starving like the people in Gaza, but food insecurity is also rampant in the West Bank.”
In Khalidi’s view, the Palestinian and Israeli economies are so closely linked that it would be very difficult to absorb such a large number of unemployed people in the West Bank. “If the workers found one of the few available jobs here, they would also be paid much less,” says the economist.
“We will see a workers’ intifada”
The crisis in the West Bank is not only a problem for the Palestinians, but also for Israel in the medium term. While Smotrich and other right-wing politicians vehemently oppose the return of the Palestinians, Israel’s interior minister, the army and the security services have spoken out in favor of it. From their point of view, the security risk for Israel increases if unemployment and discontent in the West Bank increases – terrorist attacks could increase.
At the construction site in Beit Shemesh, Aharon invites Galili into a small, white container and serves instant coffee and cookies. There, behind large folders at a desk, sits his son Yossi. He is the project manager on this construction site. The younger Galili is still in close contact with his Palestinian colleagues and tries to support them as best he can.
“If nothing changes, we will see uprisings,” Yossi Galili is convinced. «In Israel, construction companies will take to the streets with trucks and excavators because their business is threatened. And in the West Bank we will see a new intifada – a workers’ intifada.” The government doesn’t have much time left to bring the workers back from the Palestinian areas – father and son agree on that.