On decomposing the changes in wage inequality in Palestine over time

This paper examines the evolution of wage inequality in Palestine's labour market from 2009 to 2016. Using the Gini coefficient, along with bottom, upper, and middle inter-quintiles, we identify a persistent upward trend in wage disparity over time. Applying an inter-temporal decomposition approach, we distinguish between the composition effect—driven by demographic and labour market characteristics—and the wage structure effect, which reflects unequal returns to these characteristics. Our findings suggest that, in the initial years (2009–2011), the composition effect, primarily influenced by shifts in industry composition, regional distribution, and refugee status, played a dominant role in explaining rising inequality. However, in subsequent years, the wage structure effect—particularly the impact of age and gender-based disparities—became more pronounced. The evidence indicates that structural factors such as wage discrimination against female workers and increasing returns to age contributed significantly to the growing wage gap, particularly in the upper quintile. These results underscore the need for targeted policy interventions to address labour market imbalances, promote gender wage equity, and reduce disparities across demographic groups. By shedding light on the factors driving wage inequality in Palestine, this study offers insights for policymakers seeking to enhance wage distribution fairness and labour market inclusivity.