Chapter 3
Household economy

In contrast to the previous chapter, the unit of analysis throughout chapter 3 will be households. In chapter 2 on employment we noted that under-utilization of labour in particular is manifested by a high number of "discouraged workers". Since many of them can still "afford" to be inactive while looking for an "acceptable" job, this indicates that their reservation wage is above the wage level they can obtain in the Occupied Territories.

We further noted that individual response and adaptation strategies with regard to labour activity seem closely coordinated with the coping strategies practised at the level of the household.

These findings would indicate that a possible reason for the seemingly minor downward shift in worker reservation wages may be found in the household's system for re-distributing economic resources among its members. In this model the reservation wage of a "discouraged worker" will depend largely on the income of other household members.

An alternative model could be that various kinds of non-labour income from public sources, like UNRWA and the Israeli Civil Administration, make it possible for households in the sample to survive at a minimum welfare level, without their being obliged to search for any kind of employment at any level of remuneration.

A third possible explanation might be that many households at present choose to draw on their net liquid wealth. Whether through sales of savings, or through accumulating debt or credit, such reduction of net liquid wealth can only be a short-term strategy. In the longer term, either consumption expenditures must be reduced, or households must implement some sort of compensatory measure on the income side.

A possible explanation for following short-term strategies is that people expect the employment situation to improve in the near future. Here we should recall that the fieldwork for this survey was conducted in October/ November 1993, less than half a year after the border closure.

This chapter is divided into three main parts. The first part will investigate income-generating household activities on the household level. The corresponding section in chapter 2 found no indication that involvement in household production plays a compensatory role with regard to individual adaptation to the loss of formal employment. It might well be, however, that other household members (with lower reservation wages), have increased their involvement in household production to compensate for the overall loss of formal labour income.

The second part will discuss the relationship between types of household income, an index for household possession of consumer durables, and employment. Here we are particularly interested in finding out whether an explanation for the seemingly low downward change in worker reservation wages may be found in the household's system for re-distributing economic resources among its members.

Finally, the third part of this chapter will discuss net liquid household wealth, as measured through sales of savings, or through the accumulation of debt or credit. The role of net liquid wealth as a household coping strategy will be discussed, in particular whether the fact that households draw on their net liquid wealth may help explain the seemingly downward shift in worker reservation wages.


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