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Working in Israel is big business for the Palestinian economy, but according to the Bank of Israel, it may not pay for the Palestinian Authority in the longer run.

In the year 2008, Palestinians working in Israel were responsible for 10% of the Palestinian gross domestic product. It may be good for the individual Palestinian family, whose income is likely to grow - but it may prove bad for Palestinian economic growth, writes the Bank of Israel in an abstract of a report it will be releasing this month.

The number of Palestinians working in Israel increased markedly between 2002 (as the second intifada subsided) and 2008 (when the global economic crisis erupted), the central bank found. In parallel, the Palestinian economy significantly improved compared with the previous years.

During the first nine months of last year, 73,700 Palestinians worked in Israel, including in the settlements, down slightly from the same period of 2008. That figure includes both legal workers and illegal ones without permits. Of that number, 43,000 lived in the West Bank and the rest in East Jerusalem.

"The workers from Judea and Samaria (excluding East Jerusalem) constitute about 2 percent of the total number of employees in Israel's business sector," the Bank of Israel wrote in its abstract.

The central bank concludes that it's better to employ "legal" Palestinians (with work permits) than foreign workers, from all perspectives - diplomatic, social and economic.

From the perspective of the Palestinian economy, the more Palestinians work in Israel, the greater its export of services and the greater the Palestinian GDP.

However, the relatively high pay earned by unskilled Palestinian workers in Israel (compared with the pay levels in Palestine itself) erodes returns on education. It discourages young people from acquiring higher education or even completing high school. Therefore, the Bank of Israel is concerned that employment in Israel will, ultimately, have a deleterious effect on Palestinian economic growth in the long run.

Possibly so, but the statistics show that work in Israel is highly important to the Palestinian economy. Palestinians working in Israel constitute 14% of the total employed workforce among the residents of the West Bank and east Jerusalem. Total payment by Israeli employers to Palestinian workers came to $649 million in 2008, which is more than 10% of the Palestinian gross domestic product that year and is also equivalent to total Palestinian exports that year.

Going by the Bank of Israel's analysis, the increase in Palestinian work in Israel between 2002 to 2008, with the improvement in Israel's security situation, helped increase participation by adults in the Palestinian workforce. In 2009, unemployment among Palestinians was 17.7% of the adult workforce, more than double the rate in Israel, which was 7.6%.

A report from the Palestinian finance ministry, which the Bank of Israel mentions, says that Palestinians working in Israel earn 60% more, on average, than their peers working in the West Bank.