In the last five years, unemployment in the West Bank and Gaza rose sharply and exhibited large volatility. While public sector employment expanded rapidly, job creation in the local private sector was very limited. Moreover, a substantial part of the labor force continued to be employed in Israel and the settlements, and changes in the unemployment rate largely reflect changes in job opportunities for Palestinians in Israel and the settlements. As a result, the introduction of a permit system in 1994 and frequent closures, especially in 1995-97,1 have had a strong impact on unemployment. The level of unemployment in the West Bank and Gaza must be assessed bearing in mind that only about half the population is of working age and that the labor force participation rate is very low, so the dependency ratio is high. Given the absence of any formal unemployment insurance system or an effective social safety net, the loss of employment for a breadwinner leads to much hardship for the typically large households.2 This chapter describes the structure of, and developments in, the Palestinian labor market since the Oslo Accords and discusses tentatively the possible reasons for the very high level of unemployment.