What are the causes of high unemployment in Jordan? This seemingly simple question is not without its complexities and difficulties. High unemployment in Jordan is not a sudden or short-term phenomenon, but rather the result of a long accumulation of economic, structural, demographic and political factors.

 

Since 2010, the economy has suffered structurally from low economic growth rates (2.5 per cent-2.9 per cent), which are insufficient to create jobs and are far below what is needed to absorb new entrants into the labour market (which should be 5-6 per cent). Such rates result in the creation of only 20,000-30,000 jobs annually, while 70,000-80,000 young people enter the market each year. Furthermore, the continuation of these weak growth rates strains factors of production such as labor and capital, especially when followed by a contraction, as occurred in 2020.

 

Economic growth in Jordan relies on sectors that do not generate many jobs relative to their growth and require relatively high-level skills, such as financial services, telecommunications, energy, real estate and trade. The labour-intensive sectors of manufacturing, agriculture, tourism, and transportation and logistics are experiencing weak or volatile growth. The economy also lacks large-scale manufacturing industries such as automobiles, electronics or heavy industry. These sectors generate tens of thousands of well-paying jobs in other countries.

 

Several economic and financial factors contribute to the weakness of the economic structure, including high operating costs for companies. Jordan has one of the highest electricity costs globally. Other factors include the tax burden on businesses (due to high sales tax), shipping and transportation costs, and financing costs (bank interest). This leads companies to hesitate in expanding their workforce even when the economy experiences slight improvements.

 

This results in a heavy reliance on migrant labour, which accepts lower wages, thus reducing the risk of expansion for employers. Consequently, there are more than 400,000–500,000 migrant workers in Jordan, employed at lower wages than Jordanian workers in the agriculture, construction, restaurant, service, craft and manufacturing sectors. This leads to competition for lower-skilled jobs, with Jordanian workers being replaced by cheaper labour. The rising costs have also led to a decline in foreign investment from $2.2 billion (2006–2008) to less than $700 million in recent years, with investors turning to less expensive countries such as the UAE, Saudi Arabia, Egypt, Turkey and Morocco.

 

Demographic and social factors also play a role. More than 64 per cent of Jordanians are under 30 years old, resulting in high demand for jobs while the available capacity is limited. Furthermore, the university system produces a surplus of graduates in theoretical fields (management, law, humanities) and a shortage of skilled workers (welders, electricians, nurses, technicians, programmers). Consequently, 80 per cent of job seekers are university graduates who reject manual labour, viewing it as a “low-class” profession, and thus face long-term unemployment.

 

There are institutional factors contributing to high unemployment rates, such as bureaucracy and a complex investment environment. Despite improvements in procedures, establishing a company or obtaining a license still requires lengthy and costly processes, which discourages the creation of new businesses and their expansion.

 

While policies exist to stimulate the labour market, such as targeted training programmes, on-the-job training, short-term employment support, and sector-to-sector transfer programmes, these policies need broader and deeper implementation, supported by the necessary funding to reduce unemployment.

 

Furthermore, policy instability, such as frequent changes in taxes, incentives, investment laws and energy policies, makes producers more uncertain and hesitant to expand employment. In addition, external shocks have impacted the labour market, such as the closure of borders with Iraq and Syria (2011–2017), which led to the loss of key export markets for Jordanian industries, factory closures and the dismissal of thousands of workers. The COVID-19 pandemic in 2020 also affected tourism, transportation, restaurants and self-employment, exacerbating unemployment, particularly among women and youth. As a result of these factors and reasons, the high unemployment rate in Jordan stems from: A slow-growing economy, high operating costs, reliance on foreign labor, inadequate education and an economic structure incapable of creating sufficient jobs for the population. Therefore, solutions must address each of these factors.

 

To begin with, the economic growth rate, which recently reached 2.8 per cent, needs to be raised to 4.5–5 per cent annually by launching labor-intensive sectors, such as those in Morocco (automotive industry), Turkey (logistics) and Vietnam (light industries). The central equation is that every 1 per cent increase in real (effective) growth will create 10,000–15,000 jobs in Jordan.

 

Note that there is an equation that follows Okun’s Law, which states that every 2 per cent increase in real GDP leads to a 1 per cent reduction in unemployment. However, these rates are more applicable to the United States due to the structural differences between the two economies. According to my own research, a 2.5 per cent real growth in Jordan leads to a 1 per cent reduction in unemployment, meaning the transformation cost in Jordan is higher.

 

Raising economic growth should be achieved through several methods, such as doubling the size of manufacturing industries by providing tax incentives for export-oriented industries, reducing electricity costs for industry by 20 per cent, and establishing several major industrial and logistics zones near Aqaba and Mafraq, for example. Regarding revitalising the tourism sector, this will be achieved through an attractive low-cost airline programme, allocating JD100 million annually to market Jordan globally, and stimulating investment in small and medium-sized hotels. Expanding the digital economy will be accomplished by exempting emerging IT companies from income tax for five years and training 50,000 young people in employable technical skills.

 

To reduce business operating costs and burdens, several key measures will be implemented, including a 15 per cent reduction in electricity tariffs for productive sectors over two years, eliminating 25 per cent of government fees and recurring permits, digitising 80 per cent of investment procedures, and adopting a “silent permit” system (automatic approval within 10 days unless rejected).

 

As for creating proactive labor market policies, several successful experiences exist, such as Turkey, where the government implemented temporary wage subsidies for young people in 2003; Morocco, which established training-for-employment programmes; and Georgia, where the government simplified its regulations and legislation. Therefore, a national employment support programme (200,000 opportunities annually) is essential. This program would subsidise wages for 12 months, with the government covering 30-40 per cent of the salary of newly hired Jordanian employees. The programme would target youth, women, residents of governorates, and those unemployed for more than 12 months. Additionally, 50,000 young people could be trained annually within factories and companies. Large companies, particularly those in the mining and quarrying industries, should be required to implement a minimum training quota of 5 per cent of their workforce.

 

Regarding the regulation of foreign labour, the work permit should be linked to the sector, not the employer (as in the UAE). Fees for bringing in foreign workers should be increased for sectors where Jordanians can fill those positions. Furthermore, inspections should be intensified, and an electronic permit tracking system implemented to transfer 40,000-50,000 job opportunities annually from foreign workers to Jordanians.

 

It is also crucial to restructure vocational education by establishing 20 new technical schools in partnership with the private sector. These schools would train 30,000 students annually in fields such as industrial welding, electricity, logistics, solar energy, nursing and programming. University admissions can be linked to market needs through a points system and surveys based on studies and data from the Department of Statistics. Government scholarships and funding can be provided to 10,000 students annually to accelerate the shift towards STEM fields (science, technology, engineering, and mathematics) and double the number of graduates in engineering and technical professions that are globally in demand.

 

To empower women (where female unemployment exceeds 30.9 per cent according to the World Bank, and the labour force participation rate in Jordan (12-14 per cent) is among the lowest in the world, if not the lowest), the following measures can be taken: Granting a five-year tax exemption to companies that employ women at a rate of 40 per cent or higher; establishing nurseries in every industrial/government zone; providing training programmes for girls in rural areas; and subsidising transportation to and from workplaces. To develop the governorates and maximise their participation, we must shift towards creating specialised clusters supported by integrated and mutually reinforcing industries. For example, Madaba could specialise in tourism, Mafraq in logistics and manufacturing, Karak in food processing, and so on. It is also essential to establish an investment fund for employment in the governorates with a capital of JD300 million to finance small and medium-sized enterprises.

 

Concomitantly, it is also important to undertake horizontal reforms such as improving the business environment, modernising the labour law, expanding incentives for investors, gradually reducing indirect taxes, expediting the judicial process, and creating public-private partnerships to implement operational projects in several sectors, including public transportation, infrastructure, energy, waste management and recycling, and others.

 

Indeed, reducing the unemployment rate requires a bold change in the structure of the Jordanian economy and addressing numerous imbalances. This makes it a costly objective that will require a considerable amount of time in a journey characterised by clarity, continuity and stability.

 

The writer is a former minister of state for economic affairs in Jordan