Unemployment is a manifestation or result of many problems that have chronically plagued the Jordanian economy. Tackling unemployment in Jordan, which had reached 25 percent in the first quarter of 2021 and is currently 50 percent among the youth (age 15-24), requires a solid understanding of the problems and possible remedies. And, as usual in economics, there is no silver bullet. The solution is multifaceted.
The labor market in Jordan is distorted. The government and the Gulf have highly distorted the market. Both are strong employers of Jordanian labor, and both are becoming less likely to continue this demand pattern. The government in Jordan cannot afford to continue its policy as its resources have been stretched to the limit, and the Gulf countries have many substitutes for Jordanian workers.
Let us review the unemployment rates over the past 30 years. During 1991-1993, a period that witnessed an influx of Jordanians repatriating from the Gulf countries, at the time of the first Iraq War, who spent/invested their savings and UN compensations in Jordan, the unemployment rate averaged 19.5 percent while the economic growth rate averaged 6.8 percent in real terms.
Economic growth in 1992 jumped to 14.3 percent in real terms from a low of 1.6 percent in the previous year. This upsurge in the real economy was caused by the fact that the money was invested in bricks and mortar and real estate, which can quickly mobilize several sectors and create immediate growth in the economy. But the growth creates jobs for non-Jordanians and day workers who are typically informal and thus do not count in the labor force, and basically are unskilled.
The growth, alas, was also short-lived. It died right after the construction boom subsided. This is an empirical observation that occurred after every economic boom. Observations from the years that followed 1993 provide ample evidence that proves such a claim.
During 1994-2000, the average economic growth rate was 3.9 percent while unemployment averaged 14.3 percent. Growth had peaked in 1995 at 6.2 percent upon the signing of the peace accords and with the return of aid from the US. But growth fell soon thereafter, in 1996, to 2.1 percent. Again, the growth was not sustainable, and unemployment remained at 13.7 percent throughout almost the entire period. It was another jobless growth.
During 2001-2003, the economy grew by 5.1 percent on average while unemployment was 14.8 percent. Again, regardless of the growth rate, unemployment was in double digits.
The period that followed, 2004-2008, was a golden era as far as the economy was concerned. The economy grew by 8 percent on average. However, the unemployment rate was 13.9 percent, a truly jobless growth.
Again, growth was not the answer to unemployment. Why? Because, again, the economic activity was focused mainly on real estate and the money went into buildings – in fact we overbuilt.
From 2009 to 2012, the growth rate averaged 3.1 percent while unemployment decreased slightly, averaging 12.6 percent, which was an anomaly. The standard argument in economics is that economic growth reduces unemployment. This is not the case in Jordan.
Moreover, in recent years, the low growth was accompanied by higher unemployment rates: during 2013-2019, the growth was 2.4 percent and the unemployment rate was 15.6 percent; in 2020, growth was -1.6 percent and the unemployment was 23.2 percent.
So, is there a relationship between economic growth and unemployment? Yes, it is negative (as it should be) but very weak. For the period, the correlation coefficient is -0.112. In other words, economic growth had very little impact on lowering unemployment.
One solution is to encourage banks to lend to the industry at levels commensurate with those provided to the real estate market. In fact, the government must interfere directly with banks to make sure they increase lending to the industry.
Furthermore, private banks must start to lengthen the repayment period as the industry requires quite a long period of time to start turning a profit.
Additionally, the debate in Jordan must depart from contractionary budgets to lessen the budget deficit to expanding the budget by increasing capital expenditures. What type of projects? Large, productivity-enhancing (transport, energy, and infrastructure) to increase the incomes of Jordanians and the profits of their companies, and hence government revenues, which will be used to pay back the accumulated debt and free the budget of the chronic inflexibility it suffered throughout the past three decades.
With these prescriptions, the private sector would become more attractive to Jordanians than the public sector, and the size of the labor force that is hired by the government would shrink as more lucrative opportunities are availed. Also, Jordan’s brightest, who have moved to the Gulf to work, would come back; there is no place like home. Let us not wait too long.
https://www.jordannews.jo/Section-36/Opinion/Prescriptions-to-tackle-unemployment-12792
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