Unemployment in Jordan
Unemployment in Jordan
How to fix (the numbers) and why it is 10%
Introduction
During the peak of the pandemic in 2020 and the worldwide shutdowns and lockdowns, unemployment surged in all countries as airplanes were grounded to a halt and most businesses, from retailers to restaurants, shut down their doors to stop the spread of the virus. As there was no clear indication at the time how long the lockdowns would last and if the virus was just seasonal, most businesses had to lay off their workers (or government stepped in with cash incentives such as the furlough program in the UK): naturally, unemployment rose after a whole decade of recovery after the Great Financial Crisis.
In the United States of America, the unemployment rate jumped reaching its peak of 14.8% in April of 2020.
Source: FRED
Since the hospitality sector was playing catch up, governments tried to encourage workers new skills that fit the new paradigm. However most businesses adapted by switching to a work from home model ( Zoom sees sales boom amid pandemic - BBC News) and the unemployment immediately started to fall. And by the summer of 2020, most sectors reopened and the unemployment rate dropped and maintained that momentum of recovery. This was considered a natural effect of “laws” of the free market system.
The Hashemite Kingdom of Jordan, on the other hand, had another story.
One of the first defense laws - number 6 to exact - enacted by the Prime Minister Omar Razzaz back then was to make it too hard or even illegal for companies to let go of their employees. Although in hindsight the Medical Law of 2008 should have been implemented, instead of a Defense Law and the strict measures that followed, as it turned out the virus was not a bio-weapon.
Despite the measures implement by the Defense Law where it was impossible to lay off workers, unemployment reached 24.7% by end of December of 2020 compared to 19.3% in December of 2019.
25% unemployment is a rate only seen during the Great Depression in the United States back in 1933.
Unemployment has been the government’s and His Majesty’s main and top priority for the past two decades.
In this newsletter, I’ll be showing why this number is completely fabricated and has no basis in reality and what the government should do to fix unemployment.
TWO METHODS IN CALCULATING UNEMPLOYMENT
There are two ways the unemployment rate is calculated in Jordan by two separate institutions: Ministry of Labour and Department of Statistics.
Department of Statistics method
The department of statistics claims that they get their numbers via census: they go out to different areas in the country and ask the people if they are employed or not and they get a figure.
This reminds me of when the Ministry of Agriculture used to distribute animal feed to sheep herders in the country. They would perform a census by asking every shepherd how many sheep heads they got. What they did not take into account was double counting: On day 1, the ministry would visit one shepherd in a village and count his herd. On day 2, they would do the same to an adjoining village. What they didn’t know is that the first shepherd shared his sheep with the one in the second village to increase the count and get more animal feed.
The same can be said with the numbers from the Department of Statistics after aggregating numbers from all counties and municipalities. For some reason, the number always turns out the nearly same as the one by the Ministry of Labour which is more straightforward and easier to calculate.
Ministry of Labour calculator
By definition, the unemployed is the person seeking employment during a set period (generally up to 1 year).
If that person does not find a job during that period, he is considered out of the labour force (that is why labour participation rate in Jordan is the lowest in the world).
So to calculate the unemployment rate, you would need the total of unemployed (job seekers) and divide it up by the total in the labour force (the employed and the unemployed).
The total unemployed as of 2019 were:
The total employed were:
Therefore the unemployment rate for that year was:
Unemployment rate = unemployed / labour force (employed + unemployed)
= 324,282 / (1,377,905 + 324,282) = 19.05%
However looking at the total employed numbers, it seems that they coincide with the total number of subscribers in the Social Security Corporation. But as seen in the definition above, the employment numbers should include all those living and working in Jordan, INCLUDING foreign workers: according to the ministry of labour, foreign workers in Jordan that are registered with it is 348,736
.So the correct and official unemployment rate for 2019 should have been: 15.81%
The Unofficial & Informal Unemployment Rate
1. Re-evaluating the unemployment process at the Ministry: one main problem with the unemployment number itself is the job seekers themselves. That is, when a person goes to the ministry asking it to find it a job, it would take the ministry a long time until it matches that demand with the market. There are famous stories of people who waited more than 12 years to receive that phone call from the ministry that it had found them a job. No one at the ministry follows up with the applicants and asks them if they have found a job within 12 months before scrapping the application. According to an official inside the ministry, 320,000 is the total number of applicants for the past 10 years. Surely one of them had found a job and not informed the ministry.
The informal sector is by definition included in the calculation but it is currently hard to calculate that number. First, the number of foreign migrant workers in Jordan number more than 300,000 as shown above. According to a a recent study, there are over 1.4 million employed migrant workers in the country, that means 1 million working and not official registered.
(Another more recent detailed study estimates that the informal sector stands around 933,000)
This means that the Ministry of Labour is missing out on a lot of income from the illegal migrant workers (the average license fee to work in Jordan is between 1200-2500 JODs per annum depending on the sector) : we are talking of at least 1 billion JODs in unclaimed fees which would be more than 10% of Jordan’s budgetary requirement. This alone is a disaster which the Ministry should hurry and fix.
This also means that if the informal migrant workforce is included in the calculation, the unemployment rate would become: 11.6%
The unaccounted for Jordanians in the market: we have discussed how there is a difference between the unemployed and those not participating in the labour force. However there are two important segments that are not included: there is a very big number of Jordanian expatriates working and living in the Gulf and the West (estimates range between 700,000 to 1,000,000). This has nothing to do with the unemployment rate but instead would lower the Labour Force Participation Rate. There is also, like the foreign workers, an informal local workforce. After the COVID crisis, the government got a better idea at the number ( عمال المياومة ) : estimate between 150,000-350,000 Jordanians work in Jordan without registering in the Social Security Corporation. This would lower the unemployment rate even further down to: 10%
Conclusion
As we have seen, the actual and more accurate unemployment rate is 15.81%
But if the informal sector is included (legally it should but getting an accurate number would be very hard), the number would be even lower at 10%.
This number makes more sense economically and shows that things are not as bad as first thought (the optimum unemployment rate to be reached should be below 5%). But there are other challenges to face for the government and the private sector:
Underemployment (بطالة مقنعة) , Double-employment (army retiree working as security guard), the brain drain and Jordanian highly skilled workers moving abroad, should the social security cancel early retirement, can the ministry of labour regulate the labour market and collect all unpaid fees
, how did the social security miss out on a golden opportunity during the COVID crisis to bring on the informal sector as new subscribers, how can both private and public sectors increase wages to become a liveable wage etc.etc.etc.The problem of wage is in my opinion a more important one than that of the unemployment figures. For e.g. a master’s graduate received for his first job at a bank in 1985 450 JODs, in 2019 it was 600 JODs - adjusted for inflation, graduates are receiving less today and are unable to “open a house” (i.e. get married, own a car, have kids and send them to school).
To do that, one must understand that the labour market abides by the laws of supply and demand. When there is high unemployment (large supply of labour) employers are not keen in raising salaries and can easily fire one employee and find a replacement and for cheaper prices. There is downward pressure on salaries (and people are surprised at how a public employee survives on his small salary without accepting bribes).
When there is full employment (labour is in short supply) and finding good workers becomes rare so companies tend to attract potential employees with higher wages, even competing with other countries.
So the main focus is for government to fix its numbers first then focus on having the right and attractive environment to bring investment and companies to Jordan.
Thank you for taking the time to read this rather long newsletter, hopefully the next one will be shorter and sweeter.
http://www.mol.gov.jo/ebv4.0/root_storage/ar/eb_list_page/%D8%A7%D9%84%D8%AA%D9%82%D8%B1%D9%8A%D8%B1_%D8%A7%D9%84%D8%B3%D9%86%D9%88%D9%8A_2019.pdf
http://www.mol.gov.jo/AR/NewsDetails/%d8%a7%d9%84%d8%b4%d9%85%d8%a7%d9%84%d9%8a_%d9%8a%d8%b9%d9%84%d9%86_%d8%aa%d9%81%d8%a7%d8%b5%d9%8a%d9%84_%d8%a5%d8%ac%d8%b1%d8%a7%d8%a1%d8%a7%d8%aa_%d9%82%d9%88%d9%86%d9%86%d8%a9_%d9%88%d8%aa%d9%88%d9%81%d9%8a%d9%82_%d8%a3%d9%88%d8%b6%d8%a7%d8%b9_%d8%a7%d9%84%d8%b9%d9%85%d8%a7%d9%84%d8%a9_%d8%ba%d9%8a%d8%b1_%d8%a7%d9%84%d8%a3%d8%b1%d8%af%d9%86%d9%8a%d9%91%d8%a9_%d8%a7%d9%84%d9%85%d8%ae%d8%a7%d9%84%d9%81%d8%a9