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.
اضافة اعلان
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 some
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 prove 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
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 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 industry.
Furthermore, private banks must start to lengthen the
repayment period as 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.
The writer is CEO of the Envision Consulting Group and
former minister of state for economic affairs.
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