A recent report published by the Ministry of Planning and International Cooperation focused on the informal economy in Jordan and other facets, such as the proportion of labor force in the public and private sectors.
The study surveyed a sample of 25,000 people to determine the size of the informal sector’s labor force, who work in the private sector for a wage but without contracts or social security benefits, are self-employed, or work in family businesses without earning a salary. While some consider the informal sector one that presents an exit strategy for the poor, it should at best be a temporal solution. Companies that remain in the informal sector are less likely to grow or expand—no credit can be given without proof of performance. Furthermore, those companies cannot apply for government contracts.
The survey determined that 44 percent of the labor force is working informally – a large and growing share of the country's workers as evident by a study conducted by UNIDO in 2002, which back then set the percentage at 22 percent. Note that 20 percent is considered high in most countries. 25 percent has been the average in countries like Egypt and Tunisia. It’s important to consider that the informal sector grows because of high taxes, costly compliance, lengthy, expensive and cumbersome registration procedures, and lax enforcement of the law.
Of the labor force, only 48 percent work in the private sector, which means a whopping 52 percent are employed by the government. The government in Jordan is, therefore, not only the largest single employer, but the employer of the majority of Jordanians. Since Jordan is not a socialist state, such a percentage underscores that it is a rentier state, which also explains that high and rising fees and taxes pay the salaries of more than half the working population. Given such massive bureaucracy and equally massive monthly payroll, the government is forced to abandon allocating its resources to building roads, highways, universities, and social safety nets, which has been the empirically observed practice in Jordan for some years now.
Only 27 percent of women, compared to 44 percent of men, work in the informal sector, suggesting a bias towards hiring males. One possible explanation is that women look for safe and secure jobs with less potential for harassment. Another explanation is that Jordanian women are more educated than men and hence more attractive to large employers, which is typically the case in the formal sector.
The manufacturing sector is a major contributor to female participation in the informal sector, perhaps due to the existence of the Qualifying Industrial Zones (QIZs). On the other hand, the wholesale, retail, and mechanical repair sector is the highest informal employer for Jordanian men.
What about foreign labor? Surprisingly, only 25 percent of foreign labor work in the informal sector, which means that foreign labor is more adept at finding formal jobs than local labor. This is probably due to the strict controls imposed by the government to manage the importation of labor, which require the employer to be a registered company. However, this could also mean that large employers prefer hiring foreigners for a host of other reasons. Among the reasons is that employers pay low wages for blue-collar jobs, which Jordanians are not willing to accept.
A quick and basic calculation would show that 44 percent of the 48 percent private sector labor force is working informally. This shows that only 26 percent of labor in Jordan is burdened with paying taxes in full; and their tax and fee contributions go to support those employed by the public sector. This should pose a perplexing dilemma to anyone with an eye for developing the Jordanian economy.
Given the size of the informal sector, and the fact that 52 percent of workers are employed by the government, how can the government meet its commitments? The answer is by imposing higher taxes and fees on those that already pay them. Such a quick solution can work only in the short run, and become a source of anguish to all. In the long run, the government should shed its excess labor, make it easier for businesses to operate in the formal economy, and enforce labor rights. That day, unfortunately, won’t come soon enough. Venture magazine 30/10/2012