The Informal Sector in the Jordanian Economy


 Full Report - PDF File  النسخة العربية
 

Executive Summary

·   The informal economy is a significant component of the overall Jordanian economy but is difficult to measure and plan for

o   Informal employment represents 44% of total employment in Jordan

o   The informal economy has historically constituted 8.6% of nominal GDP (1976-2010)

o   In 2010, the informal economy grew at 14.6% p.a. The historical maximum is 33.6% p.a in 2007 while the historical minimum is -10.8% p.a in 1988

o   Irrespective of the economic situation, the informal sector has experienced growth in times of both economic growth and economic shocks including the Gulf Wars and the increasing influx of refugees

·   It is important to transform the informal sector to the formal sector, as this will increase the financial resources of the government, benefit individual workers with more protections, and give companies in the economy many advantages e.g. the protection of intellectual property rights, eligibility for credit facilities, etc.

Key Findings

·   At 10% of GDP, the informal economy needs to be explicitly taken into account when any macroeconomic policy is formulated

·   The informal sector of the Jordanian economy can no longer be considered a temporary phenomenon

o   Jordan’s economy and labor market have historically been affected by outside pressures in the region, namely forced migrations in 1948, 1967, 1991, and 2003

·   The Jordanian labor market suffers from structural imbalances in which economic growth does not lead to a reduction in unemployment rates and instead leads to an increasing amount of informal employment

o   Statistics on the official workforce suggest a low participation rate in the labor market

o   Imbalance is caused by high supply of labor mainly driven by high population growth and relatively easy availability of foreign workers

·   Distribution and characteristics of informal employment in Jordan:

o   In the private sector, informal employment represented 26% of 2010 total workers

o   Men are more likely to engage in informal labor than women

o   Most informal labor is concentrated in crafts, services and sales, and machine operation

o   Most informal workers have less than a secondary education

o   Non-Jordanian labor constituted 25% of total employment in the informal sector

·   Tax evasion is one of the issues associated with the informal sector

o   This grants the firms of this sector a comparative advantage in the cost of production compared to firms in the formal sector

Recommended Actions and Initiatives

·   Simplify procedures for the launch of economic projects, including the establishment of one reference body that deals with new investors

o   Increase transparency in procedures and policies by announcing them through media

·   Reduce start-up costs and licensing fees

o   A better system could be to impose a one-time fee, which investors should pay relative to the nature of the activity and its size (micro or small)

·   Simplify tax measures, which would create confidence between producers of economic activity and the government, including the granting of tax exemptions, especially for small projects

·   Expand the scope of social security for individuals, a development which has already taken place in some governorates, to cover individuals in the rest of the governorates

 

Report Name

Date

Timeline

The Informal Sector in the Jordanian Economy

2010

Not Applicable

Author

Supporting Donor

UNDP, Jordan Economic and Social Council, AECID Spanish Agency for International Development Cooperation

UNDP, Jordan Economic and Social Council, AECID Spanish Agency for International Development Cooperation

Sector

Lead Ministry

Human and Social Development

Ministry of Planning

Key Topics

Education – Fiscal policy – Informal sector – Labor statistics – Licensing – Regulation – Social security – Start-up costs – Tax Evasion – Transparency

 

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