When growth fails to reduce unemployment: The case of Jordan
A recurring question in Jordan’s economic discourse is why positive economic growth does not automatically translate into lower unemployment rates. This question is both legitimate and important, as it reveals the complex relationship between economic growth and labour market outcomes. Although Jordan has recorded positive growth rates in recent years, this growth has not generated sufficient job opportunities. Does every increase in the economic growth rate automatically lead to a proportional decline in unemployment? Unfortunately, the answer is no. Understanding why requires analyzing the employment impact of growth in the Jordanian economy.
The employment impact of growth refers to how the expansion of different economic sectors affects the creation of real job opportunities in the labour market. To assess this, it is essential to identify the sectors contributing most to GDP, the sectors growing fastest, and the sectors with the highest capacity to generate employment. According to second-quarter data for the current year, the sectors contributing most to GDP were finance, insurance, and real estate services (18.3 per cent), manufacturing (18.2 per cent), and government services, including health and education (12.6 per cent). Meanwhile, the fastest-growing sectors were agriculture (8.6 per cent), manufacturing (5 per cent), and electricity and water (4.9 per cent).
A critical question emerges from these figures: which of these sectors are labour-intensive, and which are capital-intensive? Capital intensity refers to the ratio of capital to labour in production, while labour intensity refers to the opposite. Finance, insurance, and real estate services are highly capital-intensive and employ relatively few workers, with growth of only 1.6 per cent in the second quarter. Manufacturing contributes significantly to GDP and has grown faster than most other sectors, but its labour intensity varies by industry. Traditional manufacturing industries, such as textiles and food processing, are labour-intensive, whereas modern, technology-driven manufacturing relies heavily on automation, reducing the direct need for labour. Nevertheless, growth in this sector has a direct impact on reducing unemployment. Government services are labour-intensive but grow slowly, limiting their potential to create jobs. Agriculture, despite being labour-intensive and achieving the highest growth in the second quarter, has a limited impact on employment due to its small share of GDP (around 4.3 per cent) and the predominance of foreign workers, as many Jordanians avoid working in this sector.
This analysis demonstrates that economic growth alone does not guarantee reduced unemployment. The crucial factor is in which sectors growth occurs — whether in labour-intensive sectors capable of creating broad employment or in capital-intensive sectors that require fewer workers. Another key factor is total factor productivity, or the efficiency with which labour and capital are used. In Jordan, productivity gains have contributed, on average, only 0.3 percentage points to GDP growth over the past decade, far lower than innovation-driven economies where productivity typically contributes between 1 per cent and 2 per cent. Higher growth therefore does not necessarily create more jobs, as it often reflects improvements in efficiency rather than increased labour demand. When productivity rises, fewer additional workers are needed, particularly when baseline productivity is already low.
To ensure that economic growth reduces unemployment, Jordan must focus on sectors with high labour absorption capacity, such as manufacturing, agriculture, logistics, and tourism. Expanding vocational and technical education to match market needs, improving the business environment, facilitating investment, and supporting entrepreneurship are essential steps to convert growth from mere GDP figures into a driver of sustainable employment and productivity. At the same time, it is important not to ignore capital-intensive sectors, which attract investors and promote faster overall growth. Understanding the structure and nature of Jordan’s economic growth is not optional; it is essential for ensuring that growth translates into real improvements in citizens’ lives and broader access to employment opportunities.
A recurring question in Jordan’s economic discourse is why positive economic growth does not automatically translate into lower unemployment rates. This question is both legitimate and important, as it reveals the complex relationship between economic growth and labour market outcomes. Although Jordan has recorded positive growth rates in recent years, this growth has not generated sufficient job opportunities. Does every increase in the economic growth rate automatically lead to a proportional decline in unemployment? Unfortunately, the answer is no. Understanding why requires analyzing the employment impact of growth in the Jordanian economy.
The employment impact of growth refers to how the expansion of different economic sectors affects the creation of real job opportunities in the labour market. To assess this, it is essential to identify the sectors contributing most to GDP, the sectors growing fastest, and the sectors with the highest capacity to generate employment. According to second-quarter data for the current year, the sectors contributing most to GDP were finance, insurance, and real estate services (18.3 per cent), manufacturing (18.2 per cent), and government services, including health and education (12.6 per cent). Meanwhile, the fastest-growing sectors were agriculture (8.6 per cent), manufacturing (5 per cent), and electricity and water (4.9 per cent).
A critical question emerges from these figures: which of these sectors are labour-intensive, and which are capital-intensive? Capital intensity refers to the ratio of capital to labour in production, while labour intensity refers to the opposite. Finance, insurance, and real estate services are highly capital-intensive and employ relatively few workers, with growth of only 1.6 per cent in the second quarter. Manufacturing contributes significantly to GDP and has grown faster than most other sectors, but its labour intensity varies by industry. Traditional manufacturing industries, such as textiles and food processing, are labour-intensive, whereas modern, technology-driven manufacturing relies heavily on automation, reducing the direct need for labour. Nevertheless, growth in this sector has a direct impact on reducing unemployment. Government services are labour-intensive but grow slowly, limiting their potential to create jobs. Agriculture, despite being labour-intensive and achieving the highest growth in the second quarter, has a limited impact on employment due to its small share of GDP (around 4.3 per cent) and the predominance of foreign workers, as many Jordanians avoid working in this sector.
This analysis demonstrates that economic growth alone does not guarantee reduced unemployment. The crucial factor is in which sectors growth occurs — whether in labour-intensive sectors capable of creating broad employment or in capital-intensive sectors that require fewer workers. Another key factor is total factor productivity, or the efficiency with which labour and capital are used. In Jordan, productivity gains have contributed, on average, only 0.3 percentage points to GDP growth over the past decade, far lower than innovation-driven economies where productivity typically contributes between 1 per cent and 2 per cent. Higher growth therefore does not necessarily create more jobs, as it often reflects improvements in efficiency rather than increased labour demand. When productivity rises, fewer additional workers are needed, particularly when baseline productivity is already low.
To ensure that economic growth reduces unemployment, Jordan must focus on sectors with high labour absorption capacity, such as manufacturing, agriculture, logistics, and tourism. Expanding vocational and technical education to match market needs, improving the business environment, facilitating investment, and supporting entrepreneurship are essential steps to convert growth from mere GDP figures into a driver of sustainable employment and productivity. At the same time, it is important not to ignore capital-intensive sectors, which attract investors and promote faster overall growth. Understanding the structure and nature of Jordan’s economic growth is not optional; it is essential for ensuring that growth translates into real improvements in citizens’ lives and broader access to employment opportunities.
A recurring question in Jordan’s economic discourse is why positive economic growth does not automatically translate into lower unemployment rates. This question is both legitimate and important, as it reveals the complex relationship between economic growth and labour market outcomes. Although Jordan has recorded positive growth rates in recent years, this growth has not generated sufficient job opportunities. Does every increase in the economic growth rate automatically lead to a proportional decline in unemployment? Unfortunately, the answer is no. Understanding why requires analyzing the employment impact of growth in the Jordanian economy.
The employment impact of growth refers to how the expansion of different economic sectors affects the creation of real job opportunities in the labour market. To assess this, it is essential to identify the sectors contributing most to GDP, the sectors growing fastest, and the sectors with the highest capacity to generate employment. According to second-quarter data for the current year, the sectors contributing most to GDP were finance, insurance, and real estate services (18.3 per cent), manufacturing (18.2 per cent), and government services, including health and education (12.6 per cent). Meanwhile, the fastest-growing sectors were agriculture (8.6 per cent), manufacturing (5 per cent), and electricity and water (4.9 per cent).
A critical question emerges from these figures: which of these sectors are labour-intensive, and which are capital-intensive? Capital intensity refers to the ratio of capital to labour in production, while labour intensity refers to the opposite. Finance, insurance, and real estate services are highly capital-intensive and employ relatively few workers, with growth of only 1.6 per cent in the second quarter. Manufacturing contributes significantly to GDP and has grown faster than most other sectors, but its labour intensity varies by industry. Traditional manufacturing industries, such as textiles and food processing, are labour-intensive, whereas modern, technology-driven manufacturing relies heavily on automation, reducing the direct need for labour. Nevertheless, growth in this sector has a direct impact on reducing unemployment. Government services are labour-intensive but grow slowly, limiting their potential to create jobs. Agriculture, despite being labour-intensive and achieving the highest growth in the second quarter, has a limited impact on employment due to its small share of GDP (around 4.3 per cent) and the predominance of foreign workers, as many Jordanians avoid working in this sector.
This analysis demonstrates that economic growth alone does not guarantee reduced unemployment. The crucial factor is in which sectors growth occurs — whether in labour-intensive sectors capable of creating broad employment or in capital-intensive sectors that require fewer workers. Another key factor is total factor productivity, or the efficiency with which labour and capital are used. In Jordan, productivity gains have contributed, on average, only 0.3 percentage points to GDP growth over the past decade, far lower than innovation-driven economies where productivity typically contributes between 1 per cent and 2 per cent. Higher growth therefore does not necessarily create more jobs, as it often reflects improvements in efficiency rather than increased labour demand. When productivity rises, fewer additional workers are needed, particularly when baseline productivity is already low.
To ensure that economic growth reduces unemployment, Jordan must focus on sectors with high labour absorption capacity, such as manufacturing, agriculture, logistics, and tourism. Expanding vocational and technical education to match market needs, improving the business environment, facilitating investment, and supporting entrepreneurship are essential steps to convert growth from mere GDP figures into a driver of sustainable employment and productivity. At the same time, it is important not to ignore capital-intensive sectors, which attract investors and promote faster overall growth. Understanding the structure and nature of Jordan’s economic growth is not optional; it is essential for ensuring that growth translates into real improvements in citizens’ lives and broader access to employment opportunities.
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When growth fails to reduce unemployment: The case of Jordan
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