This chapter assesses labour market challenges in Jordan and the potential of FDI to enhance job quality and skills development. The chapter presents the governance framework and policy mix that supports the impact of investment on labour market outcomes – focusing on institutional arrangements and policies at the intersection of investment, employment and skills development. The chapter applies the forthcoming OECD FDI Qualities Policy Toolkit.
FDI Qualities Review of Jordan
Strengthening Sustainable Investment
3. Strengthening FDI impacts on job quality and skills
Abstract
3.1. Summary
The Government of Jordan puts high policy priority on foreign direct investment (FDI) as a driver for quality job creation and skills development. The employment rate is low by international standards, with many people in informal and low-paid jobs, and many young graduates unemployed, particularly women (see Chapter 4). Insufficient job creation through private investment, combined with an increasing labour force and considerable skills imbalances, are the main structural challenges facing the labour market in Jordan – challenges that the influx of Syrian refugees and the COVID‑19 pandemic are exacerbating. The public sector is no longer absorbing a large number of new graduates, unlike in the past, but continues to offer more attractive working conditions than the private sector, thereby limiting labour mobility.
FDI in Jordan has advanced job creation, improved living standards and developed workers’ skills, but its impact has been limited and not all segments of the population have benefited equally. Over the last two decades, employment gains from FDI were largest for foreign workers in low-wage sectors such as construction, manufacturing or tourism and, since recently, for the highly skilled Jordanians working in better-paid sectors such as ICT and finance. Despite improving educational attainments, inconsistency between curriculas and evolving employers’ needs are preventing Jordan from reaping the benefits of FDI, including services FDI that digitalisation and recovery from COVID‑19 are likely to boost. Labour market gains from FDI remain off limits to low and medium-skilled Jordanian job seekers, who do not always have the incentives and skills to compete with foreigners on low-wage jobs in sectors with challenging, albeit improving, working conditions such as the apparel or chemicals industries, the country’s top export sectors.
Recognising the benefits that FDI can bring, the government has advanced meaningful reforms in the past decade that are conducive to investment (OECD, 2021[1]). While these reforms can influence the FDI entering the host country and its labour market implications, complementarity with labour and skills development policies is needed for investment to further support a job-led recovery – foreign firms in Jordan adapted faster than their domestic peers to new ways of working during the pandemic. This chapter provides an overview of government strategies, the institutional setup and policies at the intersection of investment, employment and skills development and evaluates to what extent they are conducive to enhanced and more inclusive labour market outcomes. Key policy considerations are summarised below.
Policy considerations
Align strategies and reforms on investment, employment and skills development, including the revision of the 2014 Investment Law and the forthcoming investment promotion and employment strategies, with priority sectors of Vision 2025 and other national plans, particularly high-wage, high-skill and labour-intensive sectors. Skills strategies should provide policy clarity by better linking education and employment priorities and how they jointly respond to employers’ skills needs, particularly in rapidly changing occupations and sectors such as ICT. Strategies should provide clear policy directions on how FDI can improve labour market outcomes, set explicit goals and clarify responsibilities across government bodies.
Strengthen inter-governmental co‑ordination and promote joint initiatives. No mechanisms are exclusively dedicated to co‑ordination between ministries dealing with labour and skills policies and the Ministry of Investment (MoI). Existing mechanisms such as the Investment Council (IC) could be adapted to fill this co‑ordination gap and ensure strategic alignment across the policy areas – the presence of the Minister of Labour should help achieve some policy coherence. Governing bodies of newly created committees or councils aiming at addressing labour and skills-related challenges could be more inclusive to support collaborative decision-making. At the impementation level, there is limited co‑ordination or joint policy programming between MoI and the main bodies delivering employment and training support.
Reassess existing restrictions on foreign investment against policy objectives of stimulating labour demand, particularly in the job-creating services sectors. Statutory restrictions on foreign ownership exist in business services, distribution, transport and logistics, and tourism sectors where FDI projects have the potential to create direct and indirect jobs for both the low and highly skilled Jordanian youth. Joint venture requirements can push foreign investors not to deploy their frontier technologies and best business practices, in turn limiting better-paid job creation. Pursuing wider pro-competition reforms will contribute to create a more dynamic private sector, allow for a better reallocation of resources and raise incomes.
Pursue labour market reforms that are conducive to investment and labour mobility and that promote a better working enviroment. This includes addressing wage‑setting distortions, simplifying regulations on the hiring of foreign labour and strengthening collective bargaining rights. Labour market segmentation by nationality (Jordanians or non-Jordanians), status (public or private jobs) and gender (Chapter 4) reduces mobility from public to private sector jobs, worsens informality and leads to inefficient labour reallocations following FDI entry. Furthermore, existing regulations prohibit union pluralism and prevent foreign workers from forming unions while they are a significant part of the workforce of foreign firms in Jordan.
Improve investment promotion and facilitation by providing clear information to investors on local labour market characteristics, labour regulations, available training programmes and employment incentives and, through the Investment Window, accompany them in getting the relevant work permits. Furthermore, set Key Performance Indicators (KPIs) to identify and prioritise investments of higher job quality and that can contribute to upskilling. Targets should be coherent with national strategies and realistically reflect the country’s skill base.
Raise awareness about international labour standards and incentivise companies to disclose their compliance with them. The National Contact Point (NCP) for responsible business conduct, hosted by MoI, has been been largely inactive. The government should strengthen the NCP capabilities to help him fulfill its mandate of, inter alia, disseminating guidance to MNEs on labour standards and due diligence in supply chains. The Amman Stock Exchange (ASE) developed a set of indicators to encourage listed companies disclose their ESG performance, including labour outcomes, but information is not yet fully available online.
Provide integrated active labour market policies (ALPMs) that are adapted to investors’ needs and support the most vulnerable. With FDI shifting from low-wage manufacturing activities to more skill-intensive services, ALPMs could be expanded to also support the high-skilled youth – ALPMs currently largely target the lower and mid-skilled. This includes upskilling the educated youth while retraining vulnerable groups working in sectors adversely affected by competition, providing more targeted job search services, including transport subsidies, and increasing their outreach, and favouring tax incentives based on companies’ labour market performance and promoting the transition of young graduates to a first-work experience.
Put in place robust labour market information and skills anticipation systems that involve investment actors to design evidence‑based employment and training policies and effectively monitor their impacts. Multiple initiatives exist but they are scattered across several institutions and provide partial information. They also do not involve MoI while this could help reduce the gap between the information produced and skills needs driven by FDI trends. MoI could bring forward its sectoral expertise to the newly established Sector Skills Councils and voice the concerns of investors in terms of skills shortages and future training needs.
3.2. Key challenges and opportunities for the labour market in Jordan
Jordan’s labour market faces daunting challenges that the regional security crisis and the COVID‑19 pandemic have exacerbated. The employment-to-population ratio went down from 36.5% to 32% between 2010 and 2020. It is one of the lowest rates in the world, including among MENA countries, and far below the OECD area ratio of 66%. The unemployment rate reached 18.5% in 2020, its highest level since the early 1990s (ILO, 2021[2]). The rate of youth unemployment is more than twice as high as the national average, and higher than the MENA average, while one‑third of unemployed young people hold university degrees. Many people are in vulnerable, informal and low-paid employment, particularly youth and women (see Chapter 4). For instance, one employee out of four was an informal worker in 2016 – nearly seven out of ten in the case of foreign workers (Assaad and Salemi, 2019[3]).
3.2.1. The private sector is not creating enough jobs to absorb a growing labour force…
Insufficient job creation by the private sector, combined with an increasing labour force and considerable skills mismatches are behind the poor performance of the Jordanian labour market. In 2015, 39% of the employed population was working in the public sector, which is the highest rate in the MENA region and nearly twice as high as the OECD average (Assad and Barsoum, 2019[4]). While successive reforms reduced public sector employment, the private sector did not, and still has not, filled this employment gap. The ratio of paid employees in a formal private sector job hardly increased over the past decade, while growth in new job creation in the private sector has not improved since 2010 (Figure 3.1, Panel A and B). At the same time, the labour force nearly quintupled in 40 years due to high fertility rates and sustained immigration flows (OECD, 2018[5]). Conflicts in neighbouring countries provoked massive inflows of migrants and refugees, increasing Jordan’s population by 50% over 2008‑17. In 2019, legally registered foreigners represented 20% of the labour force according to Jordan’s Department of Statistics (JDoS).
Figure 3.1. Public and private sector labour market outcomes in Jordan, 2000‑18
Source: OECD based on Employment and Employees’ Compensations Survey, Jordan’s Department of Statistics (JDoS).
Developments in Jordan’s economy since the 1970s, which largely mirror those in the MENA region, explain why job creation could not keep pace with the growth of the labour force (OECD, 2021[1]). The bloated public sector and barriers to private sector development have hindered structural transformation of the economy. Structural change occurs when labour moves to the more productive sectors of the economy, so that the most productive industries gain a larger employment share at the expense of less productive activities. The opposite happened in Jordan as labour shifted from productive sectors to less efficient ones, notably construction, public and social services, while the share of employment in the relatively productive manufacturing sector decreased (Morsy, 2017[6]). As a result, negative structural change in Jordan reduced aggregate productivity growth (see Chapter 2) and limited the capacity of the private sector to raise incomes and improve living standards.
The inefficiencies in the allocation of resources across sectors have gradually shaped Jordan’s labour market characteristics. In 2020, manufacturing and relatively productive services such as business activities and the ICT sector employed fewer people than lower-productivity activities of the public or private sector (Table 3.1) – a trend that has not changed much over the past decade. Aside from public administration, the majority of Jordanians work in the wholesale and retail industry while registered foreigners are hired to execute household-related tasks, support services activities, and work in construction or manufacturing. Furthermore, the majority of the tertiary educated work in education, health, public administration and, to a much lower extent, in other high-skilled activities such as business and financial services or in the ICT sector. Another, albeit related, facet of the inefficient resource allocation in Jordan is the wage differential between public and private sector workers (Figure 3.1, Panel C). Non-competitive wages in the private sector, along with poor working conditions, have strongly limited labour mobility from public to more productive private sector employment (World Bank, 2016[7]).
Table 3.1. Employment distribution across sectors in 2020, by nationality and education level
Source: OECD based on the Employment and Unemployment Survey, Jordan’s Department of Statistics (JDoS).
3.2.2. …particularly for the highly skilled and young Jordanian workforce
Notwithstanding the low level of job creation by the private sector, labour market outcomes in Jordan have also been constrained by considerable skills imbalances – a misalignment between the demand and supply of skills leading to skills mismatches and shortages. Jordan recorded massive progress in enrolment rates in tertiary education but the education system has not provided the skills in demand by employers. In 2020, nearly 19% of the Jordanian population had a bachelor degree or above but only 0.4% completed vocational education and half had less than secondary education (Figure 3.2, Panel A). In the OECD area, 39% of the population between 25 and 64 years had a tertiary degree, 26% completed vocational education and only 20% had lower secondary education or less. Jordan’s National Strategy for Human Resources Development 2016‑25 indicates that the labour market is characterised by an “oversupply of university graduates and an undersupply of skilled technicians to power Jordan’s key industries”. In other terms, labour demand for high-skill workers is lower than the number of graduates while demand is relatively strong for medium to low skills (OECD, 2018[5]).
Figure 3.2. Labour market indicators by education level and occupation type, 2020
Note: the private sector wage premium corresponds to the difference between private and public sector wages in 2018.
Source: OECD based on the 2021 and 2019 Employment and Unemployment Survey, Jordan’s Department of Statistics (JDoS).
The misalignment between the demand and supply of skills in Jordan has contributed to the rise of university graduates’ unemployment rate, which reached 28% in 2020 according to the JDoS, against 3.8% in the OECD area. University graduates also represented 32% of the total unemployed – 39% in the case of Jordanian citizens, which is the highest group after those with basic education (Figure 3.2, Panel A). Unlike in the 1990s, and similar to other MENA countries, the public sector is no longer absorbing the large number of young graduates. More than 300’000 people graduated from universities in Jordan between 2013 and 2018, whereas the public sector created less than 100 000 net jobs over the same period (Al-Manar Project, 2021[8]). Although the private sector is taking over as the main engine of employment growth, most available jobs require medium to low skills, often in retail and trade, construction or the textiles industry (OECD, 2018[5]). These jobs are often not attractive to the educated young Jordanians as related occupations tend to be less paid than similar jobs in the public sector (Figure 3.2, Panel B).
Skills imbalances in Jordan are also due to an undersupply of medium to low skilled workers. Among Jordanians in employment, most are shop, market sales, craft or trade workers but have education levels that fall short of those required for such technical job, which results in a skill mismatch (Figure 3.2, Panel B). According to an ILO survey, more than half of young workers in Jordan did not have the education levels that match their occupations – mostly young men with less than secondary education, a comparatively high share across developing countries, including within the MENA region (Figure 3.3). The level of skills mismatch of young women is lower, partly due to their higher level of education and lower labour force participation (OECD, 2018[5]) (Chapter 4). Skills mismatches lead to higher risk of unemployment, lower wages and lower job satisfaction. They are also associated with lower labour productivity through a misallocation of workers to jobs (Adalet McGowan and Andrews, 2015[9]).
Figure 3.3. Qualification mismatches of young workers in Jordan and other MENA countries, 2015
Note: Qualifications mismatch measures whether people have the level of education (ISCE category) corresponding to their occupation (International Standard Classification of Occupations category). See (ILO, 2019[10]) for further information on the methodology.
Source: (ILO, 2019[10]) based on School-to-Work Transition Surveys 2015, ILO.
Figure 3.4. Percent of firms identifying an inadequately educated workforce as a major constraint
Source: World Bank Enterprise Surveys.
Skills imbalances imply costs for the private sector as well. Skill shortages, which relate to a situation where employers are unable to fill vacant posts for lack of suitably qualified candidates, reduce firms’ productivity. In Jordan, relatively few firms identify an inadequately educated workforce as a major obstacle (Figure 3.4). However, skill shortages are more severe among foreign firms and in the non-retail services sector where competition to hire adequately skilled workers might be stronger. Other findings for the MENA region show that skill shortages are a concern for firms that grow rapidly or that rely on university graduates (EBRD/EIB/WBG, 2016[11]). In light of the large pool of tertiary educated in Jordan, skill shortages in firms relying on university graduates might reveal a mismatch between what students actually learn and job requirements, while shortages faced by fast-growing firms could be due to scarcities in well-trained technical workers. For instance, one survey of employers in Jordan shows that students graduating from technical streams do not meet the requirements for the jobs for which they are applying (ILO, 2019[12]).
3.3. FDI impacts on job quality and skills development
Foreign direct investment (FDI) is an important engine of private sector growth in Jordan – the FDI stock-to-GDP ratio exceeded 80% in 2020, which is high relative to other emerging economies (OECD, 2021[1]). Less is known about how FDI affects job quality and skills development in Jordan, although the operations of foreign firms can have widespread effects on host countries’ labour markets. Evidence from other countries shows that FDI has broadly positive impacts on employment, wages and skills development, but not all countries and all segments of the population benefit equally (OECD, 2019[13]). This section examines the impact of FDI on labour market outcomes in Jordan based on the FDI Qualities Policy Toolkit (Box 3.1).
3.3.1. FDI in Jordan is skewed towards industries with limited job creation potential
The operations of foreign firms are expected to impact labour market outcomes in different ways depending on the economic structure and comparative advantages of the host country. Greenfield investment in Jordan, which is the preferred mode of entry for foreign investors in the country, has long been concentrated in a narrow group of capital-intensive sectors with limited impact on job creation and skills development, similar to other MENA countries (OECD, 2013[14]; 2021[1]). Oil and gas-related power generation and construction have attracted 70% of announced greenfield FDI projects between 2003 and 2017 but accounted for less than 45% of jobs created (Figure 3.7). The other, more labour-intensive and skill-demanding sectors such as manufacturing, tourism and ICT hosted the rest of FDI-jobs, despite lower investment shares. The composition of FDI and its impact on labour demand differs from that of the wider economy. Manufacturing, energy, finance, transports, and market services such as wholesale and retail account for the greatest part of national value‑added, labour compensations and employment.
The number of jobs created by greenfield FDI declined over time and became gradually weaker than in comparator countries (Figure 3.7, Panel A). This decline is driven by changing FDI patterns across sectors. Countries that recorded strong industrialisation such as Morocco, the Slovak Republic and Tunisia saw increasingly larger effects of FDI on job creation than other countries like Jordan or Egypt that have not seen an increase in manufacturing FDI relative to other sectors in recent years (OECD, 2021[1]). Despite important liberalisation of trade and investment in Jordan and other MENA countries, instability in the region might have skewed the sectoral composition of FDI towards less risky capital-intensive sectors, thus limiting the creation of new job opportunities. The distribution of FDI-linked jobs by sector in Jordan shows that the majority of jobs have been created in construction, rather than in manufacturing, unlike in comparator countries (Figure 3.7, Panel B). The concentration of jobs created by FDI in Jordan’s services sectors, which has largely increased in the past years, is comparable with other countries, except Portugal.
Box 3.1. A conceptual framework to assess the impact of FDI on job quality and skills
The entry and operations of foreign firms affect the demand for skilled and unskilled labour in the host country, with concomitant effects on employment and wages (Figure 3.5, green box). FDI can also affect non-wage working conditions, including job security and core labour standards. FDI effects on labour market outcomes involve several transmission channels (orange box). Outcomes can result from foreign firms’ direct operations (direct transmission channel), such as hiring new workers or firing incumbents following a foreign takeover or offering better or worse working conditions than domestic firms. Foreign firms’ direct operations have also spillover effects arising from: (1) their value chain relationships with domestic firms, whether buyers or suppliers; (2) market interactions through competition and imitation (or learning) effects; (3) and labour mobility between foreign and domestic firms.
Figure 3.5. Factors influencing FDI impacts on job quality and skills
The premise underlying the existence of FDI spillovers is that foreign firms are technologically superior and, in turn, benefits might spill over to domestic firms. Value chain relationships or labour mobility between foreign and domestic firms can create knowledge spillovers, and in turn raise productivity, wages and employment. FDI spillovers on labour market outcomes are often specific to certain segments of the workforce, industries, or locations. They are also not always positive if, for instance, foreign firms have irresponsible labour practices with their suppliers or if competition for talent crowds out domestic firms. The intensity of such adverse impacts depends on how fast the labour market adjusts to external shocks. For instance, FDI hardly increases the share of skilled workers and worsens wage disparities when skills shortages are severe and labour mobility is constrained.
The direction and magnitude of the combined direct and spillover effects of FDI on labour market outcomes ultimately depends on the economic structure of the host country and domestic firms’ characteristics (size, productivity level, skill-intensity, business and labour practices), labour market characteristics (employment levels, share of skilled labour, unionisation rates, etc.) and the policies and institutions in place (blue box). Whether FDI improves or undermines labour market outcomes depends also on the type of activity of foreign firms and the extent to which they export home country practices and norms or adopt instead those of the host country.
Source: OECD (2021[15])., FDI Qualities Policy Toolkit: Polices for improving the sustainable development, https://www.oecd.org/investment/investment-policy/FDI-Qualities-Policy-Toolkit-Consultation-Paper-2021.pdf.
Figure 3.6. Foreign and domestic investment, value‑added and labour outcomes, by key sector
Note: Greenfield FDI corresponds to announced capital expenditure (CAPEX). Number of jobs and CAPEX are partly based on estimates. Greenfield FDI variables cover the period between 2003 and 2017 and national economy variables cover the period between 2013 and 2017. Mining and fuels also covers oil and gas-related power generation. National economy data excludes “public administration and defence; compulsory social security” as defined by ISIC classification Revision 4.
Source: OECD calculation based on Financial Times fDi Markets and Jordan’s Department of Statistics.
Figure 3.7. Greenfield FDI contribution to job creation in Jordan and comparator countries
Note: Job creation intensity of FDI in Panel A corresponds the number of jobs expected to be created per USD millions of announced CAPEX. It is calculated as a 2‑year moving average value. Greenfield FDI in mining and fuels also covers oil and gas-related power generation.
Source: OECD calculation based on Financial Times fDi Markets, as of May 2021.
3.3.2. Emerging services sectors are attracting FDI with better labour market outcomes
While FDI improve labour market outcomes in Jordan, not all segments of the population benefit equally. Employment gains are largest for foreign workers in construction and in manufacturing and, since recently, for highly skilled Jordanians working in high-wage services sectors. Figure 3.8 provides the breakdown of greenfield FDI and its job creation intensity at the sectoral level and shows where FDI has most impact on employment. FDI in construction typically creates short-term jobs for unskilled workers and thus has limited scope for skill-related spillovers or generating employment effects beyond construction periods. In manufacturing, most FDI-related jobs are in light industries producing chemical products (largely fertilisers), building materials (cement), food, and electronic components (Panel B). These industries often require heavy and modern equipment and are moderately labour-intensive. It is FDI in textiles that has had the highest propensity to create jobs – every USD million invested created nearly 16 jobs (Panel C).
Figure 3.8. Greenfield FDI contribution to job creation in Jordan, by sector
Note: See Figure 3.5 and Figure 3.6.
Source: OECD calculation based on Financial Times fDi Markets, as of May 2021.
Despite declining FDI trends, the manufacturing sector continues to be relatively important in terms of its contribution to labour income (Figure 3.9). Foreign projects often are, however, in low-value added industries where wages are also relatively low, such as in food, textiles and the manufacturing of cement. This reflects in part the large presence of foreign workers earning less than Jordanians do, particularly in apparel where working conditions can be challenging (Box 3.2). However, the increases in labour demand that foreign manufacturing projects create within their sector of operation, and in other sectors through spillovers, could positively affect wages and increase the share of skilled workers. Jobs in the chemical industry (including fertilisers), which is Jordan’s top export sector, tend to be more skill-intensive and better paid, but FDI in the sector has declined over the past years. Export expansion in this sector would have large impact on direct and indirect job creation and on incomes in Jordan (ILO, 2022[16]).
Figure 3.9. Change in jobs created by greenfield FDI and labour compensation by sector
Note: “Other services” include, inter alia, business services, health care and education. The size of dots reflects the level of labour compensations. FDI jobs are in logarithmic values to improve the readability of the figure.
Source: OECD calculation based on Financial Times fDi Markets and Jordan’s Department of Statistics.
Box 3.2. FDI in textiles and working conditions of foreigners in Qualified Industrial Zones
FDI in the garment and textiles industry in Jordan has considerably affected labour market outcomes. The industry emerged in the 1990s following the establishment of large foreign firms in the Qualifying Industrial Zones (QIZs), which are areas providing duty-free access to the US market. The regulatory framework enabled firms to bring in qualified and competitive foreign labour from South Asia – projects are exempt from income tax on salaries and allowances of non-Jordanian workers. In 2020, QIZs hosted almost 10% of private sector employment. More than 75% of workers in QIZs are foreigners.
QIZs focused on attracting FDI and boosting exports without being considered by the government as tools that can also support sustainable development. Foreign firms in QIZs did not invest in upstream segments of the textile industry (e.g. R&D or clothing design), thereby limiting the value‑added generated from exports and the creation of better-paid jobs matching the supply of highly skilled Jordanians. The small profit margins associated with the garments and textiles industry also led to low levels of foreign firms’ embeddedness in the local economy, and thus to higher risks of divestments.
The lack of occupational safety and health at work dissuaded Jordanian job seekers from working in QIZs, thereby limiting zones’ contribution to reducing poverty and creating job opportunities for local populations. Migrant workers are not fully protected by national labour laws and lack access to social protection, which makes them highly vulnerable. Foreign workers often received lower wages than Jordanians. Furthermore, a wide range of violations of workers’ rights was recorded within the QIZ, and Jordan was placed on the US State Department’s List of Goods Produced by Child Labour or Forced Labour from 2009 to 2016. The government has recently undertaken several measures to improve working conditions in zones, also with the aim of attracting Jordanian job seekers.
Source: OECD (2020[17]), OECD Investment Policy Reviews: Egypt 2020, https://dx.doi.org/10.1787/9f9c589a-en; Azmeh (2014[18]), Labour in global production networks: Workers in the qualifying industrial zones (QIZs) of Egypt and Jordan, https://onlinelibrary.wiley.com/doi/10.1111/glob.12047; Ministry of Labour (2019[19]), Annual Report 2019, Government of Jordan.
Services sectors in Jordan host the greenfield FDI projects with the highest job creation intensity. FDI projects in services accounted for 23% of all jobs created by greenfield FDI although they attracted less than 10% of announced FDI between 2003 and 2020. Most of the jobs created in services were in tourism, ICT, finance and business services (Figure 3.8, Panel B). Furthermore, the number of FDI-jobs in services grew in 2012‑20 relative to 2003‑11, in contrast with manufacturing or construction (Figure 3.9). For instance, in the past decade, greenfield FDI in ICT – to a large extent in telecommunications – generated nearly twice as many jobs per million USD invested than the average sector. Other services such as health or education contribute significantly to aggregate labour income but attract little, albeit increasingly more, FDI. Aside from services, the energy sector also attracted more FDI in recent years (see Chapter 5). Direct job creation in this sector is limited, but the deployment of renewable power can support employment across the renewable value chains, particularly in remote and less developed areas (OECD, 2016[20]).
The contribution of greenfield FDI to labour market outcomes in services sectors is aligned with Jordan’s comparative advantages, which present opportunities for more rapid development of high-skill services (Hausmann et al., 2020[21])(Chapter 2). Jobs in the growing services sectors, which digitalisation and recovery from COVID‑19 are likely to accelerate, are often more skill-intensive than jobs in manufacturing and tend to be better paid, particularly in finance where more than 76% of workers held a tertiary degree in 2016 according to JDoS. Job seekers from the large pool of unemployed graduates should fill demand for these jobs, but in practice the strong mismatch between university curricula and employers’ needs observed in services sectors may prevent this from happening (Figure 3.4). In a context of skills shortages, foreign entrants increase competition for talent but can crowd-out skilled labour in domestic firms, at least temporarily. Evidence suggests that these mechanisms have been at play in Jordan’s ICT sector in recent years (OECD, forthcoming[22]). As the ICT sector has grown rapidly, there has been a lag to keep abreast of the latest skills needs and around 75% of employers have difficulties finding skilled staff leading many of them to send their staff abroad to reinforce and upgrade their skills base (World Bank, 2016[7]).
Trends in employment by foreign and domestic companies listed in the Amman Stock Exchange (ASE) sheds further light on the contribution of FDI to labour market outcomes in Jordan. Foreign companies – firms with 10% foreign ownership or more – account for 70% of ASE market capitalisation (shares owned by foreigners represent around half of market capitalisation) and 73% of employment by listed companies, which corresponds to nearly 39’000 jobs (Figure 3.10, Panel A). Foreign companies dominate the financial and, to a lower extent, industrial sectors, while domestic firms are more prevalent in services such as commercial activities or utilities. ASE market capitalisation accounted for 42% of Jordan’s GDP in 2020, a share that declined since 2010 but that is higher than in Egypt (11%), Lebanon (15%) or Tunisia (21%).
Figure 3.10. Employment by foreign and domestic companies listed in the Amman Stock Exchange
Note: Foreign-owned companies include listed companies with 10% foreign ownership or more.
Source: OECD calculations based on Amman Stock Exchange database.
If most jobs in ASE listed companies are in finance, the data confirms the earlier observations that investment in manufacturing has the highest job creation intensity, followed by non-financial services such as tourism. The data also reveals that foreign firms rely more non-Jordanian workers than domestic firms do, particularly in the industrial sector (Figure 3.10, Panel B). There is limited data on the contribution of listed firms to other labour market outcomes, but a positive step was the release of ASE 2018 “Guidance on Sustainability Reporting” that encourages listed companies to disclose ESG performance. The guidance includes indicators on child labour, human rights policy, workers’ injury rate, the wage gap between the CEO and median worker and the number of training programmes (Amman Stock Exchange, 2018[23]).
3.3.3. Foreign firms are more skill-intensive and provide more training
The previous section examined industry patterns, but firm-level features of investors also affect labour market outcomes. For instance, FDI concentration in less skill-intensive sectors is not an undesirable outcome if foreign firms operating in these sectors upgrade their workers’ skills and improve wage and non-wage working conditions. International evidence shows that foreign firms are larger, more productive and more skill-intensive than their domestic peers, and therefore pay higher wages (OECD, 2019[13]). Furthermore, firms that are more dynamic have higher employment growth rates than less productive ones.
Foreign manufacturers in Jordan pay higher wages than domestic firms, but the premium is insignificant in comparison with other countries (Figure 3.11, Panel A). For instance, on average in non-OECD countries, foreign firms pay around 50% higher wages than domestic firms. The small wage premium in Jordan contradicts the fact that foreign firms are significantly more productive and larger (Chapter 2) – they employ 76 workers on average compared to 34 in domestic firms according to the 2019 World Bank Enterprise Survey of Jordan. This could be because the majority of foreign firms in the country operate in industries with low labour costs and high shares of foreign workers or are active in markets with little competition, which in turn can generate rents that do not entirely translate into wage gains for workers (OECD, 2019[13]). For instance, a survey of the garment and leather industry in 2020 shows that 74% of firms with more than 250 employees are foreign (ILO, 2020[24]). Furthermore, foreign firms in Jordan have not grown faster despite being more productive, an observation that is not unique to Jordan (Figure 3.11, Panel B).
Figure 3.11. Labour outcomes of foreign and domestic manufacturers in Jordan and comparators
Note: The figure shows the respective 95% confidence intervals. See OECD (2019[13]) for the methodology.
Source: OECD based on World Bank Enterprise Surveys.
Low foreign wage premiums can also imply that foreign and domestic firms have similar shares of skilled labour. But foreign manufacturers in Jordan have larger shares of non-production workers, occupations that require higher skills than production jobs (Figure 3.12, Panel A). Even among the group of production workers, foreign firms employ higher shares of skilled workers relative to domestic firms (Figure 3.12, Panel B). The low wage premium in spite of higher skill-intensities reveals the structural dysfunctions of the labour market in Jordan, where the returns to skills in terms of higher wages are low in private sector jobs (Alshyab, Sandri and Abu-Lila, 2018[25]). This may deter labour mobility to foreign firms, while it is typically via this channel that FDI raises wages in the host country (Hijzen et al., 2013[26]). Low returns to skills could also be driven by the large presence of experienced migrant workers earning lower wages than Jordanians and working in FDI-intensive industries such as in garments and textiles (Azmeh, 2014[18]).
Foreign firms in Jordan can influence the demand for skilled labour, but they can also increase the supply of adequate skills by training their workers or those of their domestic suppliers. Furthermore, they may induce other firms to invest in human capital in response to rising competition or to imitate their more profitable business practices, including by training workers. Figure 3.12, Panel C, shows that the share of firms providing on-the‑job training in Jordan is higher among foreign-owned firms. While this implies that FDI contributes to skills upgrading in Jordan, it also confirms the earlier observation that foreign investors face stronger skills shortages than domestic firms, which may push them to provide more training to their workers in order to remain competitive. Overall, the share of firms providing training in Jordan is lower than in other countries, including within the MENA region. At the same time, this shows that there is ample room for progress, possibly through appropriate policy intervention.
Figure 3.12. Skill-related features of foreign and domestic firms in Jordan and comparators
Note: Percent of production workers out of total permanent workers; percent of skilled production workers (out of total production workers) in manufacturing.
Source: World Bank Enterprise Surveys (latest available country survey).
3.3.4. Foreign firms adapted faster to new ways of working during the COVID‑19 pandemic
The collapse of global FDI flows in 2020 has put a halt, at least temporarily, to the contribution of FDI to direct job creation in Jordan and in other host countries (OECD, 2020[27]). In 2020, less than 250 direct jobs were expected to be created by greenfield FDI projects in Jordan against a yearly average of 1 667 jobs between 2010 and 2019 – among which nearly 200 in the tourism sector only – according to the Financial Times fDi Markets database. While this number appears low in comparison with the total number of job losses during the pandemic, it adds strain to the ambition of Jordan to create jobs through FDI.
The pandemic is also causing abrupt reductions in the activity of foreign firms. This in turn affects workers, whose jobs and income are at risk. While some foreign firms have been able to shield their workforce from such impacts and are choosing to keep and pay employees during the suspension of their activities, many businesses have had to lay off workers or reduce their working hours. In Jordan, foreign firms have not been more resilient compared to domestic firms to reduce the number of hours worked but they were relatively less to lay off staff (Figure 3.13, Panel A and B). It is possible that, when facing downward pressures, foreign firms find it costly to reduce their workforce because of their higher skill-intensity, and thus larger efforts will be needed to find suitable candidates during the recovery (OECD, 2020[27]).
Figure 3.13. Foreign and domestic firms’ labour market adjustments during COVID‑19
Source: OECD based on World Bank Enterprise Survey “COVID‑19: Impacts on Firms” conducted on November 2020‑January 2021.
Foreign firms in Jordan and in other countries have managed relatively better than their domestic peers to adapt their modus operandi to the new work realities created by COVID‑19 crisis. In Jordan, they were twice more to start or increase teleworking compared to domestic firms since the outbreak of the pandemic (Figure 3.13, Panel C). Foreign firms’ greater adaptability to shocks can also support faster recovery in terms of workforce levels, thus potentially contributing to a job-led recovery (Figure 3.13, Panel D). Overall, differences in the ability to perform jobs remotely affects the impact of confinement on labour outcomes. Foreign firms may be well-placed to promote these new forms of work in Jordan through imitation effects and business relationships with suppliers. The intensity of remote work strongly differs across sectors, however, and the new jobs that foreign firms will create during the recovery will not be equal in terms of their teleworking feasibility. For instance, FDI in business or digital services have high propensities to create many jobs with high teleworking feasibility, in contrast with manufacturing or health care sectors that also generate numerous jobs but with tasks that can hardly be executed from home (OECD, 2020[27]).
3.3.5. Supply chain linkages and competition influence FDI spillovers on labour outcomes
Supply chain relationships between foreign firms and local suppliers are weaker in Jordan than in comparator countries (Chapter 2). Limited business linkages automatically reduce the scope for FDI-induced spillovers on labour market outcomes, which can be both positive and negative. Business linkages can generate employment and wage gains for local suppliers because of increased business activity. They can also have effects that are more permanent if foreign firms invest in the training of their suppliers’ workers to raise the quality of the sourced inputs. Furthermore, when foreign firms operate with high labour standards, they could positively affect the working conditions of their suppliers. Nonetheless, supply chain linkages involving foreign and domestic firms can also have adverse effects if foreign firms have irresponsible business practices, for instance if they cancel or delay their payment of orders.
FDI can also affect labour market outcomes through spillovers to domestic competitors in the same sector. Evidence from the 2011 establishment census shows that the operation of foreign entrants in Jordan led to employment contractions among domestic competitors but they had positive spillovers on their suppliers or buyers in terms of job creation – gains that outweighed the job losses in competitors (Sahnoun et al., 2014[28]). The magnitude of FDI spillovers on labour market outcomes hinged on specific characteristics of the Jordanian economy. Employment contractions due to competition effects affected small or old domestic firms that are often less productive, while the entry of foreign firms led to employment growth of suppliers that are young or operate in service sectors. FDI spillovers on labour market outcomes had a transitory nature, however, with employment growth falling after divestments for local suppliers while increasing for domestic competitors. This suggests that the impact of FDI on employment growth in domestic firms does not stem from permanent knowledge transfers that endure after a divestment (Davies, Lamla and Schiffbauer, 2016[29]).
Manufacturing suppliers in Jordan did not benefit from FDI spillovers in terms of employment growth, in contrast with those in services, possibly reflecting weak competition in the sector and limited supply chain relationships (Sahnoun et al., 2014[28]). For example, the pharmaceutical sector hosts several large foreign and domestic producers, but only 10% of inputs are sourced locally (ibid). Furthermore, additional evidence shows that local sourcing in Jordan is largely driven by foreign firms supplying inputs to other foreign firms in the country (OECD, 2021[1]). This could be occurring in higher-skilled industries such as the pharmaceutical sector where domestic suppliers face challenges in producing goods that are up to the foreign firms’ quality standards (see Chapter 2 for a discussion of SMEs’ absorptive capacities).
3.4. The governance framework affecting the impact of FDI on job quality and skills
Jordan puts high policy priority on investment as a driver for job creation and skills development. Like many emerging economies in the MENA and other regions, the Government of Jordan supports this ambition with various multi-year strategies and plans, governed by dedicated councils and committees, ministries and implementing agencies. This section provides an overview of government strategies and the institutional setup at the intersection of investment, employment and skills development policy and evaluates to what extent they maximise the benefits of FDI on labour market outcomes.
3.4.1. Strategic priorities at the intersection of investment, employment and skills development
Several strategies and plans define Jordan’s national priorities, goals and policies on investment, employment and skills development. Jordan Vision 2025, developed in 2014, and the ensuing Economic Growth Plan of 2018‑22, are the country’s national development strategies (Box 3.3). They include chapters on investment, education and human resource development and labour, thereby providing strategic direction across key policy areas where FDI can affect job quality and skills development. Objectives affecting FDI transmission channels (the ways in which FDI can have higher direct and indirect impact on labour market outcomes) include ensuring harmony between educational output and labour market needs, increasing labour market flexibility, improving the investment environment, and activating the role of the private sector as an engine of sustainable development and job creation. Both development strategies identify policy actions and investment opportunities to develop priority sectors with high value‑added or those that employ a high percentage of Jordanians, which often are in services sectors.
The 2011‑21 National Employment Strategy (NES) was devised as the most comprehensive response to rising unemployment and low participation rates, particularly among youth and women (see also Chapter 4). The strategy identifies FDI as a key driver of private sector growth in Jordan, yet indicates that most foreign investment created only short-term job opportunities (e.g. in construction) and few long-term effects on job quality and skills development. It also acknowledges that liberalisation reforms were not sufficient to reap the benefits of FDI in terms of creating more and better jobs, and must be combined with a range of policies aimed at encouraging exports, promoting innovation, and attracting FDI in particular sectors.
The NES includes broad objectives on investment policies that support more and better job creation. For instance, the strategy recommends aligning existing tax incentives and subsidies provided to private investors with the country’s goal of becoming a knowledge‑based economy. While including investment policy objectives in employment strategies should improve coherence across policy dimensions, it is not clear to what extent the recommendations of the NES were taken on board in ensuing investment plans and legislation such as the 2014 Investment Law. In Rwanda, for instance, the 2019 National Employment Strategy included specific goals on investment and, importantly, indicates the responsibilities of each institution as well as provides an estimated budget for achieving each goal.
Overall, the implementation of the NES faced challenges, including limited resources and lack of continuity driven by reshuffles in the government. It also did not include newer challenges such as the influx of Syrian refugees and the COVID‑19 pandemic. The government is currently preparing a new national employment strategy, which will be ready in 2022, but the Ministry of Labour has also been developing three‑year plans over the last decade. For instance, the 2017‑21 plan has the following strategic objectives:
1. Increase the number of Jordanian workers based on the principle of equal opportunities.
2. Reduce violations of the Law by strengthening the inspection, safety and occupational health apparatus.
3. Strengthen labour relations with social partners to reduce collective labour disputes.
4. Regulate the entry of foreign labour and substitute foreigner workers with Jordanian.
5. Strengthen partnerships with public, private and civil society agencies to improve the governance of the E‑TVET and implement the NSHRD.
6. Raise the quality of services provided by the ministry (e.g. public employment services).
Box 3.3. National strategies covering economic development, employment and skills
Jordan 2025 aims to revitalise the economy by targeting poverty, unemployment and the fiscal deficit, and boosting GDP growth. To bolster economic development, Jordan 2025 adopted a cluster-focused approach that seeks to expand existing industries that are performing well, while developing related or supportive clusters complementary to those industries. The plan identifies eight clusters as having high potential for development: construction and engineering, transport and logistics, tourism and events, health care, life sciences, digital and business services, educational services and financial services.
Jordan Economic Growth Plan (JEPG) 2018‑22 was issued in 2018 to supplement Jordan 2025. The plan lays out various economic, fiscal and sectoral policies that the government intends to implement in order to achieve sustainable social and economic growth. The plan was formulated with a sectoral focus, and it delineates specific interventions required by both the public and private sectors to achieve each industry’s vision. Planned interventions primarily pertain to enhancing the country’s competitiveness, improving the investment environment, easing bureaucratic red tape, digitalising government services, improving infrastructure and promoting sector-specific investments. Overall, the plan identifies 95 policy actions, including in the areas of investment, employment and skills development. Industries of focus are the same as the eight clusters of Jordan 2025.
The National Strategy for Human Resource Development (NSHRD) 2016‑25 is the main reference for most education- and training related interventions and projects. The strategy sets out elaborated recommendations for reforming the different echelons of the education sector in order to achieve sustainable economic, social and environmental development in the country. The areas of focus include governance, quality assurance, the status of teachers and educators, private sector providers, engaging employers, innovation and culture change. The NSHRD pays particular attention to reforming the technical and vocational education and training (TVET) sector. This involves strengthening the relevance of TVET, enhancing the quality of training and education in the sector, introducing private sector centred governance structures (e.g. Sector Skills Councils) and, finally, breaking the negative stigma around TVET in the country.
The National Employment Strategy (NES) 2011‑20 was devised as a response to rising unemployment rates and low economic participation rates, particularly among women and youths. The strategy presents the task of overcoming structural challenges in the Jordanian labour market as an endeavour that requires economic, education and social reform. The strategy is formulated on the basis of achieving progress over three time horizons, divided into the short, medium and long terms. The main goals to be achieved within these horizons include: (a) absorbing the unemployed, (b) bridging the skills mismatch and promoting the growth of micro, small and medium-sized enterprises, and (c) increasing productivity through human capital and economic restructuring. The third horizon includes the objective of developing industrial and investment policies towards growth with Job creation. Some labour market interventions highlighted in the strategy include adopting an effective foreign labour policy, scaling up active labour market programmes, scaling the transition from education to employment and reforming the TVET sector.
Source: OECD (2021[30]), FDI Qualities Mapping of Policies and Institutions in Jordan; ILO (2019[12]), State of Skills: Jordan https://www.ilo.org/wcmsp5/groups/public/--ed_emp/--ifp_skills/documents/genericdocument/wcms_754492.pdf
The government has also developed education and skills development strategies, at the forefront of which is the National Strategy for Human Resource Development (NSHRD) 2016‑25. Drawing on previous national initiatives, including Jordan 2025, the NES and the National Employment-Technical and Vocational Education Training (E‑TVET) Strategy 2014‑20, the NSHRD has identified wide‑ranging reform programmes and action plans to establish a human resource development system for all education levels to enable the country to meet its sustainable development goals. The NSHRD led to important achievements, including the establishment of a Technical and Vocational Skills Development Commission, the endorsement of a National Qualifications Framework, and the establishment of sector skills councils run by the private sector (ILO, 2019[12]). These actions aim at reducing skills mismatches and shortages, and thus should act positively on FDI transmission channels.
3.4.2. The institutional framework aims at addressing challenges that limit the benefits of FDI on jobs and skills but it could be more coherent and inclusive
Governments often design and implement their investment and labour market policies in institutional silos, but strong co‑ordination is central for policy actions to achieve expected impacts. A large number of institutions in Jordan are involved in the design and delivery of policies and programmes enabling FDI to have a positive impact on job quality and skills development (Figure 3.14). The institutional framework includes ministries, public agencies, private sector representatives, trade unions, and training institutes, including universities. The mandate of public institutions is often enshrined in law, which also defines, albeit not always, governance relationships with other institutions. Given the multitude of actors with different interests, it is crucial that responsibilities are explicit, adequately funded and mutually understood by all.
Figure 3.14. The institutional framework for FDI impact on job quality and skills in Jordan
Note: The figure shows only the most relevant agencies for enabling FDI impacts on job quality and skills development.
Source: OECD elaboration based on OECD (2021[30]), FDI Qualities Mapping of Policies and Institutions in Jordan.
MoI – previously the Jordan Investment Commission (JIC) – is in charge of developing and implementing the government’s investment strategy with the aim of attracting and retaining investment and helping to realise its desired impact on economic growth and job creation. MoI also manages the 14 free and development zones of the country and has the mandate to promote exports. While MoI is not directly involved in employment and skills development policies, it still actively shapes potential impacts of FDI by promoting and facilitating investment in specific job-creating or skill-intensive sectors, granting tax incentives to investors as defined by the 2014 Investment Law and influencing the wider reform agenda through policy advocacy actions. Furthermore, MoI has the authority to sign memoranda of understanding with other institutions and to co‑operate on specific measures that can influence positively the contribution of FDI to labour market outcomes (e.g. training of workers).
Box 3.4. OECD Guidelines for Multinational Enterprises: Employment and Industrial Relations
MNEs should, within the framework of applicable law, regulations and prevailing labour relations and employment practices and applicable international labour standards:
Respect the right of workers employed by the MNE to establish or join trade unions and representative organisations of their own choosing.
Observe standards of employment and industrial relations not less favourable than those observed by comparable employers in the host country. Where comparable employers may not exist, provide the best possible wages and conditions of work, within the framework of government policies.
To the greatest extent practicable, employ local workers and provide training, in co‑operation with worker representatives and, where appropriate, relevant governmental authorities.
Take adequate steps to ensure occupational health and safety in their operations.
In considering changes in their operations which would have major employment effects, provide reasonable notice of such changes to representatives of the workers, and, where appropriate, to the relevant governmental authorities, and co‑operate to mitigate practicable adverse effects.
In the context of bona fide negotiations with workers’ representatives on conditions of employment, or while workers are exercising a right to organise, not threaten to transfer activity in order to influence unfairly those negotiations or to hinder the exercise of a right to organise.
The Guidance sets out practical ways to help businesses avoid potential negative impacts of their activities and their supply chains. It aims to bolster policy efforts to strengthen confidence between enterprises and the societies in which they operate, and complements both the due diligence recommendations contained in the UN Guiding Principles on Business and Human Rights and the ILO Declaration on Fundamental Principles and Rights at Work.
The implementation of the OECD Due Diligence Guidance for Responsible Supply Chains in the Garment and Footwear Sector can help to address challenges in the sectors. The garment sector is an important driver of growth in Jordan and provides an example of how the government and industry players can organise themselves and collaborate to promote RBC. Garment and footwear global supply chains are characterised by stages of labour-intensive production process spread across diverse countries, short lead times and short-term buyer-supplier relationships. These factors reduce visibility and control over a company’s supply chain and can create challenges for companies to meet their responsibilities in preventing and mitigating risks in their supply chains.
RBC challenges in Jordan are not limited to one sector and examples in the garment and footwear sector could be replicated and expanded to other industries, including those covered by other OECD sectoral due diligence instruments, including the OECD-FAO Guidance on Responsible Agricultural Supply Chains and the Due Diligence Guidance for Meaningful Stakeholder Engagement in the Extractive Sector.
Source: OECD (2011[31]), OECD Guidelines for Multinational Enterprises, 2011 Edition, https://dx.doi.org/10.1787/9789264115415-en.
MoI also hosts Jordan’s National Contact Point for Responsible Business Conduct (RBC), which is in charge of promoting the OECD Guidelines for Multinational Enterprises, and related due diligence guidance, and of handling cases tackled in the Guidelines as a non-judicial grievance mechanism. The Guidelines include several clauses calling on MNEs to promote good industrial relations, quality jobs and a decent working environment (Box 3.4). The Jordanian NCP does not include third-parties in its structure, in contrast with other NCPs such as in Tunisia. It has also been largely inactive as regards RBC promotion, which may partly be due to the low level of allocated resources (OECD, 2021[1]).
Together with MoI, the Ministry of Labour (MoL) is the other main institution that influences the impact of FDI on job quality and skills development in Jordan. The mandate of the ministry is to regulate the labour market, clarify industrial relations and develop active labour market policies, including skills development programmes, to tackle the main challenges of the labour market. The MoL performs its duties in accordance with the provisions of the 1996 Labour Law and its amendments. The mandates of the MoL are implemented in co‑operation with several public, private and civil society partners. The government recently established a National Employment Council, with the Prime Minister as the chair, the Minister of Labour as his deputy and with the participation of the social partners (Figure 3.14).
The MoL oversees two public bodies that play important roles in the institutional framework that affects how FDI impacts job quality and skills, which are the Vocational Training Corporation (VTC) and the Technical and Vocational Skills Development (TVSD) Commission. The VTC offers vocational training and apprenticeship programmes, including on-the‑job training programmes. It also offers ad-hoc programmes for upgrading the skills of current employees, based on the requests of employers. The negative stigma surrounding vocational training in Jordan, the outdated curricula used by the VTC and the poor infrastructure of training institutes make the VTC less attractive for young Jordanians (ILO, 2019[12]).
The TVSD Commission was established in 2019 in line with the recommendations of the NSHRD on streamlining the governance of the TVET system – the Commission brings under one umbrella different bodies supervising the field of TVET – and addressing persistent skills imbalances. The Commission accredits and supervises TVET providers and their programmes, as well as evaluating and controlling their performance (the Centre of Accreditation and Quality Assurance operates under the supervision of the Commission). It also hosts the TVET Support Fund, which finances TVET programmes and activities targeting the most vulnerable groups. This support is useful for a small open economy like Jordan because trade and investment flows can adversely affect or displace workers in less productive jobs. The Minister of Labour chairs the council that oversees the work of the TVSD but members are in their majority from the private sector. The General Federation of Trade Unions is not represented in the TVSD council, although workers’ voice is crucial to ensure that the TVET system remains human centred (ILO, 2019[12]).
The TVSD Commission also oversees the Sector Skill Councils (SSCs), which are managed by the private sector and are considered a major step to improve public-private dialogue on the TVET system. They cover main economic sectors, including agriculture, energy, garments, chemicals, tourism, ICT, and logistics – sectors that are also prioritised by MoI. The SSCs are expected to: develop, manage and maintain an effective labour market intelligence system; improve the matching of supply and demand for skilled workers in the labour market; advocate for and contribute to improvements in the TVET sector; and monitor and evaluate the progress and results of training provision and productive employment of skilled workers. The SSCs have started to operate, but the law limits them to having an advisory role. Considering carefully the guidance provided by the SSCs will improve the market relevance of TVET programmes, but also help to keep the SSCs engaged in the dialogue with the government (ILO, 2019[12]).
Other ministries involved in the institutional framework that influences FDI effects on job quality and skills include the Ministry of Planning and International Co‑operation (MoPIC), the Ministry of Higher Education and Scientific Research, the Ministry of Industry, Trade and Supply, the Ministry of Education, and the Ministry of Digital Economy and Entrepreneurship. MoPIC, for instance, co‑ordinates relationships with donors, among which several provide financial and technical support in the areas of employment and skills development, while the Ministry of Education defines the secondary level vocational education system – the Minister of Education established in 2021 a National Committee to conduct a comprehensive review of the vocational education system. The TVSD or the SSCs are not part of this newly created committee.
Other public agencies include the National Centre for Human Resource Development (NCHRD) and the Development and Employment Fund. The NCHRD reports to the Higher Council for Science and Technology (HCST) and benefits from a highly inclusive board membership. It provides policy advice, conducts studies, collects and publishes statistics on education and skills, and evaluates whether educational reform plans meet labour market needs. Together with the VTC, NCHRD is part of the National Committee reviewing the vocational educational system. Aside from the SCCs, private, public-private and civil society actors include the chambers of commerce and industry, the General Federation of Jordanian Trade Unions, training providers (universities, NGOs, private providers), and the donor community.
3.4.3. Co‑ordination takes place at strategic levels but less across implementing agencies
There are no mechanisms in Jordan exclusively dedicated to horizontal policy co‑ordination between ministries dealing with labour and skills development policies and those responsible for investment. Other existing mechanisms nevertheless could be adapted to ensure broader alignment across the policy areas. For instance, the Minister of Labour sits in the Investment Council (IC), which is the main co‑ordinating body overseeing the management and development of Jordan’s national investment policy (Figure 3.14). There are also several co‑ordinating committees that aim at addressing labour market or skills imbalances challenges, including the newly established National Committee on Employment and National Committee on Vocational Education. Their mandates could be more coherent to ensure complementarity of objectives and their governance structure be more inclusive to support collaborative decision-making, particularly to promote a TVET system that adequately responds to private employers’ needs.
The presence of the MoL in the IC signals the government commitment to policies that enhance the impact of FDI on labour outcomes. It is also particularly relevant as MoI oversees the Free and Development Zones where foreign labour is abundant. There is limited information on the extent to which the MoL and other members participate in the IC, however, and how they contribute to shaping the investment strategy. Nonetheless, it is reasonable to assume that the participation of the MoL in the IC helps in aligning strategic objectives and priorities that are at the intersection of investment, labour and skills development. The inclusion of the Ministry of Labour in IPAs’ boards or similar high-level investment bodies is not common across countries, although there can be important differences in the status and functions of bodies overseeing IPA’s work (OECD, 2019[32]). For instance, Egypt’s Supreme Investment Council, a high-level body that has similar functions to Jordan’s IC, does not include the ministry of labour.
It is more challenging to identify concrete co‑ordination mechanisms through which MoI can influence labour and skills development policies in Jordan. The MoL strategic plan for 2017‑21 classified JIC as a supporting partner with which the ministry co‑ordinates on technical issues to achieve reciprocal benefits (Table 3.2). The plan indicates that JIC contributes to achieving three out of the six strategic objectives of the MoL, including the objective of improving the governance of the TVET system and implementing the NSHRD. Co‑ordination with JIC involved informal mechanisms such as meetings and correspondence, but it remains unclear how JIC – now MoI – concretely supports the MoL in achieving its strategic objectives. Co‑ordination between the MoL and the Free and Development Zones, which MoI oversees, seems stronger than with the ministry itself. The organisational relationship between zones and the MoL is driven by the strategic objective of the ministry to regulate the entry of foreign labour and substitute foreigner workers with Jordanian citizens.
Co‑ordination between MoI and implementing agencies involved in labour policy and skills development seems to be less developed. MoI does not sit on the boards of directors of the VTC or the NCRD and is not part of the TSDV council (Figure 3.14). Nonetheless, this absence is likely to be common across countries. Furthermore, the voice of the private sector is represented in these different agencies, which should help in identifying the needs of the labour market in terms of skills, and adapt training programmes to these needs. Involving MoI in the decision-making of the SSCs could be still a relevant avenue to explore, however, as the ministry promotes and facilitates investment in the same industries and can bring forward its sectoral expertise and voice the concerns of the foreign investors in terms of skills shortages and training needs or provide feedback on labour market reforms under discussion. In Ireland, for example, the CEO of the Irish IPA is a member of the National Skills Council and is in charge of providing regular updates on sectoral investment opportunities and advice on skills availability (OECD, 2021[15]).
Table 3.2. The relationship of the Ministry of Labour with JIC and other selected institutions
Note: Organisational: it is not possible to complete the ministry’s operations and achieve its goals with the partner organisation. Technical: partnership relations to achieve reciprocal benefits and aims to provide its services to customers, transfer knowledge and expertise in specialised fields and improve performance. Legal: existing laws and regulations specify the type of relationship with the partner.
Source: Ministry of Labour Strategic Plan of 2017‑21, Government of Jordan.
3.5. The policy framework supporting the impact of FDI on job quality and skills
Improving the investment climate has long been a priority for the Government of Jordan, recognising the developmental benefits that FDI can bring. To this end, the government has advanced meaningful reforms in the past decade that are conducive to investment (OECD, 2013[14]; 2021[1]). These reforms should, however, be complemented with a wider set of policy interventions. This section reviews policies and programmes in Jordan that aim at improving the impact of FDI on job quality and skills development, including wider product and labour market regulations and more specific proactive policies and measures. The section also reviews Jordan’s internationally agreed principles that can help ensure, inter alia, higher labour standards in the operations of foreign firms.
3.5.1. Pro-competition reforms would support FDI to create high-skill jobs in services sectors
With the exception of restrictions on FDI, the wider regulatory environment in Jordan treats foreign and domestic investors alike. Nonetheless, the extent to which regulations affect the two groups of firms, and influence the respective ways they can impact labour market outcomes, can vary. Policymaking should take into consideration these differentiated effects on foreign and domestic business. For instance, product and labour market regulations directly affect foreign business location choice, characteristics and, in turn, labour market impacts. They also affect how labour markets adjust in response to FDI entry and spillovers on competitors and suppliers. FDI impacts on jobs, wages and skills are likely to be greater in settings where pro-competition policies allow for more efficient resource reallocation.
Discriminatory measures on investors’ entry and operations deter FDI and, in turn, related direct and indirect labour market gains. Reforms in Jordan have largely liberalised the manufacturing sector but many service sectors remain partly off limits to foreign investors (OECD, 2018[33]; 2021[1]). Restrictions on full foreign ownership exist in business services, distribution, transport and tourism, sectors where FDI has a strong job creation potential (Figure 3.8). Joint venture requirements in such skill-intensive sectors may also push foreign investors not to deploy their most advanced technologies and business practices, in turn limiting better-paid job creation and skills transfers to domestic owners (Moran, Graham and Blomström, 2005[34]). High FDI restrictions in the construction sector contrast with the large amounts of FDI injected in the sector in the last two decades. This however suggests that liberalisation reforms could lead to even higher FDI inflows and more job opportunities for the lower-skilled workers, albeit temporarily.
Figure 3.15. FDI regulatory restrictions and job-creating potential of greenfield FDI in Jordan
Source: OECD FDI Regulatory Restrictiveness Index and Financial Times fDi Markets.
Services liberalisation can also generate labour market gains for domestic firms in other services sectors. Evidence for Jordan shows that domestic buyers and suppliers of foreign services firms experience significantly high employment growth (Sahnoun et al., 2014[28]). Furthermore, by fostering competition, services liberalisation can push domestic competitors to learn from foreign peers, upgrade their activities and retain their workers in better-paid jobs – a desired outcome in light of the non-competitive wages in the private sector.
Governments often introduce FDI restrictions with the stated objective of protecting domestic firms (and their workers) from foreign competition. Indeed, FDI Liberalisation can crowd out domestic competitors and increase wage inequality in the short term, particularly in non-tradable services where large MNEs can capture market shares such as in construction. FDI restrictions are not optimal policy interventions, however, as they create uncertainty and negatively influence foreign investors’ decisions (Mistura and Roulet, 2019[35]). Jordan could prioritise the tradable services sectors with solid comparative advantages to limit the transitory labour market losses from liberalising other services FDI (Hausmann et al., 2020[21]) (Steenbergen and Tran, 2020[36]). The following sections reviews Jordan’s policies and measures that can proactive help all workers benefit from increased FDI in services sectors.
Together with FDI restrictions, other product market regulations influence the impact of FDI on job quality and skills development in Jordan, including barriers to business creation and innovation (see also Chapter 2). Small and old firms in Jordan – firms that foreign entrants tend to crowd out – have weak employment and wage growth prospects but they dominate the private sector landscape. Pro-competition reforms could reduce firm’s entry costs and operations, and hence allow for a more dynamic private sector that creates high-skill jobs. Jordan Vision 2025 aims at enhancing the ability of firms to grow and compete on a level playing field and the government recently reviewed its competition policy to design and implement rules that minimise market distortions (Ministry of Planning and International Co-operation, 2019[37]). Discretionary enforcement of existing competition policies is a key challenge.
Non-competitive wages and less attractive working conditions in the private sector have also been a disincentive for public sector workers, which are often highly educated, to leave their jobs. The resulting lower labour mobility from public to private sector employment has limited a more efficient resource reallocation of workers (World Bank, 2016[7]). Distorted wage setting and the continuous, albeit slowing, net job creation by the public sector has been key to the socio-political stability of the country, which reduces the scope for structural reforms. Improving the efficiency of the public sector is, however, on the government’s reform agenda and includes rationalising public sector hiring practices (Ministry of Planning and International Co-operation, 2019[37]).
3.5.2. Recent labour market reforms improve FDI impacts but further efforts are still needed
Balanced labour market regulations can support foreign firms’ adjustments while providing a level of employment stability that encourages learning in the workplace. In Jordan, labour market regulations do not appear to be a major constraint for the private sector (Figure 3.16, Panel A). This implies that firms’ adjustment costs when hiring or firing workers in response to FDI entry and spillovers are not likely to restrain labour mobility and wider resource reallocation. For foreign investors, flexibility of the host country’s labour market matters for their location choice and investment volumes – and thus job creation potential (OECD, 2021[15]). Labour regulations can also affect the sectoral composition of FDI. For instance, stringent legislation deters FDI more in the services sector than in manufacturing (Javorcik and Spatareanu, 2005[38]). This does not seem to be the case in Jordan, as the share of firms identifying labour regulations as a major constraint is highest in the garment sector (Figure 3.16, Panel B).
Jordan undertook several labour market reforms in 2015 and 2019. The most important reform amended the Labour Code in 2019 and included improvements related to wages, over-time, paternity leave, annual leave, child-care, retirement, labour disputes, and female participation in the labour market (see also Chapter 4). Evidence suggests that these changes were welcomed by the private sector, particularly domestic firms, which reported to be significantly less constrained by labour market regulations after the reforms (2019) than before (2013). Earlier evidence confirms that labour market regulations in Jordan were not more cumbersome than in other MENA or developing countries (Angel-Urdinola and Kuddo, 2010[39]).
Figure 3.16. Percent of firms identifying labour market regulations as a major constraint
Source: OECD based on World Bank Enterprise Surveys.
The fact that labour regulations are even less burdensome for foreign firms is like to be driven by their large presence in Free and Development Zones, where rules on foreign work are different from the rest of the country. Residence and labour regulations in Development and Free Zones No. 80 of 2016 stipulates that there is no quota on the share of foreign workers and no social security contributions and payroll tax on foreign worker’s salaries. Aligning regulations between zones and the wider legal regime is crucial as FDI concentration in zones with less stringent labour legislation can encourage precarious job contracts and adversely affect decent working conditions (Box 3.2). Furthermore, levelling the playing field through the unification of the minimum wage of Jordanian and non-Jordanians and of workers in the garment sector and those in other activities are other avenues to avoid distortions between different groups of workers.
Other labour market regulations in Jordan continue to adversely affect FDI capacity to create more and better jobs. These include regulatory barriers to female labour participation (Chapter 4), employment formalisation and hiring of highly skilled foreign workers (IMF, 2020). The latter affects MNEs ability to effectively deploy their operations and, until recently, to employ foreign personnel in key management positions in services sectors such as professional services (auditing, architecture, engineering, and construction), banking and medical services (OECD, 2018[33]). A 2016 survey of the investment climate in Jordan confirms that most obstacles for hiring foreign skilled workers are of regulatory nature – skills shortages were the main obstacle for hiring Jordanian skilled workers (World Bank, 2016[40]).
The government realises the benefits of opening the labour market to highly skilled non-Jordanians (Ministry of Planning and International Co-operation, 2019[37]). It therefore amended in 2019 its regulations to allow hiring non-Jordanians in a number of high-skill occupations, particularly in ICT, energy, engineering, professional services and banking. But the reform also states that employers can hire foreign skilled workers only when there are no qualified Jordanian job seekers or if their employment will contribute to the economy by generating job opportunities for Jordanians. The reform introduces a mandatory work permit for highly skilled foreign workers that has higher fees than regular work permits. Foreign applicants must obtain the skilled work permit from the applicable government body, which varies according to the occupation. Furthermore, foreign skilled workers are not allowed to renew their work permits and have to reapply for a new permit each year to confirm that they fulfil the required conditions.
Notwithstanding the relevance or not of regulating the entry of skilled foreign workers, it is crucial to simplify their entry procedures. Other countries like Thailand also impose restrictions on the entry of foreign workers. To remain attractive to investors, Thailand established a Strategic Talent Centre to facilitate the admission of skilled foreign workers. The Centre provides a mechanism that recognises the qualifications of foreign experts that want to work in Thailand. Once their qualifications are recognised, the Centre, together with the IPA, assist foreign job seekers with their visas and work permits (OECD, 2021[41]).
Labour market institutions are also crucial to ensure that FDI does not contribute to deteriorating working conditions. Collective bargaining and workers’ voice arrangements can particularly help ensure that workers benefit from FDI by supporting collective solutions to emerging issues and conflicts (Box 3.5). In Jordan, 7% of employees were unionised in 2019 while collective bargaining agreements covered 12% of employees – respectively 16% and 32% in the OECD area (Danish Trade Union Development Agency and Confederation of Danish Industry, 2020[42]). Most agreements are concluded at the firm level – mostly large firms – and are used as tools for ad-hoc dispute resolution, rather than to establish minimum labour standards. The only industry-wide agreement covers the garment sector and set standards on working hours, occupational safety and health and trade union representation.
The 2019 amendments to Jordan’s Labour law did not include major improvements in the area of collective bargaining rights. The Code limits the right to organise and bargain collectively to 17 sectors and prohibits union pluralism. It also prevents foreign workers, which are a significant part of the workforce, from forming unions. Already before 2019, Jordan’s compliance with freedom of association and collective bargaining rights was worse than in several comparator countries, including Tunisia (Center for Global Workers’ Rights, 2021[43]). Jordan has not ratified the ILO Convention on the Freedom of Association and Protection of the Right to Organise, which is the only Convention that the country did not ratify among the eight fundamental ILO Conventions.
Box 3.5. Collective bargaining and workers’ voice improve FDI impacts on working conditions
FDI, together with innovation, trade and migration transform the world of work. Collective bargaining and workers’ voice can ensure that all workers and companies benefit from current transformations by helping formulate solutions to emerging issues, and complement policies to anticipate skills needs, or support displaced workers in new forms of work. Sector-level collective bargaining is associated with lower wage inequality between workers while wages and other working conditions tend to be better in firms with employee representation (OECD, 2019[44]).
Effective systems of collective bargaining are important in the context of large and profitable foreign firms: the FDI Qualities Indicators suggest that foreign firms’ productivity-related rents translate poorly into wage benefits, particularly in less skill-intensive firms. Sharing rents is observed less among firms with lower-skilled workers because of workers’ lower bargaining power. Collective bargaining could help achieve fairer sharing of benefits between firms and workers (Criscuolo et al., 2020[45]).
In practice, even when there is a right to collectively bargain, foreign firms’ negotiation power may still be stronger that of domestic firms, possibly reflecting union fears that wage demands (or negative shocks) may lead to the relocation of production (OECD, 2008[46]). One consequence of this bargaining imbalance has been the development of transnational workers’ representations to better co‑ordinate workers’ bargaining policies. For instance, in the EU, European Works Councils are consulted by MNE management on decisions at European level that affect workers’ employment or working conditions.
3.5.3. Financial, technical and information services target job creation and vocational training
Active policies and programmes can help governments act on desired labour market outcomes of FDI, including by influencing specific transmission channels of FDI spillovers. The policy mix in Jordan aims at stimulating labour demand by attracting investment in specific sectors, locations and occupations and at increasing the supply of adequate skills, although most often for low-skill workers (Figure 3.17, Panel A). Fewer policies pursue the objective of improving working conditions. The choice of the policy instruments differ across targeted labour market outcomes. Tax and financial incentives are typically designed to promote job creation while TVET programmes are widely used by the government to support skills development. Information and facilitation services are less frequently used, particularly in comparison with other countries. Table 3.3 provides a description of some the existing policy initiatives.
Initiatives are scattered across several government entities and policy domains (Figure 3.17, Panel B). For instance, Regulation No.18 of 2020 on corporate income tax incentives (CIT) in the industrial sector provides CIT reductions to manufacturers that hire Jordanian workers, a policy that could be equally viewed as as a pro‑employment investment policy, active labour market policy (ALPM) or an industrial policy. The porosity across different policy domains suggests that developing joint policy initiatives could ensure alignment in objectives, reduce overlaps and rationalise budget use. MoI, for instance, has only few joint initiatives or programmes with the MoL or other bodies reporting to the MoL, however. Initiatives bringing together development or free zones with the MoL are limited to labour inspection. Further information is needed to assess what is the budget allocated to these different initiatives but, focussing on ALMPs only, the Jordanian Government spent less than 0.1% of total government spending on them in 2021, compared with 0.3% in the Czeck republic, Costa Rica or Portugal and 1% In Sweden in 2019 (Al-Ajlouni, 2021[47]).
Figure 3.17. Policies influencing FDI impacts on job quality and skills in Jordan
Note: Every policy can influence several, be executed by several institutions and act on multiple transmission channels of FDI impacts.
Source: OECD (2021[30]), FDI Qualities mapping of institutions and policies in Jordan.
Table 3.3. Selected policies in Jordan that can help improve FDI impact on labour market outcomes
Source: OECD (2021[30]), FDI Qualities mapping of institutions and policies in Jordan.
Some tax incentives are more adapted to local labour market challenges than others
Jordan, as many other governments, use a wide range of incentives that may induce firms to invest, create jobs, raise wages, and train their workers. CIT holidays or reductions and employment subsidies are the most typical tools used; they do not differentiate between foreign and domestic investors but some implicitly target FDI in job-creating sectors – for instance CIT incentives given by MoI in Development or Free Zones. Existing incentives tend to support direct or indirect job creation of low-skilled workers and substituting foreigners with Jordanians (e.g. Regulation No.18 of 2020). These incentives may not be attractive – particularly among foreign firms that rely more heavily on foreign work – if Jordanian job seekers are not getting the right skills and minimum wages of Jordanians and foreigners continue to differ. They are also not time‑bounded and their relevance must be regularly evaluated to examine if the benefits materialise.
The government also introduced temporary and targeted measures to address specific challenges that hinder FDI benefits or amplify its adverse impacts. GrowJo Talent, launched in 2020, is the only incentive that targets high-skilled workers by subsidising wages in digital firms. The subsidy covers 50% of new employees’ wages for up to six months. The measure could help attract investments that increase the demand for ICT skills and absorb a much higher supply (Al-Manar Project, 2018[48]). It also supports efforts to nurture the digital skills of youth – including by providing practical hands-on experience – and match them with the actual needs of the ICT sector. Another wage subsidy, Defence Order N.6, was introduced as a countercyclical measure to mitigate the adverse effects of the COVID‑19 crisis. Many governments provided wage subsidies to employers during the pandemic, and foreign firms, including in Jordan, strongly expect to receive such support, possibly because they tend to adjust labour by decreasing temporarily the number of hours worked, and thus lowering wages, more than through layoffs (OECD, 2021[15]).
Other initiatives promote value chain relationships between foreign and domestic firms (Figure 3.17, Panel C). The Satellite Unit project provides wage subsidies and other financial incentives and support services to garment manufacturers operating in QIZs or SEZs that set up “satellite” factories outside of zones. The initiative is implemented by the MoL, in co‑operation with MoI that provides assistance to investors on the incentives provided, and has helped create 16 satellite units employing 5 500 Jordanians in formal jobs – predominantly women discouraged from working in zones (see Chapter 4). While the number of satellite factories has increased since the start of the project in 2009, their financial sustainability remains a concern, potentially because of limited investments from zone‑based headquarters (ILO/IFC, 2019[49]).
Training programmes should strengthen the skills of the better-educated Jordanians while retraining those potentially adversely affected by MNE’s changing needs
While financial support aim at prioritising FDI in job-creating or skill-intensive activities, it is as relevant for the Government of Jordan to align the existing skills base with the needs of global investors. In general, skills development programmes, though costly, have shown some success when well-designed and targeting the right beneficiaries (Bown and Freund, 2019[50]). In Jordan, government support focus on vocational training provided to a large extent by the VTC, but TVET suffers from a lack of attractiveness by young job seekers. Furthermore, skills development programmes aim less at upskilling the highly educated Jordanians that suffer from shortages in soft skills (communication, language, professional writing, etc.), althought this group could benefit from increasing FDI trends in services (Al-Ajlouni, 2021[47]).
The investment community can play an important role by participating in skills development initiatives. For instance, MoI and the Jordan Industrial Estate Company launched in 2021 the Gold Professions Initiative to rehabilitate the skills of the local communities surrounding the industrial estates and match them with the needs of employers. It is not clear, however, whether MoI will seek support from the TVET Fund or rely on private sector contributions and if the agency will seek accreditation of the programmes by the TVSD commission. The Costa Rican IPA, for instance, established the Skills4Life Programme, in partnership with the Ministry of Labour and the Ministry of Education, and as part of the National Employment Programme, to retrain students and help them find work afterwards (Box 3.6). MoI, in co‑operation with other relevant agencies, could also support existing or potential suppliers of foreign firms with relevant training options or support foreign firms that want to establish their own training centres. One example is Orange and its Coding Academy that offers a training accredited by the Ministry of Higher Education and Scientific Research. Around 70% of participants find a job after this training (OECD, forthcoming[22]).
Training programmes in Jordan should mutually strengthen the skills of the highly and less-educated in order to meet the challenges that robotisation, digitalisation and low-carbon transition – all accelerated by FDI – impose on the labour market. Sectoral training programmes, for instance, such as Jordan’s National ICT Upskilling Programme, can help reduce skills shortages in high-growth sectors where FDI may crowd out competitors unable to retain their talented staff. Such programmes have proved to be impactful and differ from general training courses in that they address the need of particular employers and require close co‑operation with them (Rodrik and Stantcheva, 2021[51]). Involving the SSCs in the design of sectoral programmes is crucial to ensure that they respond to employers’ needs and complement each other.
Box 3.6. CINDE Costa Rica supports skills development through joint policy programming
The Costa Rican IPA, CINDE, plays a particularly significant role in skills development. According to the IPA’s 2019‑22 strategy, the organisation identifies itself as a key player in supporting skills development for jobs of the future, and in the transitioning towards a knowledge economy. CINDE has established several joint programmes with ministries, universities, technical institutions and the MNEs themselves, allowing the IPA to also closely track patterns in emerging human talent.
In 2018, CINDE launched a partnership with the Ministry of Labour and the Ministry of Education, to create the Skills4Life Program, as part of the National Employment Program. Skills4Life retrains over 2 000 students per year in the English language, social skills in the workplace and also provides an accompaniment plan to help recipients find work afterwards. A 2020 initiative saw CINDE, in collaboration with Coursera, an online education platform, along with the Ministry of Labour, come together to launch an industry 4.0 train programme designed to benefit 50 000 recipients.
CINDE also contributes to an overall understanding of the labour market and education outlook of Costa Rica, including skills needs, which encourages programmes that further boost the country’s attractiveness as an FDI destination. In one of these programs, Technological Seedlings, CINDE has partnered with Microsoft to boost the talent pool in high-tech sectors identified in CINDE’s studies as needing the most new entrants. The training of these students has been relegated to the INA, Costa Rica’s agency for learning and skills development.
CINDE also incorporates digital tools and artificial intelligence (AI) in their talent development initiatives, such as the Crystal Ball programme that is directed at matching the supply of knowledge economy jobs with the demand. The programme uses an AI-based digital employment orientation platform that predicts and recommends learning paths to ensure users’ employability opportunities, personalised based on experience, capabilities and interests, with the aim of impacting over 30 000 people.
Source: OECD (2021[15]), FDI Qualities Policy Toolkit: Polices for improving the sustainable development, https://www.oecd.org/investment/investment-policy/FDI-Qualities-Policy-Toolkit-Consultation-Paper-2021.pdf.
Other instruments such as the TVET Support Fund provide targeted training to job seekers and vulnerable groups of workers. If well implemented, programmes by the fund could help mitigate the adverse impacts of FDI on low-productivity competitors by retraining, among others, displaced workers. A recent impact evaluation of one programme supported by the fund recommended to clarify ex-ante the objectives of the trainings and to develop and apply result-oriented M&E systems (Ministry of Labour, 2019[52]). Evidence from other countries shows that retraining programmes in transferable and certifiable skills can facilitate labour mobility – which tends to be low in Jordan – and help workers move to better jobs (OECD, 2021[15]).
Overall, the design of training programmes in Jordan could benefit from a more evidence‑based, demand-driven approach and greater private sector involvment (ILO, 2017[53]). To support this objective, the government should establish comprehensive labour market information systems and reinforce its capacity to run skills needs assessments. Some initiatives exist or are in development but they are scattered across several institutions, including the NCHRD (Al-Manar project), the SSCs or the newly established MoL’s labour market information observatory. This has reduced the ability of decision-makers – but also donors and the private sector – to develop evidence‑based skills training programmes. Collecting information on foreign firms’ operations and skills needs will also help the government developing adequate training programmes as FDI is a forward-looking indicator of what jobs and skills will be in demand in the future. Involving the investment community, including MoI and the foreign firms, in such foresight exercises could help reduce the gap between the information produced and the skills needs driven by FDI.
Information and facilitations services provided respectively to investors and job seekers should be strengthened and complement each others
Information and facilitation services provided by MoI and public employment offices (PEOs) of the MoL can help address information failures that prevent FDI from realising its labour market potential. On the investment promotion and facilitation side, and in coherence with existing strategies, MoI could further promote sectors or activities in alignment with the existing skills base and provide appropriate information to investors on labour market characteristics, including in different regions of Jordan. Through its Investment Window, MoI accompanies investors in getting relevant work permits and authorisations such as foreign workers’ permits. The ministry could further ensure that up to date material on labour regulations, skills support programmes and different employment incentives are visible and easily accessible online.
MoI could provide more targeted facilitation and aftercare services, such as connecting existing investors with local suppliers with high labour standards. The Jordanian NCP – hosted by MoI – should be play a leading role in disseminating guidance on RBC and due diligence to investors but it has been largely inactive (Box 3.4). Compliance with labour standards increases suppliers’ prospects to engage with foreign buyers that run due diligence checks to assess RBC risks in their supply chain. Only few initiatives in Jordan aim at raising awareness about labour standards and helping companies disclose their compliance with them. Better Work Jordan, an initiative implemented by the ILO and IFC in co‑operation with the MoL, established a transparency portal disclosing the compliance of apparel factories with key labour standards. Another relevant initiative is ASE’s 2018 “Guidance on Sustainability Reporting” that encourages listed companies to disclose their ESG performance, but information available online is still limited.
PEOs aim at reducing search costs for job seekers and employers and, thus, improve labour mobility. They are located in the different governorates of Jordan and provide career guidance and counselling, support the professional growth of job seekers and facilitate employers’ access to the right candidates. They do not provide skills certifications to job seekers. As FDI often creates more jobs in urban areas, POEs could further help nearby communities – programmes providing information about job opportunities in a different location or subsidising job search by covering transportation costs has been found to be effective (OECD, 2021[15]). In practice, only a small number of job seekers and employers in Jordan use POE services. The MoL is currently working on increasing the outreach of PEO and improving their capacity to enhance the relevance of services provided to employers (Ministry of Labour, 2021[54]). It is also essential to better connect job search services to other employment services such as training programmes, as ALPMs have a stronger impact when services are offered to job seekers in an integrated manner.
References
[9] Adalet McGowan, M. and D. Andrews (2015), “Labour Market Mismatch and Labour Productivity: Evidence from PIAAC Data”, OECD Economics Department Working Papers, No. 1209, OECD Publishing, Paris, https://doi.org/10.1787/5js1pzx1r2kb-en.
[47] Al-Ajlouni, L. (2021), , Overcoming unemployment in Jordan: The need for evidence-based policies, https://www.mei.edu/publications/overcoming-unemployment-jordan-need-evidence-based-policies.
[8] Al-Manar Project (2021), The Human Resources Information database, The National Center for Human Resources Development.
[48] Al-Manar Project (2018), The gap between labour supply and demand in the ICT sector, http://www.nchrd.gov.jo/assets/PDF/Studies/Sectoral/Gap_Study_IT_Ar.pdf.
[25] Alshyab, N., S. Sandri and Z. Abu-Lila (2018), Skills mismatch and returns to education in Jordan, EMNES Working Paper No 12.
[23] Amman Stock Exchange (2018), Guidance on Sustainability Reporting.
[39] Angel-Urdinola, D. and A. Kuddo (2010), Key Characteristics of Employment Regulation in the Middle East and North Africa, World Bank, https://doi.org/10.1596/27712.
[3] Assaad, R. and C. Salemi (2019), “The Structure of Employment and Job Creation in Jordan, 2010–2016”, in The Jordanian Labor Market, Oxford University Press, https://doi.org/10.1093/oso/9780198846079.003.0002.
[4] Assad, R. and G. Barsoum (2019), “Public employment in the Middle East and North Africa”, IZA World of Labor, https://doi.org/10.15185/izawol.463.
[18] Azmeh, S. (2014), “Labour in global production networks: Workers in the qualifying industrial zones (QIZs) of Egypt and Jordan”, Global Networks, Vol. 14/4, pp. 495-513, https://doi.org/10.1111/glob.12047.
[50] Bown, C. and C. Freund (2019), “Active Labor Market Policies: Lessons from Other Countries for the United States”, SSRN Electronic Journal, https://doi.org/10.2139/ssrn.3324615.
[43] Center for Global Workers’ Rights (2021), Labour Rights Indicators, http://labour-rights-indicators.la.psu.edu/.
[45] Criscuolo, C. et al. (2020), “Workforce composition, productivity and pay: the role of firms in wage inequality”, OECD Economics Department Working Papers, No. 1603, OECD Publishing, Paris, https://doi.org/10.1787/52ab4e26-en.
[42] Danish Trade Union Development Agency and Confederation of Danish Industry (2020), Labour Market Report Jordan - 2020, https://www.ulandssekretariatet.dk/wp-content/uploads/2020/09/LMP-Jordan-2020-final-version.pdf.
[29] Davies, R., M. Lamla and M. Schiffbauer (2016), Learning or Leaning: Persistent and Transitory Growth Spillovers from FDI, World Bank, Washington, DC, https://doi.org/10.1596/1813-9450-7591.
[11] EBRD/EIB/WBG (2016), What’s Holding Back the Private Sector in MENA?, World Bank, Washington, DC, https://doi.org/10.1596/24738.
[21] Hausmann, R. et al. (2020), A Roadmap for Investment Promotion and Export Diversification: The Case for Jordan, Working Paper Series 2019.374, Harvard University, Cambridge, MA.
[26] Hijzen, A. et al. (2013), “Foreign-owned firms around the world: A comparative analysis of wages and employment at the micro-level”, European Economic Review, Vol. 60, pp. 170-188, https://doi.org/10.1016/j.euroecorev.2013.02.001.
[16] ILO (2022), The Impact of Trade and Investment Policies on Productive and Decent Work: METI Country Report for Jordan.
[2] ILO (2021), ILO Statistics.
[24] ILO (2020), Skills for Trade and Economic Diversification (STED) in the Garment & Leather Manufacturing Sector of Jordan.
[10] ILO (2019), Skills and jobs mismatches in low- and middle-income countries, ILO Publishing, https://www.ilo.org/skills/pubs/WCMS_726816/lang--en/index.htm.
[12] ILO (2019), State of Skills: Jordan, ILO Publishing, Geneva, https://www.ilo.org/wcmsp5/groups/public/---ed_emp/---ifp_skills/documents/genericdocument/wcms_754492.pdf.
[53] ILO (2017), Promoting youth employment and empowerment of young women in Jordan: An assessment of active labour, https://www.ilo.org/wcmsp5/groups/public/---ed_emp/documents/publication/wcms_598671.pdf.
[49] ILO/IFC (2019), Advancing Jordan’s Satellite Garment Factories, ILO Publishing, Geneva.
[38] Javorcik, B. and M. Spatareanu (2005), “Do Foreign Investors Care about Labor Market Regulations?”, Review of World Economics, Vol. 141/3, pp. 375-403, https://doi.org/10.1007/s10290-005-0035-7.
[54] Ministry of Labour (2021), Evaluation of the Capacities and Performance of Public Employment Offices in Jordan, Government of Jordan.
[19] Ministry of Labour (2019), Annual Report 2019, Government of Jordan.
[52] Ministry of Labour (2019), Impact evaluation: expansion of training and employment programme, Employment Promotion Programme, http://www.mol.gov.jo/ebv4.0/root_storage/ar/eb_list_page/impact_evaluation.pdf.
[37] Ministry of Planning and International Co-operation (2019), Turning the Corner: Jordan’s Path to Growth, Government of Jordan.
[35] Mistura, F. and C. Roulet (2019), “The determinants of Foreign Direct Investment: Do statutory restrictions matter?”, OECD Working Papers on International Investment, No. 2019/01, OECD Publishing, Paris, https://doi.org/10.1787/641507ce-en.
[34] Moran, T., E. Graham and M. Blomström (2005), Does Foreign Direct Investment Promote Development?, Institute for International Economics.
[6] Morsy, H. (2017), Growth without change: MENA needs structural transformation.
[30] OECD (2021), FDI Qualities Mapping of Policies and Institutions in Jordan.
[15] OECD (2021), FDI Qualities Policy Toolkit: Polices for improving the sustainable development, https://www.oecd.org/investment/investment-policy/FDI-Qualities-Policy-Toolkit-Consultation-Paper-2021.pdf.
[1] OECD (2021), Middle East and North Africa Investment Policy Perspectives, OECD Publishing, Paris, https://doi.org/10.1787/6d84ee94-en.
[41] OECD (2021), OECD Investment Policy Reviews: Thailand, OECD Investment Policy Reviews, OECD Publishing, Paris, https://doi.org/10.1787/c4eeee1c-en.
[27] OECD (2020), Investment and sustainable development: Between risk of collapse and opportunity to build back better, Discussion paper for the joint IC-DAC session at the 2020 Roundtable on Investment and Sustainable Development, OECD, Paris.
[17] OECD (2020), OECD Investment Policy Reviews: Egypt 2020, OECD Investment Policy Reviews, OECD Publishing, Paris, https://doi.org/10.1787/9f9c589a-en.
[13] OECD (2019), FDI Qualities Indicators: Measuring the sustainable development impacts of investment, https://www.oecd.org/investment/FDI-Qualities-Indicators-Measuring-Sustainable-Development-Impacts.pdf.
[32] OECD (2019), Mapping of Investment Promotion Agencies: Middle East and North Africa - OECD, OECD, Paris, https://www.oecd.org/investment/investment-policy/mapping-of-investment-promotion-agencies-med.htm (accessed on 27 February 2021).
[44] OECD (2019), Negotiating Our Way Up: Collective Bargaining in a Changing World of Work, OECD Publishing, Paris, https://doi.org/10.1787/1fd2da34-en.
[33] OECD (ed.) (2018), Enhancing the legal framework for sustainable investment: Lessons from Jordan, OECD, https://www.oecd.org/mena/competitiveness/Enhancing-the-Legal-Framework-for-Sustainable-Investment-Lessons-from-Jordan.pdf.
[5] OECD (2018), Youth Well-being Policy Review of Jordan, https://www.oecd.org/dev/inclusivesocietiesanddevelopment/Youth_well_being_policy_review_Jordan.pdf.
[20] OECD (2016), OECD Clean Energy Investment Policy Review of Jordan, Green Finance and Investment, OECD Publishing, Paris, https://doi.org/10.1787/9789264266551-en.
[14] OECD (2013), OECD Investment Policy Reviews: Jordan 2013, OECD Investment Policy Reviews, OECD Publishing, Paris, https://doi.org/10.1787/9789264202276-en.
[31] OECD (2011), OECD Guidelines for Multinational Enterprises, 2011 Edition, OECD Publishing, Paris, https://doi.org/10.1787/9789264115415-en.
[46] OECD (2008), OECD Employment Outlook 2008, OECD Publishing, Paris, https://doi.org/10.1787/empl_outlook-2008-en.
[22] OECD (forthcoming), Private Dialogue on the ICT sector in Jordan.
[51] Rodrik, D. and S. Stantcheva (2021), “Fixing capitalism’s good jobs problem”, Oxford Review of Economic Policy, Vol. 37/4, pp. 824-837, https://doi.org/10.1093/oxrep/grab024.
[28] Sahnoun, H. et al. (2014), Jobs or Privileges: Unleashing the Employment Potential of the Middle East and North Africa, The World Bank, https://doi.org/10.1596/978-1-4648-0405-2.
[36] Steenbergen, V. and G. Tran (2020), “The Distributional Effects of FDI: Evidence from Ethiopia, Vietnam, and Turkey”, in Global Investment Competitiveness Report 2019/2020: Rebuilding Investor Confidence in Times of Uncertainty, The World Bank, https://doi.org/10.1596/978-1-4648-1536-2_ch3.
[7] World Bank (2016), Hashemite Kingdom of Jordan Promoting Poverty Reduction and Shared Prosperity, World Bank, Washington, DC, https://doi.org/10.1596/23956.
[40] World Bank (2016), Investment Motivation Survey of Jordan, World Bank Group, Washington D.C.