SOCIAL PROTECTION & JOBS DISCUSSION PAPER No. 2205 | APRIL 2022 Enhancing Workers’ Protection in Jordan Friederike Rother, Carole Chartouni, Javier Sanchez-Reaza, Gustavo Paez Salamanca, Belal Fallah © 2022 International Bank for Reconstruction and Development/The World Bank. 1818 H Street NW, Washington, DC 20433, USA. Telephone: 202–473–1000; Internet: www.worldbank.org. Some rights reserved This work is a product of the staff of The World Bank with external contributions. The findings, interpretations, and con- clusions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. 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The risk of claims resulting from such infringe- ment rests solely with you. If you wish to re-use a component of the work, it is your responsibility to determine whether permission is needed for that re-use and to obtain permission from the copyright owner. Examples of components can include, but are not limited to, tables, figures, or images. All queries on rights and licenses should be addressed to World Bank Publications, The World Bank Group, 1818 H Street NW, Washington, DC 20433, USA; fax: 202–522–2625; e-mail: pubrights@ worldbank.org. Abstract This paper exploits a rich database to provide comprehensive profiling of informality in Jordan, including who informal workers are, their characteristics, and where they work, as well as providing policy recommendations to address informality. The structural framework developed through the comprehensive profiling is followed by an analysis of why workers are informal, using inferential multivariate analysis. Statistical techniques (that is, cluster analysis) are used to group workers by similar characteristics (including education, gender, income, and form of employment) to allow policy makers to pinpoint specific policy tools that can target each group. The paper offers long term policy solutions to address informality, including fostering competition to boost productivity and providing a level playing field. It also proposes short- and medium-term policy options to protect workers against shocks until more productive jobs are created, for instance through the provision of short-term benefits through defined contribution schemes. Heterogeneity is addressed by tailoring policy instruments to clusters of workers. JEL Codes: J46, E24, E26, J48, J21, J24, J31, J64, J23 Keywords: Informal Labor Market, Labor Productivity, Human Capital, Labor Market Policy, Structure of Labor Force, Social Security Contents Acknowledgements...............................................................................................................................................vi Acronyms.................................................................................................................................................................. vii Executive Summary................................................................................................................................................ix 1 Introduction ................................................................................................................ 1 2 Profiling Informality: Who are the Informal Workers?..................................... 5 Jordanians employed in the private sector........................................................................................ 8 Non-Jordanians employed in the private sector...........................................................................20 Clusters of informal workers ................................................................................................................. 21 3 Policy Recommendations for Extending Social Protection Coverage......... 30 Long-term solutions.................................................................................................................................. 30 Short-term and medium-term solutions.......................................................................................... 34 4 The Way Forward..................................................................................................... 45 References......................................................................................................................... 47 Annexes..............................................................................................................................49 Annex A: Data and methodology........................................................................................................49 Annex B: Public versus private sector preferences.......................................................................50 Annex C: Statistical profiling of informality.................................................................................... 52 Annex D: Photo credits.............................................................................................................................81 iii iv ENHANCING WORKERS’ PROTECTION IN JORDAN Boxes 1.. Flexicurity in Denmark.......................................................................................................................................................40 Figures 1.. Coverage rates worldwide, 1990s vs 2010s (%)..........................................................................................................3 2.. Growth decomposition for Jordan (%).........................................................................................................................4 3.. Employment type, Jordan and comparator countries..........................................................................................6 4.. Informality by place of work, 2018 (%)........................................................................................................................13 5.. Contribution densities by age........................................................................................................................................ 18 C.1.. Dendrogram for male Jordanian workers................................................................................................................. 55 C.2.. Informality clusters among employed Jordanian males.....................................................................................57 C.3.. Informality clusters among employed Jordanian males by education........................................................57 C.4.. Informality clusters among employed Jordanian males by age groups..................................................... 58 C.5.. Informality clusters among employed Jordanian males by occupation.................................................... 58 C.6. Informality clusters among employed Jordanian males by economic sector........................................ 59 C.7.. Informality clusters among employed Jordanian males by governorate.................................................. 59 C.8.. Informality clusters among employed Jordanian males by firm size..........................................................60 C.9.. Informality clusters among employed Jordanian males by firm registration..........................................60 C.10.. Informality clusters among employed Jordanian males by salary deciles................................................. 61 C.11.. Informality clusters among employed Jordanian males by workplace....................................................... 61 C.12.. Informality clusters among employed Jordanian males by type of contract......................................... 62 C.13.. Informality clusters among employed Jordanian males by working hours.............................................. 62 C.14.. Informality clusters among employed Jordanian females.................................................................................63 C.15.. Informality clusters among employed Jordanian females by education...................................................63 C.16.. Informality clusters among employed Jordanian females by age groups................................................. 64 C.17.. Informality clusters among employed Jordanian females by occupation................................................ 64 C.18. Informality clusters among employed Jordanian females by economic sector.................................... 65 C.19.. Informality clusters among employed Jordanian females by governorate.............................................. 65 C.20.. Informality clusters among employed Jordanian females by firm size......................................................66 C.21. Informality clusters among employed Jordanian females by firm registration......................................66 C.22.. Informality clusters among employed Jordanian females by salary deciles............................................ 67 C.23.. Informality clusters among employed Jordanian females by workplace.................................................. 67 C.24.. Informality clusters among employed Jordanian females by contract......................................................68 C.25.. Informality clusters among employed Jordanian females by working hours..........................................68 C.26.. Informality clusters among self-employed/employer Jordanian males by education....................... 69 C.27.. Informality clusters among self-employed/employer Jordanian males by age..................................... 69 C.28.. Informality clusters among self-employed/employer Jordanian males by occupation.................... 70 C.29.. Informality clusters among self-employed/employer Jordanian males by economic sector......... 70 C.30.. Informality clusters among self-employed/employer Jordanian males by governorates.................. 71 C.31.. Informality clusters among self-employed/employer Jordanian males by firm size............................ 71 C.32.. Informality clusters among self-employed/employer Jordanian males by firm registration............72 C.33.. Informality clusters among self-employed/employer Jordanian males by workplace........................72 C.34.. Informality clusters among self-employed/employer Jordanian males by contract............................73 C.35.. Informality clusters among self-employed/employer Jordanian males by working groups.............73 C.36.. Informality clusters among employed non-Jordanian males...........................................................................74 C.37.. Informality clusters among employed non-Jordanian males by education..............................................74 C.38.. Informality clusters among employed non-Jordanian males by age............................................................75 C.39.. Informality clusters among employed non-Jordanian males by occupation...........................................75 C.40.. Informality clusters among employed non-Jordanian males by economic sector.............................. 76 C.41.. Informality clusters among employed non-Jordanian males by governorates...................................... 76 C.42.. Informality clusters among employed non-Jordanian males by firm size................................................ 77 C.43.. Informality clusters among employed non-Jordanian males by firm registration................................ 77 C.44.. Informality clusters among employed non-Jordanian males by salary deciles...................................... 78 C.45.. Informality clusters among employed non-Jordanian males by workplace............................................ 78 C.46.. Informality clusters among employed non-Jordanian males by contract................................................ 79 C.47. Informality clusters among employed non-Jordanian males by working hours.................................... 79 C.48.. Informality clusters among employed non-Jordanian males by working permit..................................80 C.49.. Informality clusters among employed non-Jordanian males by nationality...........................................80 Contents v Tables 1.. Informality rates (%)..............................................................................................................................................................2 2.. Composition of informal workers in the private sector, 2016 (%)...................................................................5 3.. Informality rates in the private sector by employment type, 2016 (%)........................................................6 4.. Informality by gender (%)...................................................................................................................................................8 5.. Informality by age and gender (%).................................................................................................................................9 6.. Informality by educational attainment (%).............................................................................................................. 10 7.. Formality rates by quintiles of parents’ educational attainments (%)......................................................... 10 8.. Informality’s distribution across wealth deciles (%)...............................................................................................11 9.. Informality rates by wealth deciles (%)........................................................................................................................11 10.. Informality by governorate of work (%).....................................................................................................................12 11.. Informality by firm registration (%)...............................................................................................................................12 12.. Informality by firm size (number of workers employed) (%)............................................................................13 14.. Informality by occupation (%)........................................................................................................................................ 14 13.. Informality by type of place of work (%).................................................................................................................. 14 15.. Informality by industry (%)................................................................................................................................................15 16.. Employment status in 2016 as a share of employment type in 2010 (%).....................................................17 17.. Informality distribution by type of work benefits (%)........................................................................................17 18.. Informality shares, 2010–16 (%)...................................................................................................................................... 20 19.. Distribution of non-Jordanian informal employment by immigration reason (%)................................ 20 20.. Informality status of non-Jordanians by nationality (%)......................................................................................21 21.. Clusters of informal waged Jordanian men employed in the private sector...........................................23 22.. Clusters of informal waged Jordanian women employed in the private sector................................... 25 23.. Clusters of informal Jordanian self-employed men or employers in the private sector.................. 27 24.. Clusters of informal waged non-Jordanian men employed in the private sector................................ 29 25.. Government policies in Jordan and areas of opportunity................................................................................33 26.. Policies by cluster of waged Jordanian men............................................................................................................35 27.. Policies by cluster of waged Jordanian women.................................................................................................... 36 28.. Policies by cluster of waged non-Jordanian men..................................................................................................37 B.1.. Determinants of employment preferences: public vs. private sector....................................................... 50 B.2.. Determinants of formality................................................................................................................................................51 C.1.. Sample size used for the clustering............................................................................................................................ 54 vi ENHANCING WORKERS’ PROTECTION IN JORDAN Acknowledgements This report was prepared by the World Bank In the process of drafting the core ideas, main Group’s (WBG) Middle East and North Africa messages, and policy options presented in the (MENA) Regional Social Protection Unit (HMNSP). report, the authors benefited to a great extent The report was drafted by Friederike Rother, Car- from the interaction with Jordan’s Social Security ole Chartouni, Javier Sanchez-Reaza, Gustavo Corporation (SSC). The authors would like to Paez Salamanca, and Belal Fallah with contribu- thank in particular Hazim Rahaleh, the Director tions from Montserrat Pallares-Miralles and Er- General of the SSC in Jordan. Similarly, the au- nesto Brodersohn. The report was prepared un- thors wish to express their gratitude to the Inter- der the general direction and ongoing support of national Labour Organization’s team for exchange Anush Bezhanyan (Practice Manager, HMNSP) and coordination including Luca Pallerano, Susan and under the overall guidance of Cristobal Razzaz, Meredith Byrne, Rana Al-Ansari, Sandra Ridao-Cano (Lead Economist). Alves Lopes Silva, and Jullnar Kurdi. The authors are particularly grateful to Khalid This report is part of the Pensions, SSN, Labor and Ahmed Ali Moheyddeen (Senior Social Protection HCP in MASHREQ (P171595) ASA. The authors Specialist, HMNSP) for the exchange of ideas and would like to thank the donors, The Dutch Gov- facilitating the engagement with the Govern- ernment’s PROSPECT partnership initiative for their ment of Jordan and other partner institutions, generous contribution to the overall work pro- as well as Saroj Kumar Jha (Mashreq Regional Di- gram on informality in Jordan, including this paper. rector, World Bank Group) and Holly Welborn Benner (Resident Representative, MNCJO) for The authors would like to thank Maroun Bedran overall guidance and their continuous support and Michael Alwan for all their efforts in editing for the dialogue with the Jordanian government this report. and key stakeholders in Jordan. The authors are also thankful for discussions and key contribu- Finally, the authors would like to thank the re- tions from Rada Nawwaf Nafe Naji (Social Pro- viewers, Michael Weber, Senior Economist at the tection Specialist, HMSP) and Meriem Ait Ali Shi- World Bank and Gustavo Demarco, Lead Econo- mane (Senior Private Sector Specialist). mist and Global Lead for Pensions and Social In- surance at the World Bank for their review, com- ments, and guidance. Acronyms vii Acronyms CART Classification and Regression Tree DS Department of Statistics, Government of Jordan GOJ Government of Jordan HIES Household Income and Expenditure Survey ILO International Labour Organization JD Jordanian Dinar JLMPS Jordan Labor Market Panel Survey LFS Labor Force Survey MENA Middle East and North Africa OECD Organisation for Economic Co-operation and Development SME Small and Medium-Sized Enterprises SSC Social Security Corporation SSL Social Security Law TVET Technical and Vocational Education and Training TVSDC Technical Vocational and Skills Development Commission VSS Voluntary Savings Scheme Executive Summary Jordan’s high levels of job informality,1 which weigh on social and economic development, mean that almost half of the total workforce, and 90 percent of non-Jordanian workers, are not covered by social security programs. These workers are left with no access to pensions and unemployment insurance. The COVID-19 pandemic has made this already bad picture worse, with informal work- ers suffering disproportionally from the impact of the pandemic. In the absence of any social protection, the adverse effects of job losses due to the COVID-19 pan- demic have pushed many of them into poverty. Understanding the complexity of the informal sector in Jordan is key to providing policy options to address their distinct needs. Informality is more common than previously thought: for example, it can be high for male Jordanians, those in permanent contracts, and in registered firms. Moreover, informality occurs even with relatively high incomes, more advanced educational achievement levels, and larger firm size. Contrary to public perception, available statistics show that most informal workers in Jordan are neither self-em- ployed (for example, street vendors) nor working irregularly as daily waged laborers. Instead, most informal workers are regular employees of registered enterprises who are paid monthly. Data shows that many common perceptions are problem- atic at best and sometimes just misleading, including claims or beliefs that informal- ity is concentrated among non-Jordanians, confined to micro-enterprises and non- registered firms. Prevalent mostly in the agriculture sector, this affects temporary rather than permanent workers, and translates directly into poverty. Rather, infor- mality is pervasive throughout Jordanian society and affects large numbers of workers in all sectors of the economy, and especially in urban areas. 1. In this paper, workers are considered informal if they are not covered by social security. This definition is used because the goal of the paper is to provide a foundation of policy recommendations that en- hance the protection of workers against various risks, such as old age, unemployment, or disability. Lack of access to social security or any alternative insurance mechanism exposes workers to such risks. ix x ENHANCING WORKERS’ PROTECTION IN JORDAN The Government of Jordan has taken some im‑ Extending Social Security Coverage in Jordan” portant steps in the right direction to address (Razzaz, Pellerano, and Byrne 2020). informality, for instance, the implementation of the code of conduct in the workplace. At the From a longer-term perspective, the paper same time, however, the government has faced also calls on Jordan’s authorities to implement deep-seated challenges in reaching out to the a strategy that aims at fostering productivity large workforce segment that works informally. and competition to generate better jobs with To this point, efforts by the government have ei- social protection. These better jobs should yield ther focused on measures to formalize busi- higher wages and thus greater disposable in- nesses, getting formal businesses to register come, which in turn will enhance workers’ pro- workers in the Social Security Corporation (SSC), tection against financial shocks. In addition, more or incentivizing self-employed workers to regis- productive workers and thus firms can be ex- ter in the mandatory SSC programs. These mea- pected to result not only in higher salaries but sures are useful but cannot capture the complex- also in improved working conditions and social ity of the problem or the heterogeneity of the protection schemes, as competition for these workers involved. workers increases. This paper presents a clear mapping of situa‑ For the medium and shorter term, the paper tions of informality among the Jordanian lays out policies recommendations to improve workforce to establish an improved basis for government’s efforts to place workers in jobs targeted policy interventions. A variety of that can be formalized and to offer alternative panel and survey statistics improve our under- protection mechanisms for workers who are standing of informal workers, while inferential hard to formalize. Efforts to apply existing labor techniques enhance our understanding of the market regulations effectively should be in- factors that drive workers’ decisions to take on creased together with steps to strengthen incen- informal employment. Beyond these statistics, tives in policy frameworks to formalize. More- the report is novel in that it uses cluster analysis over, social protection should expand its to group informal workers according to similar voluntary component by systematically reach- demographic and labor market characteristics ing out to those in the workforce who are cur- such as age, gender, education, and type of con- rently not offered social protection. To that tract. These clusters are especially helpful in de- end, a Voluntary Savings Scheme (VSS) is pro- signing tailored policy responses for the most posed, which complements the existing manda- significant segments of the population of infor- tory social security programs. A companion pa- mal workers in Jordan that respond as precisely as per titled “Voluntary Savings Schemes to possible to their respective needs. The World Protect Informal Workers in Jordan” (Rother et Bank’s cluster approach of identifying informal al. 2022) provides details on how such a volun- workers by specific characteristics builds on this tary scheme can work, making use of the statisti- insight and complements findings from the re- cal cluster analysis developed in this paper to cently published International Labour Organiza- propose alternative packages to different types tion (ILO) report titled “Opportunities for of informal workers. 1 Introduction Job informality is widespread in Jordan: almost half of the workforce (and 90 percent of non-Jordanian workers) are not covered by social security programs like pensions and unemployment insurance. The lack of social protection has exposed the informal workforce to the economic impact of the COVID-19 pan- demic in a disproportionate way—many informal workers and their families have been pushed into poverty. This situation calls for urgent policy measures to expand social protection into the informal sector, aimed at strengthening Jordan’s sources of growth and mitigating economic and social hardship. What is informality? Informality is a heterogeneous concept, encompassing many situations and therefore entailing many definitions. Informality can, for example, refer to firms, such as unregistered firms or street vendors (Gatti et al. 2012), but it can also denote the employment situation of workers. According to the ILO, employees are consid- ered to have informal jobs if “their employment relationship is, in law or in practice, not subject to national labor legislation, income taxation, social protection or en- titlement to certain employment benefits (advance notice of dismissal, severance pay, paid annual or sick leave, etc.).”2 Informality can also include untaxed activities. 2. ILO further states that informality may result from the nondeclaration of the jobs or the employees; casual jobs or jobs of a short duration; jobs with hours of work or wages below a specified threshold (for example, for social security contributions); or lack of application of law and regulation in practice. In the case of own-account workers and employers, the informal employment status of the job is de- termined by the informal sector nature of the enterprise. Employers (with hired workers) and own-ac- count workers (without hired workers) are considered to be informal when their economic units belong to the informal sector. All contributing family workers are classified as having informal employment, ir- respective of whether they work in formal or informal sector enterprises (ILOSTAT 2021). 1 2 ENHANCING WORKERS’ PROTECTION IN JORDAN For the purposes of this paper, workers are con- and, consequently, on the economy’s public sidered informal if they are not covered by social spending multipliers. Furthermore, Bobba et al. security. This definition is used because the goal (2019) show that human capital accumulated of the paper is to provide a foundation of policy through on-the-job learning is responsible for recommendations that enhance the protection over half of productivity increases, but its accumu- of workers against various risks, such as old age, lation is faster among those working formally. unemployment, or disability. Lack of access to Therefore, for efficiency reasons (that is, the effi- social security or any alternative insurance mech- ciency gains achieved through investment and pro- anism exposes workers to such risks. ductivity and resulting in growth), addressing infor- mality is a crucial aspect of a growing economy. The rationale for addressing informality Informality in Jordan Formal employment offers workers the bene‑ As in other countries in the Middle East and fits of reducing risks to potential shocks in the North Africa (MENA) region, informality in Jor‑ labor market. Formal employment is the vehicle dan’s labor market has proven to be an obsta‑ to offer workers the opportunity to earn income, cle to social and economic development and be protected against health shocks, and contrib- remains prevalent among workers, with nearly ute to their retirement. Additionally, social pro- half of all workers not contributing to social tection systems often include social assistance security. Around 52 percent of all workers and 72 and insurance elements that protect workers percent of those in the private sector were not against income shocks stemming from an inabil- contributing to social security in 2018 (Table 1). Jor- ity to work (OECD 2019). Arguments for lowering dan has thus made limited progress in expanding informality have included the prevention/ame- social security coverage despite policy efforts. lioration of poverty, the protection of individuals from the most severe effects of economic shocks, TABLE 1.  Informality rates (%) and smoothing patterns of consumption. LFS JLMPS 2018 2016 Informality also serves as a brake on the eco‑ Overall 52 58 nomic development of the national economy, Private sector 72 75 by limiting savings and, thus, the pool of avail‑ able funds for investment in the country. Social All sectors—Jordanians 33 43 protection systems are a stable source of pen- Private sector—Jordanians 55 61 sion contributions, representing savings to sus- All sectors—non-Jordanians 93 92 tain macroeconomic fundamentals and serving Private sector—non-Jordanians 94 93 as a crucial source of national savings; the latter All sectors—waged employees 46 53 represents the main financing source for domes- Private sector—waged employees 68 70 tic investment (Alvarez and Ruane 2019). In con- trast, informality introduces a distortion in factor Source: DS (2018) Labor Force Survey 2018, and DS (2016) Jordan Labor Market Panel Survey 2016. prices that leads to misallocation of resources in Note: The Labor Force Survey (LFS) data shows informality favor of less-productive firms, thereby lowering only for waged employees. As such, informality rates for non- waged employees were retrieved from the Jordan Labor aggregate gains (Hsieh and Klenow 2009). Lower Market Panel Survey (JLMPS) data and applied to LFS data to estimate the overall informality rates. formality rates also impinge on fiscal revenue Introduction 3 FIGURE 1.  Coverage rates worldwide, 1990s vs 2010s (%) 100 90 Uruguay 80 Trinidad &Tobago Coverage rates in mid-2010s 70 Turkey 60 Brazil 50 Malaysia 40 Morocco Colombia 30 20 10 0 0 10 20 30 40 50 60 70 80 90 100 Coverage rates in mid-1990s Sources: World Bank (2018), World Bank’s Pension Database. This is no different than other countries. World- informality, as the contribution of productivity wide, coverage rates have hardly changed since to growth continues to plummet. Between 2012 the 1990s; a few countries have slightly increased and 2018, only demographic change positively coverage, while others have even seen a reduc- contributed to economic growth (Figure 2). Since tion in coverage rates (Figure 1). 2012, economic growth has stemmed from a grow- ing population—thanks in part to the influx of To effectively address informality, a long-term foreign workers—rather than productivity gains.3 solution of creating more productive and re‑ munerative jobs is needed. Globally, informality In the short and medium term and until more is generally associated with lower productivity productive jobs are created, many workers re‑ (World Bank 2012). In the case of Jordan, Winkler main without any social protection, lacking ac‑ cess to social assistance and social insurance and Gonzalez (2019) found that employment is programs. Informality can be the symptom of shifting from high- to low-productivity sectors low productivity or also the cause (World Bank with high levels of informality, which leads to a 2012). While a long-run approach to solving misallocation of resources in the economy. One reason that informality is high is the large share of 3. Since productivity growth, as well as changes in the em- low-productivity jobs in the economy; low- ployment and labor force participation rates, have contrib- skilled workers who desire benefits coverage of- uted negatively to growth, the overall economic perfor- mance has suffered. Productivity’s waning contribution to ten lack the opportunities afforded to high- growth in recent years is linked to an increase in workers, skilled workers, in particular the potential for which acts as a disincentive to invest in capital, rendering pro- duction processes intensive in the use of labor. Thus, what- employment. The Jordanian economy continues ever the economy gains in population growth due to the in- to produce low-skilled jobs amenable to flux of workers is more than lost in productivity. 4 ENHANCING WORKERS’ PROTECTION IN JORDAN FIGURE 2.  Growth decomposition for Jordan (%) 2000–18 Productivity Employment rate Total = 0.7% Participation rate Demographic change 2012–18 Total = −0.9% 2002–12 Total = 1% 2000–02 Total = 4.6% −2 −1 0 1 2 3 4 5 Yearly contribution to growth (%) Sources: World Bank (2021) Job Structures Tool. informality requires productivity growth, social The focus of the paper protection can’t and shouldn’t wait solely for long-run solutions. Therefore, there is a need in The focus of this paper is to provide compre‑ the short to medium term to protect workers hensive profiling of informality in Jordan, in‑ who remain vulnerable against shocks and cover cluding who informal workers are, their char‑ them against all types of risks. acteristics, and where they work, as well as providing policy recommendations to address However, the analysis presented in this paper informality. The structural framework devel- demonstrates that there is no single interven‑ oped through the comprehensive profiling is fol- tion that can improve protection as informal lowed by an analysis of why workers are informal, workers are heterogeneous. Informal workers using inferential multivariate analysis. Statistical differ in their demographic and socioeconomic techniques (that is, cluster analysis) are used to characteristics, which may determine their infor- group workers by similar characteristics (includ- mality status. They may be unable to access for- ing education, gender, wealth, and form of em- mal jobs, perhaps due to lack of education, and ployment) to allow policy makers to pinpoint thus resort to informality, or may choose to be specific policy tools that can target each group. informal to prolong their time in work, such as The paper will also offer policy recommenda- early retirees who do not wish to exit the labor tions to address short-, medium-, and long-term market. Some workers are informal even though, challenges, including fostering competition and legally, they are subject to social security regula- providing a level playing field, ensuring regulation tions. Informal workers may also be in irregular is effectively applied, and providing incentives to jobs or self-employed, where it is only voluntary formalize. Heterogeneity is also addressed by tai- to register with social security.4 Therefore, it is loring policy instruments to clusters of workers. important to comprehensively profile informal For clarity purposes, the main sections of this workers and propose targeted interventions that paper contain only the results of the statistical would improve protection for each group. procedures that have been performed to sup- port the different policy recommendations. Nev- 4. New bylaws recently passed and implemented in 2021 ertheless, Annex A presents a detailed explana- would require mandatory registration in social security for the self-employed and temporary employees with an option tion regarding the data sources that have been of reduced contribution rates. These new laws would apply used as well as the different step-by-step meth- to both Jordanians and non-Jordanians holding work permits. odologies presented in the paper. 2 Profiling Informality: Who are the Informal Workers? The majority of informal workers are waged employees and not the self-em‑ ployed, contrary to popular belief. Nearly three-fourths (72 percent) of informal workers in the private sector are waged employees (Table 2). The predominance of wage employment reflects the fact that almost all workers (97 percent of women and 83 percent of men) are waged employees, comparable to Israel’s levels (Figure 3). Employers and self-employed workers represent only 8 and 4 percent of total employment, respectively. However, informality rates among employers (nearly 85 percent) and self-employed workers (94 percent) are much higher than for waged employees, so that these two groups account for 27 percent of informal employ- ment (Tables 2 and 3).5 The structure of employment in Jordan is in striking contrast with other countries in a similar income group. Paid employment is much lower in TABLE 2.  Composition of informal workers in the private sector, 2016 (%) Non-Jordanians Jordanians All Waged employees 44.7 27.4 72.1 Employers 3.0 6.3 9.3 Self-employed 4.7 12.9 17.6 Unpaid family workers 0.0 0.4 0.4 Unpaid workers for others 0.5 0.1 0.6 Total 52.9 47.1 100.0 Source: DS (2016) Jordan Labor Market Panel Survey 2016. 5. LFS only addresses social security questions to paid employees. 5 6 ENHANCING WORKERS’ PROTECTION IN JORDAN TABLE 3.  Informality rates in the private sector by employment type, 2016 (%) Non-Jordanians Jordanians All Waged employees 85 50 56 Employers 86 85 85 Self-employed 98 94 94 Total 93 50 70 Source: DS (2016) Jordan Labor Market Panel Survey 2016. Note: The LFS data show informality only for waged employees. Morocco or Colombia and for male employment It is also often believed that informality is con‑ in Lebanon. Self-employment in Morocco is centrated among non-Jordanians, when in fact widely spread, particularly so among female almost half of informal workers are Jordanians. workers involved in unpaid family work. In Co- Informality rates for non-Jordanians in the private lombia, self-employment is much more common sector are indeed much higher than Jordanians, at (Figure 3). While the share of self-employment 93 percent. Nonetheless, Jordanians still repre- and employers in Jordan is comparable with the sent 47 percent of informal workers (Tables 2 Malaysian experience, formalization rates are and 3). The analysis, therefore, considers both higher in these groups in Malaysia. Jordanians and non-Jordanians, predominantly as waged employees. FIGURE 3.  Employment type, Jordan and comparator countries 100 90 % of female employment or 80 % of male employment 70 60 50 40 30 20 10 0 Female Male Female Male Female Male Female Male Female Male Female Male Jordan Morocco Israel Colombia Lebanon Malaysian (2018) (2018) (2018) (2018) (2018) (2018) Most recent value/year Paid employees Self-employed employers Jordan Self-employed unpaid family workers Other self-employed Source: World Bank (2020) JobStructures Tool. 8 ENHANCING WORKERS’ PROTECTION IN JORDAN TABLE 4. Informality by gender (%) Informality Contribution to Contribution to share informal employment total employment Men 48 91 82 Women 22 9 18 Source: DS (2018) Labor Force Survey Jordanians employed in the informality in greater proportion than women (Table 4). Regression analysis shows that control- private sector ling for individual characteristics, women are more likely to be more formal than men (Tables What are their demographic and B.1 and B.2 in Annex B). socioeconomic characteristics? Informality in the private sector reflects tradi‑ Young workers experience greater informality tional gender roles in Jordan’s labor markets, rates, especially among men, due to the lim‑ where few women are employed in the private ited job opportunities facing first-time job sector. Like in most MENA countries, the public seekers. Across all age groups, informality for sector in Jordan has traditionally employed the men is high: at least half of all workers in each age majority of women with jobs. The public sector cohort are informal. However, the highest infor- is associated with higher job security, a safer mality is prevalent among the youth, where 62 work environment, and better reconciliation percent of men are informal. Their contribution with family duties. It is also perceived to provide to informal and total employment is lower than higher salaries and benefits, particularly at the lo- their older peers at 25 and 19 percent, respec- cal level and for entry-level jobs (OECD 2019).6 tively, since many are still in education. The infor- About 90 percent of informal workers are men mality rate for men ages 25–49 is lower than that since women only represent 20 percent of paid of younger men at 46 percent but still considered employment in the private sector. Men also face relatively high, especially since they constitute 63 percent of male informal employment. Finally, in- formality rates for older men ages 50–64 are also 6. In Jordan, the fastest changes in women’s activities take place between the ages of 21 and 24. Around this stage of the relatively high at 43 percent. This fact may be due to life cycle, 45 percent of women leave school, 30 percent en- older cohorts continuing to work in the informal ter the labor market, and 19 percent get married. Of those sector after an early retirement from a formal job. who enter the labor market, less than half find a job (12 per- cent of all women). Employment rates of women peak at age However, this older age cohort only accounts for 27, reaching 21 percent of the female population, and remain 12 percent of male informal employment (Table 5). relatively stable afterward. Participation rates peak at age 24 and slowly decline every year thereafter. Profiling Informality: Who are the Informal Workers? 9 TABLE 5.  Informality by age and gender (%) Contribution to Contribution to Informality share informal employment total employment 15–24 56 24 19 25–49 41 64 68 50–64 41 11 12 64+ 41 1 1 Total 100 100 Men 15–24 62 25 19 25–49 46 63 67 50–64 43 12 13 64+ 40 1 1 Total 100 100 Women 15–24 26 21 17 25–49 21 73 77 50–64 23 6 6 64+ 0 0 0 Total 100 100 Source: DS (2018) Labor Force Survey. Informality decreases with education. Nearly the extent of parents’ education, with the lowest two-thirds of informal workers have, at most, pri- quintile being the least educated (Table 7). mary education, and the least educated experi- ence informality in greater proportions. Informal- Despite workers with tertiary education faring ity rates among illiterate workers, those who better in finding formal jobs, they are not ex‑ cannot read and write, and those with primary empt from working informally. One in every schooling stood at 61 percent in 2018 (Table 6). five workers with a college degree is employed With a secondary diploma, informality rates fell informally (Table 6). These high-skilled workers to 46 percent, albeit remaining high. When con- account for 18 percent of total informal employ- trolling for individuals’ characteristics, regression ment.8 Among women, those with tertiary edu- results show that the probability of working in a formal job increases if an individual attends 8. The fact that informality persists even among the highly educated may hint at the possibility that Jordan displays fea- school (Table B.2 in Annex B).7 While an individu- tures of an informality trap. As stated in the 2013 World De- al’s educational level seems to matter for infor- velopment Report, an informality trap reflects weak social mality, parents’ educational attainments do not contracts in which a growing middle class demands advanced public services, access to quality and higher education, health seem to be of significant importance. Formality care, and pensions. But poor governance leading to low-qual- rates are very similar across quintiles depicting ity physical and institutional infrastructure, as well as unnec- essary regulatory burdens, results in generalized frustration. In this state of affairs, society perceives taxes and public sector benefits as useless or unfair. Such frustrations beget fiscal and regulation avoidance and evasion. In this context, informal jobs 7. Regression analysis excludes those attending school. not only persist, but can even proliferate (World Bank 2012). 10 ENHANCING WORKERS’ PROTECTION IN JORDAN TABLE 6.  Informality by educational attainment (%) Contribution to informal Contribution to total Informality share employment employment Primary or lower 61 74 53 Secondary 46 8 8 Tertiary 20 18 39 Total 100 100 Men Primary or lower 62 77 60 Secondary 48 8 9 Tertiary 23 15 31 Total 100 100 Women Primary or lower 43 39 19 Secondary 36 8 5 Tertiary 15 53 76 Total 100 100 Source: DS (2018) Labor Force Survey. cation account for half of informal employment, TABLE 7.  Formality rates by quintiles of although they exhibit lower informality rates parents’ educational attainments (%) than their less-educated counterparts. This is in HES (Education) Jordanian part because 76 percent of private-sector em- 1 43.4 ployed women are highly educated (Table 6). 2 41.8 Conversely, women with low educational attain- ments tend to stay out of the labor force. 3 56.9 4 54.0 Finally, not all informal workers are poor. More 5 49.5 than half of informal workers belong to the Source: DS (2016) Jordan Labor Market Panel Survey 2016. wealthiest deciles9 (Table 8).10 This is because Note: The education level was estimated by performing a principal component analysis based on the maximum employment rates are highest in the wealthiest education level obtained by the father and by the mother. To transform the categorical variables, dummies were created in a households, while inactivity and unemployment cumulative fashion. For example, an individual with at least are higher in the poorer ones. These less poor secondary education will also be identified in the category of at least primary education. Finally, the first principal households are not eligible for social assistance component of this set of variables was chosen for the index. programs and are often described as the “missing middle” of households that are forgotten when discussing informality. That being said, informality 9. Wealth is a composite index made up of the household rates are much higher among poorer households, assets listed in the survey. These 22 variables are aggregated using principal components analysis, and then the first com- indicating that often informality may not be a ponent is taken as the index. choice (see the subsection below, “Why are they 10. The 2018 HIES also shows similar results, with higher house- hold wealth deciles exhibiting lower informality rates. informal?”). Informality rates for Jordanians increase Profiling Informality: Who are the Informal Workers? 11 TABLE 8.  Informality’s distribution across TABLE 9. Informality rates by wealth wealth deciles (%) deciles (%) Socioeconomic Socioeconomic decile Non-Jordanian Jordanian decile Non-Jordanian Jordanian 1 30.05 4.46 1 88.28 87.01 2 8.92 1.93 2 90.48 80.56 3 19.95 8.39 3 85.86 71.19 4 11.27 8.06 4 85.71 77.56 5 8.22 9.73 5 81.40 65.77 6 6.34 13.99 6 84.37 60.17 7 4.93 16.92 7 95.45 61.35 8 4.93 13.26 8 91.30 54.08 9 2.11 13.99 9 81.82 54.26 10 3.29 9.26 10 82.35 49.29 Source: DS (2016) Jordan Labor Market Panel Survey 2016. Source: DS (2016) Jordan Labor Market Panel Survey 2016. as wealth decreases, with 87 percent of workers in businesses will not solve the informality prob- the poorest deciles in informal work (Table 9). This lem.12 Registered businesses hire 86 percent of all is not the case, though, for non-Jordanians, where private-sector workers, 37 percent of whom are informality rates are high across all deciles. hired informally (Table 11). Even though the infor- mality rate among unregistered businesses is much higher at 88 percent, they only comprise 21 Where do they work? percent of informal employment since most Most informal workers are in urban areas. Up Jordan businesses seem to be registered. The re- to 84 percent of Jordanian private sector em- sults are based on workers’ knowledge of whether ployees work informally in the most populated the firm they work at is registered, and therefore, governorates: Amman, Irbid, and Zarqa. The re- a demand survey will be needed to verify these maining 16 percent of informal waged workers in results. That being said, JLMPS data also shows the private sector work in the rest of the country. similar results in terms of business registration. The highest informality rate is in Jarash; however, it only accounts for 2 percent of informal em- Most informality takes place in hard-to-moni‑ ployment (Table 10). The urban concentration of tor micro firms. Workers in micro firms make up informality makes policies targeting the three almost three-quarters of informal employment, most populated governorates an effective set of making it very difficult for the government to tools to significantly increase coverage. reach these firms and enforce formalization. Nearly 80 percent of workers employed in micro The bulk of informality takes place in formal firms (1–9 employees) are informal, accounting establishments. Almost three-quarters (73 per- for 72 percent of informal employment (Table 12). cent) of informal workers are employed in regis- tered businesses,11 so policies aimed at registering 12. The World Bank is also currently conducting a survey of informal businesses to shed light on labor demand con- 11. Registration in LFS data entails tax or commercial registration. straints to address informality. 12 ENHANCING WORKERS’ PROTECTION IN JORDAN TABLE 10. Informality by governorate of work (%) Contribution to national Contribution to total Share of informal paid private Governorate workers informal workers employment Amman 36 50 59 Balqa 56 5 4 Zarqa 52 14 11 Madaba 40 1 1 Irbid 64 20 14 Mafraq 56 3 2 Jarash 70 2 1 Ajloun 65 1 1 Karak 39 2 2 Tafileh 23 0 1 Maan 41 1 1 Aqaba 27 2 3 Total 100 100 Source: DS (2018) Labor Force Survey 2018. TABLE 11. Informality by firm registration (%) Firm Share of informal Contribution to total Contribution to national registration workers informal workers paid private employment Registered 37 73 86 Not registered 88 21 10 Do not know 68 6 4 Total 100 100 Source: DS (2018) Labor Force Survey 2018. Informality decreases with firm size, but it informal waged workers operate inside an establish- does not disappear. Firms with 10 to 19 employ- ment, such as an office, shop, or factory (Figure 4). ees still hire nearly one in three workers as infor- mal. Although informality is lower for firms with The most visible informal workers comprise 21 20 to 49 workers, it increases to 31 percent for percent of informal waged workers—street ven- firms with 50 to 99 employees. Even in large firms dors; individuals working in stands, bazaars, or at (100 employees and more), 6 percent of workers home; and workers in transport vehicles. They are informal (Table 12). For those larger firms that are, therefore, not the largest contributors to in- hire informally, an enforcement policy may be formality. Informal workers operating outside somewhat easier to implement. establishments may also be non-waged workers; however, own-account workers or employers Informal employment in Jordan is not as visible constitute 22 percent of Jordanian workers in the as in other countries. Two-thirds (66 percent) of private sector (Table 13). Profiling Informality: Who are the Informal Workers? 13 TABLE 12. Informality by firm size (number of workers employed) (%) Share of informal Contribution to total Contribution to national Size workers informal workers paid private employment Less than 10 78 72 43 10–19 28 7 12 20–49 15 4 12 50–99 31 15 23 100+ 6 1 10 Total 100 100 Source: DS (2018) Labor Force Survey 2018. FIGURE 4. Informality by place of work, 2018 (%) 100 90 Contribution to total informality (%) 80 70 Office 60 50 40 30 20 Transport Client's home 10 Construction Farm 0 0 10 20 30 40 50 60 70 80 90 100 Share of informal workers (%) Source: DS (2018) Labor Force Survey 2018. Note: Bubble size indicates share of total employment. Informal workers typically work in low-skilled of occupations comprise half of the Jordanian occupations, on par with their educational at‑ private sector paid employment. Higher-skilled tainment. Policies targeting informality in agri- occupations have lower informality rates, ranging culture rest on the perception that sector’s infor- from only 3 percent for managers to 22 percent mality rate is one of the highest. However, 75 for clerical occupations, accounting for just 14 percent of informal workers are employed as ei- percent of informal employment even though ther (i) sales and services workers,13 (ii) crafts and they represent 40 percent of total Jordanian paid related trades workers, or (iii) plant and machin- work in the private sector (Table 14). ery operators (DS 2018).14 These three categories Informality is mostly prevalent in industries 13. Around 61 percent of sales and service workers are in sales requiring low-skilled workers. One-fourth of alone. 14. Around 80 percent of plant and machine operators are Jordanian informal workers are employed in the drivers and mobile plant operators. wholesale, retail, and machinery repair industries, 14 ENHANCING WORKERS’ PROTECTION IN JORDAN TABLE 13. Informality by type of place of work (%) Informality Contribution to Contribution to total Type share informal employment employment At home 85 0.3 0.1 Structure attached to the home 99 0.2 0.1 At the client/employer home 92 6 3 At an office, shop, or factory 35 67 83 Fixed stall in the market/bazaar 76 2 1 Non-fixed stall/stand in market/bazaar 100 1 0.2 Street 76 3 2 Farm/agricultural plot 97 4 2 Transport vehicle 77 12 7 Construction site 79 6 3 Other 81 1 0.3 Total 100 100 Source: DS (2018) Labor Force Survey 2018. TABLE 14. Informality by occupation (%) Share of informal Contribution to total Contribution to national Occupation workers informal workers paid private employment Managers 2.89 0.01 0.18 Professionals 12.81 8.19 27.71 Associate professionals 19.91 3.09 6.75 Clerks 21.9 2.41 4.73 Sales and services workers 64.62 29.21 19.72 Agricultural 90.92 3.54 1.67 Craft and related trades workers 67.46 28.82 18.58 Plant and machine operators and assemblers 57.21 17.92 13.58 Elementary occupations 41.94 6.82 7.07 Total 100 100 Source: DS (2018) Labor Force Survey 2018. where the informality rate is around 60 percent. percent for agriculture). Transportation exhibits Construction and agriculture have very high in- high informality too but does not contribute formality rates. Still, they do not contribute much to informal or total paid employment, much to informal employment among Jordani- even though that industry employs mostly Jorda- ans, as most workers in that sector are non-Jor- nians. Industries where high-skilled workers are danians (66 percent for construction and 78 required have lower informality rates (Table 15). Profiling Informality: Who are the Informal Workers? 15 TABLE 15. Informality by industry (%) Share of informal Contribution to total Contribution to national Industry workers informal workers paid private employment Agriculture, forestry and fishing 90 4 2 Mining and quarrying 21 1 1 Manufacturing 36 15 19 Electricity, gas, steam and air conditioning 12 0.4 1 Water supply, sewerage and waste management 42 1 1 Construction 75 12 7 Wholesale and retail trade 63 31 21 Transportation and storage 60 14 10 Accommodation and food service activities 46 6 6 Information and communication 11 1 3 Financial and insurance activities 5 0.4 4 Professional, scientific and technical 30 0.3 0 Administrative and support service activities 19 2 5 Education 28 2 2 Human health and social work activities 14 3 9 Arts, entertainment, and recreation 20 2 4 Other service activities 40 0.5 1 Activities of households as employers 78 5 3 Total 100 100 Source: DS (2018) Labor Force Survey 2018. What type of workers are they? Similarly, only 16 percent of informal paid workers are employed temporarily (with fixed contract Contrary to the perception that informal work‑ duration), the rest being in permanent positions. ers are largely temporary workers, most infor‑ Temporary workers can be either regular or ir- mal workers in Jordan are employed in perma‑ regular workers.15 Around 12 percent of regular nent positions and are paid monthly wages. workers are in temporary contracts, 62 percent Around 13 percent of informal workers are paid of which are informal (DS 2016). daily, while 84 percent are paid monthly (DS 2018). 15. The 2014 Social Security Law (SSL) defines regular workers as those working 16 days or more in a given month, regardless of hours per day, or who are paid monthly, regardless of how many days the employee works (except for the first month of work, to which the principle of 16 days or more per month applies). However, the analysis uses the self-reported regular work variable in the JLMPS data. If the SSL definition of regular work is applied to the JLMPS data, 99.9 percent of workers would be regular. 16 ENHANCING WORKERS’ PROTECTION IN JORDAN Three-quarters of informal paid workers are which are in the process of being implemented, regular employees even though, by law, they will now mandate contributions irrespective of must be legally covered under social security.16 the regularity of work.20 However, as irregular Regular workers represent 87 percent of all paid workers represent a smaller share of private sector private-sector workers (DS 2016). Most of them employment, they are not the major informality are required to be covered by social security pro- source. Thus, even strong enforcement of the grams, including old age, disability, survivorship regulations would only slightly improve coverage. pensions, sickness, maternity leave, work injury, and unemployment. However, there is limited ef- Why are they informal? fective enforcement, as half of the regular work- ers are informal, 75 percent of whom are working Being informal may be a door out of unem‑ in registered businesses (DS 2016).17 ployment for many individuals, as formal jobs are hard to get. In Jordan, only 4 percent of those Irregular workers are less common in the pri‑ unemployed in 2010 managed to find a formal job vate sector, but they also face higher rates of in the private sector in 2016 (Table 16). Those who informality. Only 25 percent of informal workers obtained jobs were either able to find a public are irregular, and they represent only 13 percent sector job (24 percent) as governments try to ab- of the private sector’s total employment. Infor- sorb their unemployed or resorted to informal mality is widespread among irregular workers, as employment (22 percent). they are not subject to mandatory contributions to social security.18 Indeed, regression analysis Workers may find it difficult to access formal shows that being in irregular work increases the jobs due to limited opportunities for changing likelihood of being informal (Table B.2 in Annex employment type. Transitions out of informality B). To address the informality challenge, revisions are not common. More than four-fifths of all in- to the social security regulations in 2014 allowed formal workers in 2010 were either still working in irregular workers to sign up for voluntary contri- the informal sector, unemployed, or inactive in butions to old age and disability pensions,19 al- 2016. Only 18 percent of informal workers in 2010 ended up in the formal sector (in either public or though social insurance coverage only slightly private jobs) by the end of the same period. Work- increased for irregular workers. In 2016, only 12 ers with formal employment in 2010 were also percent of irregular workers became formal (ac- likely to remain in the same type of employment, cording to data in the JLMPS). The new bylaws, be unemployed, or be inactive. In the private 16. Social security contributions are currently 21.75 percent sector, 42 percent remained formally employed overall, but 17.5 percent of that goes to pensions. Employers in that sector by 2016. Finally, the public sector and workers contribute 14.25 and 7.5 percent of wages, re- spectively. A companion paper, “Voluntary Savings Schemes also remained the choice six years later for over to Protect Informal Workers in Jordan,” provides more details two-thirds of government employees (Table 16). on the social security regulations. 17. Based on the JLMPS sampling weight, there are 22,162 irregu- lar and informal workers employed in registered businesses. 20. In 2019, further efforts to expand coverage included cer- 18. According to Article 4 of the 2014 SSL, those who are ex- tain bylaws and amendments to current regulations of SSC. cluded from mandatory coverage (and voluntary if they are The new regulations include previously uncovered individuals non-Jordanians) include (i) individuals covered by the old civil and allow for partial coverage for long-term benefits (retire- and military pension schemes; (ii) non-Jordanians living in Jor- ment), depending on reduced rates of contributions chosen dan but employed by regional and international missions; and by individual workers. Implementation of the new bylaws is (iii) irregular workers. planned in stages. A companion paper, “Voluntary Savings 19. Workers voluntarily contribute 17.5 percent of monthly Schemes to Protect Informal Workers in Jordan,” provides earnings, where the minimum earnings are based on the na- more details on the new bylaws. tional monthly minimum wage. Profiling Informality: Who are the Informal Workers? 17 TABLE 16. Employment status in 2016 as a share of employment type in 2010 (%)   2010   Public Formal Informal sector private private Unemployed Inactive Public sector 68 12 6 24 5 Formal private 4 42 12 4 4 2016 Informal private 5 18 52 22 5 Unemployed 3 4 7 20 9 Inactive 20 25 24 29 77 Total 100 100 100 100 100 Source: DS (2016) Jordan Labor Market Panel Survey 2016. Job seekers may also find it hard to access for‑ also mostly men who face fewer social barriers in mal jobs in certain governorates due to their leaving the governorate they live in (DS 2018). limited geographic mobility. 21 Econometric analysis using LFS 2018 data shows that control- Access to formal jobs may be limited if firms ling for individual characteristics, workers who offer fewer formal jobs to reduce costs. Firms are willing to commute across governorates are may prefer to cut costs by not registering their more likely to be formal. However, according to workers in social security, even though they are the data, only 14 percent of Jordanian waged legally bound to do so. In addition to saving on workers live and work in different governorates, contribution rates, firms also save by offering with three-quarters of these workers specifically fewer benefits to these unregistered workers. A commuting to access formal jobs, especially in very small share of informal workers (1 to 6 per- Amman, where most jobs are created. As a result, cent) is entitled to health insurance and annual, most commuters are from Amman’s neighboring sick, and maternity leaves. On the other hand, 60 governorates, Zarqa and Balqa. Commuters are to 68 percent of formal workers are offered these benefits (Table 17). Firms may also evade 21. Data is not available for individuals who permanently move to another governorate, and as such, internal mobility paying informal workers the statutory monthly may be more prevalent than the data indicates. minimum wage of 220 Jordanian dinars (JD). TABLE 17. Informality distribution by type of work benefits (%)   Health insurance Paid vacation Paid sick leave Maternity/paternity Formal 58 67 66 44 Informal 1 5 6 1 Men Formal 60 68 66 43 Informal 1 4 5 1 Women Formal 53 64 67 47 Informal 2 10 11 3 Source: DS (2018) Labor Force Survey 2018. 18 ENHANCING WORKERS’ PROTECTION IN JORDAN The 2018 LFS shows that around 18 percent of in- informal sector. Indeed, formality rates for Jorda- formal Jordanians earn below the minimum wage. nians increase with the higher wealth deciles Finally, firms may more easily dismiss informal (Table 9 above). Informal workers are also more workers than formal ones, as labor regulations in likely to be underemployed (working less than 35 Jordan remain quite rigid.22 hours a week, JLMPS 2016). About 6 percent of informal workers are underemployed, while the Thus, for workers who have few opportunities corresponding share for formal workers is 3 per- to access formal jobs, informality may not be a cent. Underemployment is related to informality, choice but rather a necessary condition of em‑ but this is not the case for overemployment. In- ployment. In addition to receiving fewer bene- formal workers are not more likely to work more fits, these informal workers earn on average less than 34 hours per week than their formal coun- than their formal counterparts in the private sec- terparts (DS 2016).23 tor; econometric analysis, using hourly wage data from JLMPS 2016 and LFS 2018 data, shows that Informality may also be a choice for individuals formal workers in the private sector earn about who retire early and wish to complement their 14 percent more than their counterparts in the pension benefits with income from informal em‑ ployment. More than 60 percent of people retire 22. While Jordan undertook numerous regulatory reforms in before the legal retirement age (55 for woman and terms of business regulation between 2018/2019 and im- proving its Doing Business Index, the Labor Law is still quite 60 for men) (Figure 5). This is not surprising given rigid. The Labor Law prohibits abusive dismissals, stating that early retirement induces a relatively low penal- that “if a worker institutes judicial proceedings within sixty days of his dismissal, and a competent court finds the dis- ty.24 Some of the early retirees decide to reenter missal arbitrary and in violation of the provisions of this Law, the labor market and may choose to work infor- the employer may be ordered to reinstate the worker or pay mally to complement pension benefits.25 him damages.” However, Jordan’s law allows contract termi- nation for business reasons. In particular, an employer may terminate or suspend all or some contracts of employment 23. Due to the LFS’s small sample size for those underem- of indefinite duration if economic or technical conditions ployed, the paper relied on the JLMPS for this issue. were to require it, such as a reduction of workload, replace- 24. Penalties for early retirement were recently increased for ment of an old production system by a new one, or total new entrants in the labor market, although people are not stoppage of work, provided that the Ministry is duly noti- affected in the short term; also, these penalties are not yet fied. Notification of relevant authorities and approval of actuarially fair. redundancies are required. 25. Data is not available on the share of early retirees working informally. FIGURE 5. Contribution densities by age 60 50 Contribution densities (%) Contribution densities (%) 40 40 30 20 20 0 10 20 25 30 35 40 45 50 55 60 20 25 30 35 40 45 50 55 60 Age, female Age, male Source: SSC Administrative data (Forteza and Mussio 2013). Profiling Informality: Who are the Informal Workers? 19 20 ENHANCING WORKERS’ PROTECTION IN JORDAN Non-Jordanians employed in In the aftermath of the Arab Spring and the re- sulting conflict in Syria in 2011, Jordan welcomed the private sector a massive influx of refugees. Today, displaced The influx of refugees has led to a significant Syrians represent over 10 percent of the total Jor- increase in informality. Between 2010 and 2016, danian population, over 100,000 work permits for informality rose from 57 percent of private sec- Syrians issued by the Jordanian government since tor employment to 70 percent (Table 18). While 2016. Despite the sizable refugee population in Jordanian’s informality share remained virtually need of work, informality stemming from refu- unchanged (and fell to 43 percent in 2018, per the gees accounts for only one-third of informality LFS), the influx of refugees determined the in- among immigrants (Table 19). Instead, the major- crease in informality. In 2010, only 1 in 10 workers ity of informal work is carried out by economic was non-Jordanian; by 2016, 31 percent of workers migrants seizing the opportunity of better wages; were immigrants. Informality among non-Jordani- over 62 percent of informal immigrant workers ans increased from 85 percent in 2010 to 93 per- have come to Jordan in search of better job op- cent in 2016 (JLMPS) and 94 percent by 2018 (LFS portunities. Egyptians, typically economic mi- data not shown in Table 18). grants, represent 53 percent of all migrants in- volved in informal work, while refugees from Despite the relatively recent influx of Syrian Syria account for only one-third of migrants refugees, most informality observed among working informally (Table 20). non-Jordanians is due to economic migration. Most informal non-Jordanians are waged work‑ TABLE 18. Informality shares, 2010–16 (%) ers. Non-Jordanians are mostly employed in the private sector as waged workers. In 2018, the LFS 2010 2016 showed that 95 percent of immigrant workers Overall 33 53 were employed in the private sector and that 91 Private sector 57 70 percent were receiving a wage. In contrast, 59 Jordanian citizens—private sector 51 50 percent of Jordanians were private sector em- Immigrants—private sector 85 93 ployees, and 85 percent received a wage. Source: DS (2016) Jordan Labor Market Panel Survey 2016. TABLE 19. Distribution of non-Jordanian informal employment by immigration reason (%) Contribution to total Contribution to paid Reason for moving to Share of informal informal immigrant private immigrant Jordan workers workers employment Refugee 96 33.9 33 Job seeking 99 1.1 1 Work 94 62.7 63 Study 40 0.1 0.2 Companion 77 1.6 2 Other 85 0.4 1 Total 100 100 Source: DS (2018) Labor Force Survey 2018. Profiling Informality: Who are the Informal Workers? 21 TABLE 20. Informality status of non-Jordanians by nationality (%) Contribution to total Contribution to paid Share of informal informal immigrant private immigrant Nationality workers workers employment Egyptian 95 53 52 Syrian 97 34 33 Other 84 13 15 Total 94 100 100 Source: DS (2018) Labor Force Survey 2018. Most informal non-Jordanian employees are of issuance of 200,000 formal jobs for Syrians. Since low education and in low-skilled occupations. then, over 100,000 work permits have been is- While some non-Jordanians are skilled workers, sued to create formal jobs for Syrian refugees. most arrive with low educational attainment lev- The number of work permits issued is often used els. In 2018, fewer than one in five immigrant as an indicator of how successful efforts have workers had a tertiary education degree. Over 60 been in including Syrian workers in the labor mar- percent of non-Jordanian workers had less than ket. While the issuing of work permits can be secondary education completed, and over one in seen as an achievement, work permits do not four non-Jordanian workers had only elementary necessarily measure formal job creation. Around schooling or less. In contrast, over 41 percent of 79 percent of non-Jordanian workers have a work Jordanian workers had tertiary education de- permit but at the same time are informal. Thus, grees. Non-Jordanians are also concentrated in the issuance of work permits has little impact on low-skilled occupations, mainly in services and informality unless the other obstacles to infor- sales, crafts and related trade occupations, and in mality are addressed in a holistic way. elementary occupations. However, education or occupation does not Clusters of informal workers prevent informality among immigrants and refugees. Informality among non-Jordanians runs Cluster analysis can be used to help define tar‑ geted policies to promote formal work among across education levels and is high even among different groups of informal workers. The pre- those with high educational levels. Non-Jorda- nian workers with tertiary education, comparable vious analysis established the extent of hetero- to all other educational attainment levels, geneity of informal workers by socioeconomic showed high informality shares of 87 percent. characteristics, as well as by the location and Similarly, informality rates for non-Jordanians were type of firms they work in. This heterogeneity at least 91 percent, regardless of occupation. implies the need for differentiated policy inter- ventions that can be directed toward each Finally, the issuance of work permits does not group. The goal of cluster analysis26 is to define prevent informality. Work permits, issued by groups with similar characteristics. In this case, the government to regulate the employment of cluster analysis can be used to determine the ex- foreign workers, have been at the center of the istence of certain niches of informality in the policy debate on the Syrian refugee crisis in Jor- dan. In 2016, the Jordan compact pledged the 26. The step-by-step procedure of cluster analysis is detailed in Annex C. 22 ENHANCING WORKERS’ PROTECTION IN JORDAN labor market, where informal workers have simi- characterized them. Finally, the groups were la- lar characteristics. By identifying the main char- belled according to the probability of a worker acteristics of these niches, it is then possible to being informal in that group. To do so, a regres- design targeted policies that can respond to the sion tree was calibrated using the informal work- informality challenges of each cluster. ers and used to classify the formal workers. Then, by comparing the formal-to-informal ratio within Cluster analysis was performed separately on each group, labels were applied so that the first (1) men and women; (2) waged workers, self- cluster has the highest likelihood of informality, employed, and employers; and (3) Jordanians while the last cluster has the lowest.28 and non-Jordanians. These groups differ mark- edly from one another, are subject to different Six clusters of informal workers were identi‑ regulations and social realities, and should not be fied for each of the four groups above, mainly pooled together. LFS 2018 data was used to clus- based on their skill level and where they work. ter informal workers.27 Due to sample size limita- tions, the clustering could not be done on Jorda- Waged Jordanian men in the private nian women who are self-employed or employers, sector on non-Jordanian women, or on non-Jordanian self-employed men, as they comprise only 1.5 Table 21 below demonstrates clusters of informal percent, 1.8 percent, and 3.1 percent of the sam- waged Jordanian men employed in the private ple, respectively. Thus, clustering was performed sector. The clusters are described below. for four groups: (1) waged Jordanian men, (2) waged Jordanian women, (3) Jordanian men who Agricultural workers: Cluster 1A includes all the are self-employed or employers, and (4) waged agricultural workers with low education, working non-Jordanian men. in micro, small, and medium farms that are not registered, and earning the least income when The clustering methodology included four compared to other clusters. The average monthly steps: (1) identification of variables, (2) hierar‑ wage is JD 201, which is below the minimum wage. chical clustering, (3) characterization of the Cluster 1A is the hardest to formalize, as only 7 groups, and (4) estimation of the share of for‑ percent of individuals with similar characteristics mal workers with similar characteristics to in‑ are found to be formal. However, targeting clus- formal workers within each group. First, several ter 1A will not have a significant impact on infor- variables were selected based on their capacity mality among employed Jordanians as it is the to describe the demographic characteristics of smallest cluster, only comprising 4 percent of the the workers, their skills, the job characteristics, informal waged Jordanian men in the private sec- and the characteristics of the firms in which they tor. Indeed, workers in the agriculture, forestry, work. Once the variables were selected, hierar- and fishing sector comprise only 4 percent of chical clustering was performed, which allocated paid Jordanian informal employment. individuals, based on their similarities along the set of selected variables, into six groups. The third step reviewed the composition of the 28. The final step was not possible to implement for Jordani- groups along market-relevant variables and ans who are self-employed or employers. This is because LFS 2018 does not ask about social security coverage for the self- employed or employers. The clustering assumes all of the 27. Clustering was also performed on the JLMPS 2016 data, self-employed and employers are informal. This is a reason- where groups somewhat similar to those in the LFS 2018 were able assumption; data from the JLMPS showed that 86 per- identified, differing only in that other variables were used to cent of employers and 95 percent of self-employed do not identify the clusters. have social security. Profiling Informality: Who are the Informal Workers? 23 TABLE 21.  Clusters of informal waged Jordanian men employed in the private sector Cluster 3A Cluster 4A Cluster 5A Cluster 1A Cluster 2A (15%) (10%) (40%) Cluster 6A (4%) (18%) Crafts and Plant and Semi-skilled workers (13%) Agricultural Service and related trade machine in less populated High-skilled Variable workers sales workers workers operators governorates workers Education Low Low Low Low Low High Average age 35 33 34 39 33 35 Occupation Skilled Service and Crafts and Plant and Mixture of medium Professionals, agriculture sales related trade machine skilled occupations associate operators professionals, clerks professionals, clerks Sector Agriculture Trade Construction, Transportation Low productivity All sectors manufacturing sectors including administration and professional activities Governorate Balqa, Irbid, 3 most 3 most 3 most 2/3 in less 3/4 in 3 most Mafraq populated populated populated populated populated governorates: governorates: governorates: governorates governorates: Amman, Zarqa, Amman, Zarqa, Amman, Zarqa, Amman, Zarqa, Irbid Irbid Irbid Irbid Firm size SMEs Micro Micro Micro SMEs All, includes large firms Firm registration Mostly no Mostly yes Split evenly Mostly yes Mostly yes Mostly yes Earnings: Lowest earners JD 249 Lowest earners JD 238 JD 233 Highest earners Average monthly JD 201 JD 214 JD 321 wages Workplace Farms Offices Offices, client Transportation Offices, Offices homes vehicles transportation vehicles Type of Mostly Mostly Mostly Mostly Half temporary Half temporary employment temporary temporary temporary temporary Working hours Work the most Work the most Work the least hours hours hours Share of 7% 16% 25% 28% 35% 83% formal workers Hardest to Easiest to with similar formalize formalize characteristics Average wage JD 136 JD 109 JD 115 JD 83 JD 126 JD 75 premium between formal and informal sectors* * For this exercise, the average wage difference between formal and informal workers is calculated. Similar exercises were performed with other distribution moments, yet the results were robust. It is important to highlight that only the pecuniary wage was considered; therefore, in-kind income was not included as part of the wage. 24 ENHANCING WORKERS’ PROTECTION IN JORDAN Service and sales workers: Cluster 2A includes clusters. Workers in cluster 4A comprise 10 per- all the sales and service workers with low educa- cent of the informal waged Jordanian men in the tion, working in micro firms that are mostly regis- private sector. tered. However, commercial business registration does not always imply workers’ coverage in social Semi-skilled workers in the less populated security. Employees in cluster 2A work the most governorates: Cluster 5A comprises workers hours in offices located in the three most popu- with mixed skill levels working in several low pro- lated governorates: Amman, Irbid, and Zarqa. They ductivity sectors. They are mainly employed in are mostly in the wholesale and retail trade sec- registered micro, small, and medium firms. What tor, earning among all six clusters the second high- distinguishes cluster 5A from other clusters is the est average monthly wage of JD 249. Cluster 2A is employees’ governorate of work. Whereas in all also hard to formalize since only 16 percent of other clusters except cluster 1A, workers are workers with cluster 2A characteristics are found to mostly concentrated in the three most popu- be formal. Unlike cluster 1A though, it is not a very lated governorates, the opposite holds true for small cluster, comprising 18 percent of the infor- cluster 5A: 62 percent of these workers are in mal waged Jordanian men in the private sector. governorates other than Irbid, Zarqa, and Am- man. Further, cluster 5A has the second highest Crafts and related trade workers: Cluster 3A average monthly wage premium (JD 233) between includes all workers in crafts and related trades the informal and formal workers, after agricul- employed in the manufacturing and construction tural workers in cluster 1A. Workers under cluster sector in micro firms located in Amman, Irbid, 5A comprise 40 percent of all the informal waged and Zarqa. Similar to agricultural workers in clus- Jordanian men in the private sector, and as such, ter 1A, they earn the least income when com- it is the largest cluster by far. pared to other clusters. The average monthly wage is JD 214. Around one-fourth (25 percent) of High-skilled workers: Cluster 6A includes the all workers with characteristics similar to those in highly educated and skilled professionals working cluster 3A are found to be formal, earning on av- across sectors and firm sizes in Amman, Irbid, and erage JD 115 per month more than their informal Zarqa. They are the easiest to formalize by far, as counterparts. This is also not such a small cluster, 83 percent of all workers with similar characteris- comprising 15 percent of the informal waged Jor- tics are found to be formal. The average monthly danian men in the private sector. wage premium between formal and informal workers is the lowest at JD 75. Cluster 6A forms 13 Plant and machine operators: Cluster 4A in- percent of the informal waged Jordanian men in cludes all plant and machine operators in the the private sector. Therefore, covering workers transportation sector. These workers are typi- under cluster 6A may be a quick win if the right cally of low education, work the most hours simi- policies are in place. lar to sales and service workers in cluster 2A, and are employed in registered micro firms located in Waged Jordanian women in the Amman, Irbid, and Zarqa. Around one-fourth (25 private sector percent) of all workers with characteristics similar to those in cluster 4A are found to be formal. The Table 22 below demonstrates clusters of informal average monthly wage premium between the in- waged Jordanian women employed in the private formal and formal workers in cluster 4A is one of sector. The clusters are described below. the lowest (at JD 83) compared to the other Profiling Informality: Who are the Informal Workers? 25 TABLE 22.  Clusters of informal waged Jordanian women employed in the private sector Cluster 6B Cluster 1B Cluster 2B Cluster 3B Cluster 4B Cluster 5B (22%) (5%) (9%) (15%) (17%) (32%) High-skilled workers Agricultural Crafts and related Service and Elementary High-skilled in the less populated Variable workers trade workers sales workers occupations workers governorates Education Low Medium High Medium High High Average age 37 34 31 36 32 30 Occupation Skilled Crafts and related Service and Elementary Professionals Mixture; 1/3 agriculture trade sales occupations professionals Sector Agriculture Manufacturing Trade Dispersion Education, Dispersion across all across some human sectors sectors health Governorate Balqa, Irbid, 1/2 in Amman, Amman, Irbid, 2/3 in Amman, Amman, Spread across Karak Irbid, Zarqa, and Zarqa, Karak Balqa Irbid governorates with 1/2 in Ajloun 2/3 in less populated governorates Firm size 1/2 in micro, Micro 2/3 in micro, All, includes 1/2 in micro, 1/2 in micro, 1/2 in 1/2 in small 1/3 in medium large firms 1/2 in small small and medium and medium and medium Firm registration Mostly no Mostly yes Yes Yes Yes Yes Earnings: Lowest JD 178 JD 224 JD 202 Highest JD 219 Average monthly earners: JD 76 earners: wages JD 246 Workplace Farms Offices Offices Offices Offices Offices Type of Mostly Mostly temporary Mostly Mostly Half Half temporary employment temporary temporary temporary temporary Working hours Work the Work the most fewest hours hours Share of formal 3% 69% 70% 81% 81% 82% workers with similar characteristics Average wage JD 127 JD 111 JD 98 JD 68 JD 91 JD 43 premium between formal and informal sectors Agricultural workers: Cluster 1B includes all fe- percent of women with similar characteristics are male agricultural workers with low education, found to be formal. It is the smallest cluster as working in micro, small, and medium farms that well, comprising 5 percent of informal waged Jor- are not registered, and earning the lowest in- danian women in the private sector, so targeting come when compared to other clusters (on aver- the agriculture sector overall will not have a sig- age JD 76). Similar to Jordanian men (cluster 1A), nificant impact on informality rates among cluster 1B is the hardest to formalize as only 3 Jordanians. 26 ENHANCING WORKERS’ PROTECTION IN JORDAN Crafts and related trade workers: Cluster 2B educated women who are not concentrated in includes all women in crafts and related trades the three most populated governorates. They employed in the manufacturing sector in regis- comprise 22 percent of waged informal Jordanian tered micro firms, half of which are located in women in the private sector, and thus, similarly Ajloun and the other half in Amman, Irbid, and to the case of Jordanian men, it is important that Zarqa. Similar to agricultural workers in cluster 1B, local governments be able to reach those infor- they earn a relatively low income of JD 178 when mal women. compared to other clusters. When likened to their male counterparts, women are easier to for- It is remarkable that for female workers, unlike malize; 69 percent of all women with similar char- for male workers, for all clusters except cluster 1, acteristics as cluster 2B are found to be formal. the formality share is high, meaning that there are many women employed in formal jobs having Service and sales workers: Cluster 3B includes similar characteristics to the informal workers in women with high education but working in the the clusters. The average wage premium between low productivity wholesale and trade sector. formal and informal women within each cluster There is clearly an education mismatch, where tends to be lower than that of men. these women have no choice but to become in- formal, working as sales and service workers, and Jordanian men who are self- below their educational qualifications. Women in employed or employers this cluster work the most hours in registered mi- cro as well as medium-sized firms. Three-fourths Table 23 below demonstrates clusters of Jorda- (75 percent) of these women work in Amman and nian men who are self-employed or employers. Zarqa. They also tend to be easy to formalize, as The clusters are described below. 70 percent of workers with similar characteristics are formal. Agricultural workers: Cluster 1C includes mainly own-account agricultural men with low educa- Elementary occupations: Cluster 4B includes tion, and working farms that are not registered. women in elementary occupations,29 employed Similar to waged employees (clusters 1A and 1B), it across all sectors and firm sizes, including large firms. is the smallest cluster as well, comprising 6 per- cent of informal self-employed or employers. High-skilled workers: Cluster 5B includes highly educated women working as professionals in Low-skilled workers in the less populated gov- high-skill sectors, such as education and human ernorates: Cluster 2C includes men with low health. They are the highest earners, working education, mainly self-employed in services and mainly in Amman, Irbid, and Zarqa. This cluster is sales occupations and as machine operators. also easy to formalize and is the largest cluster, They are located across the country. Cluster 2C is comprising 32 percent of waged informal Jorda- the largest cluster, comprising 39 percent of in- nian women in the private sector. Covering work- formal self-employed or employers. ers under this cluster may also be a quick win if the right policies are in place. Highly educated workers: Cluster 3C includes highly educated men working across occupa- High-skilled workers in the less populated gov- tions, including the highly skilled ones. Half of the ernorates: Cluster 6B comprises the highly men in cluster 3C are employers. 29. Occupations involving routine and simple tasks. Profiling Informality: Who are the Informal Workers? 27 TABLE 23. Clusters of informal Jordanian self-employed men or employers in the private sector Cluster 2C Cluster 3C Cluster 5C Cluster 1C (39%) (16%) Cluster 4C (12%) Cluster 6C (6%) Low-skilled workers Highly (23%) Crafts and (4%) Agricultural in the less populated educated Service and related trade High-skilled Variable workers governorates workers sales workers workers workers Education Low Low High Medium Low High Average age 46 42 44 43 41 47 Occupation Skilled Service and sales, 1/2 in high- Service and Crafts and Professionals agriculture machine operators skilled sales related trade occupations Sector Agriculture Trade and All sectors Trade Construction, Professional, transportation manufacturing scientific, and technical activities Governorate 2/3 in less 2/3 in less populated 3 most 3 most 3 most 3 most populated governorates populated populated populated populated governorates governorates: governorates: governorates: governorates: Amman, Irbid, Amman, Irbid, Amman, Irbid, Amman, Irbid, Zarqa Zarqa Zarqa Zarqa Firm size Micro Micro 3/4 micro Micro Micro Micro Firm registration Mostly no Split evenly Mostly yes Mostly yes Mostly no Mostly yes Workplace Farms Offices, Offices Offices Offices, client Offices transportation homes vehicles Type of employment Mostly Mostly temporary Half temporary Mostly Mostly Mostly temporary temporary temporary temporary Working hours Work the Work the most fewest hours hours Share of formal All informal workers with similar characteristics Service and sales workers: Cluster 4C mainly in- High-skilled workers: Similar to cluster 3C, the cludes workers in trade businesses. They work men in cluster 6C are highly educated; however, the most hours compared to other self-em- they are mainly concentrated in professional ac- ployed or employers. tivities. They may also have significant work ex- perience, as the average age is 47. However, the Crafts and related trades workers: Cluster 5C cluster is very small, and therefore targeting this mainly includes self-employed workers with low profile may not impact informality significantly. education in the construction and manufacturing sectors in firms that are not commercially registered. 28 ENHANCING WORKERS’ PROTECTION IN JORDAN Waged non-Jordanian men in the occupations in low productivity sectors. Around private sector three-fourths (75 percent) of non-Jordanians in cluster 4D work in the less populated governor- Table 24 below gives an overview of clusters of ates of Jordan. They comprise 23 percent of in- waged non-Jordanian men in the private sector. formal non-Jordanian men. Service and sales Egyptian workers: Cluster 1D Semi-skilled workers in registered medium includes mainly Egyptians with relatively high and large firms: Cluster 5D includes semi-skilled education working in the administration sector in workers of Egyptian or Syrian nationalities, mainly Amman. They work in micro firms, half of which working in registered medium and large firms in are not registered. They all have work permits, Amman, Balqa, and Zarqa. They have work per- work the most hours, and also earn the highest mits, and similar to those in cluster 4D, work in income among all clusters. These workers make sales and craft-related occupations in low pro- up 9 percent of informal non-Jordanian men. ductivity sectors. Cluster 5D is small though, as Even though many non-Jordanians in cluster 1D most non-Jordanians work in micro firms. have a high education and have obtained work permits, just 1 percent of non-Jordanians with High-skilled white-collar workers in registered similar characteristics were found to be formal. firms: Cluster 6D includes the highly educated non-Jordanians employed in registered busi- Agricultural Egyptian workers: Cluster 2D com- nesses, two-thirds of which are micro firms. One- prises mainly Egyptian agricultural workers. Half third (33 percent) of cluster 6D workers are pro- of them are located in Balqa. They work on mi- fessionals and clerks. They are of all nationalities. cro-farms, half of which are not registered. These It is, however, a very small cluster, comprising workers, too, have work permits. Egyptians in ag- only 4 percent of informal non-Jordanian men. riculture total 11 percent of informal non-Jorda- nian men, contrary to the misconception that The cluster analysis can be a powerful tool to much of the informality is prevalent among the help target policies to groups of workers shar‑ agricultural workers, especially for non-Jordanians. ing similar characteristics and to groups with greater ease of formalization. This section’s Craft and related trades Syrian workers: Clus- cluster analysis defines a series of groups of ter 3D includes all Syrian workers with low skills workers that share similar features, including their and education, 40 percent of whom are em- skill level, where they work, and capacity to save. ployed in the construction sector. They are the Policy makers can use these clusters to improve lowest earners and work the fewest hours. They the targeting of instruments. In particular, these work mainly in unregistered micro firms and only clusters indicate to policy makers which policies half of them have work permits allowing them to le- could work for given clusters and thereby support gally be employed in the country. This cluster is larger the design of new interventions. For example, the than the rest, as Syrians in unregistered firms com- wage premium between the informal and formal prise 45 percent of informal non-Jordanian men. sectors and average earnings estimated for each cluster may indicate the ability of workers to Semi-skilled workers in registered micro firms: save and contribute. The skill level may also signal Cluster 4D includes the semi-skilled workers of workers’ financial literacy and their ability to un- Egyptian or Syrian nationalities, mainly working in derstand the long-term benefits from saving and registered micro firms. They have work permits being covered against shocks. Firm size may de- and are working in sales and craft-related note the government’s ability to reach establish- ments and workers and enforce its regulations. Profiling Informality: Who are the Informal Workers? 29 TABLE 24.  Clusters of informal waged non-Jordanian men employed in the private sector Cluster 3D Cluster 4D Cluster 5D Cluster 6D Cluster 1D Cluster 2D (45%) (23%) (7%) (4%) (9%) (11%) Craft and Semi-skilled Semi-skilled High-skilled Service and Agricultural related workers in workers in white-collar sales Egyptian Egyptian trade Syrian registered micro registered medium workers in Variable workers workers workers firms and large firms registered firms Education High Medium Low Medium Medium High Average Age 37 38 33 34 33 35 Occupation Service and Skilled Crafts and Service and sales, Service and sales, Mixture, with sales agriculture related trade crafts related crafts related trade 1/3 working as trade skilled occupations professionals, clerks Sector Administration Agriculture 2/5 in Low productivity Low productivity All sectors construction sectors sectors Governorate Amman Half in Balqa Half in Across all 3/4 in Amman, Half in Amman, Amman, governorates Balqa, Zarqa Irbid, Tafileh Mafraq Firm size Micro Micro Micro Micro Medium and large 2/3 micro, rest SMEs Firm registration Split evenly Split evenly Mostly no Mostly yes Mostly yes Mostly yes Earnings: Average Highest earners JD 240 Lowest JD 213 JD 224 JD 232 monthly wages JD 263 earners JD 152 Workplace Offices, Farms Offices, Offices, farms Offices, client Offices. client homes, client homes, homes, farms construction sites attached construction structures sites Type of Mostly Mostly Mostly Mostly temporary Mostly temporary Mostly temporary employment temporary temporary temporary Working hours Work the most Work the hours fewest hours Nationality Mostly Mostly Mostly Split evenly Split evenly 1/4 Egyptians, Egyptians Egyptians Syrians between Syrians between Syrians 1/2 Syrians, 1/4 all and Egyptians and Egyptians other nationalities Work permits Yes Yes Split evenly Mostly yes Mostly yes Mostly yes Share of formal 1% 2% 4% 15% 21% 27% workers with similar characteristics Hardest to Easiest to formalize formalize Average wage JD 43 JD 176 JD 116 JD 85 JD 100 JD 87 premium between formal and informal sectors 3 Policy Recommendations for Extending Social Protection Coverage The policy objective is to extend social insurance coverage and enhance the protection of workers against various risks in the context of a financially sus‑ tainable system. Striking a balance between targeting policies (as specific as pos- sible) to overcome the barriers to access to social protection, and keeping the system simple to avoid its fragmentation, is a difficult task, requiring in-depth dis- cussion as policies are explored. Jordan also needs to strike a balance between the actions and incentives to better protect workers against risks and the sustainability of the system. A number of policy recommendations below aim at encouraging formalization among workers whose current job can be formalized and helping workers in jobs that can’t be formalized, to find better jobs in the medium and long term, while offering them alternative protection mechanisms in the short term. Long-term solutions In the long run, productivity growth leads to higher wages, which are for many a prerequisite for social protection. Many informal workers in Jordan are unable to join any social protection scheme—whether the mandatory option or any vol- untary scheme—simply because their wages are so low that their disposable in- come makes social protection contributions prohibitive. Wages for those informal workers hold the key to their ability to join any social protection scheme. However, with an oversupply of labor partly due to the influx of refugees, the only way to 30 Policy Recommendations for Extending Social Protection Coverage 31 increase wages is for productivity to rise.30 Thus, positive link between creditor rights and access formal jobs that protect workers against shocks to finance. Similarly, institutions contribute to will only be available if workers are employed by financing: the probability of obtaining bank productive firms. loans is higher in countries with credit bureaus. Financial development also helps SMEs growth Productivity increases in firms will stem from by creating a deeper sector that offers more fi- introducing capital. Such capital deepening in nancial instruments (such as asset-based financ- the economy requires increased access to and ing, factoring, and leasing, among others) at lower reduction in the cost of technology, such as pro- interest rates. Greater financing availability can moting venture capital and other approaches to allow firms to invest in capital and make their financing.31 This would, in turn, lead to an increase workers more productive, which can result in in the demand for workers having the skills to higher wages and ultimately enhanced social utilize that technology and requiring the benefits protection. of formal employment. However, a reskilling of the workforce is needed to match the greater Providing incentives and policies that encour‑ importance of capital in firms’ processes. Toward age firm growth may also lead to higher pro‑ that end, one of the key pillars in the govern- ductivity, and hence more formal jobs. Smaller ment’s Five-Year Reform Matrix (2018–2024) is to firms, and particularly micro firms, are typically promote investment and export competitive- less productive and, therefore, pay lower wages ness (Table 25). To enhance skills, the government and ultimately are responsible for the lion’s also passed a law in 2019 to establish the Techni- share of informality. As such, providing options cal Vocational and Skills Development Commis- that are currently not available in Jordan for sion (TVSDC). It is planning as well to enforce fi- workers in firms of less than five workers may nancial and administrative autonomy to the boost growth. Options that could assist in Sector Skills Councils within that law (Table 25). building the number of formal jobs in Jordan in- clude exploring a range of changes to the busi- Developing financial sector institutions is also ness and regulatory environment for micro and crucial for greater productivity as it can deliver small firms, and making financing available for larger financing for firms. Deepening the finan- existing firms to grow, rather than focusing only cial sector is essential to improve access to fi- on funding for start-ups . nance, particularly for SMEs. Data indicates a positive association between stronger regulation Even with an increase in productivity and and financial infrastructure, as well as between wages in the private sector, ensuring equal pay stronger regulation and higher financing (Kumar for similar skills regardless of nationality is an 2017). One aspect of this relationship is the important policy guideline to improve effi‑ ciency. Jordan’s social protection system must change its regulations and upgrade its enforce- 30. For example, like in many OECD countries, wages for U.S. workers respond to productivity increases (Anderson 2007). ment capabilities to ensure that domestic and Since the 1990s, workers’ average hourly earnings and total foreign workers are awarded the same pay when compensation per hour have increased in line with increases they deliver the same type of work. For example, in productivity in non-farming businesses. A number of devel- oping countries exhibit the same relationship (Merotto, We- currently, Jordan has a two-tier minimum wage ber, and Aterido 2018). system, with the statutory minimum wage higher 31. Other approaches to financing include: (i) asset-based fi- nancing, (ii) state guarantees, (iii) tax incentives, (iv) generous for Jordanians (JD 260 in 2020). Ensuring equal pay grace period, (v) factoring, (vi) equity-based financing, (vii) ex- is important not only for equity reasons for tensive use of SCIs, or (viii) leasing. 32 ENHANCING WORKERS’ PROTECTION IN JORDAN foreign workers but also for efficiency reasons. and women. The government recently enacted a The lack of a level playing field leads to firms opt- new regulation allowing flexible working arrange- ing for foreign workers willing to work informally ments for employees, which under the new by- and at lower pay than nationals. That discrimina- laws, depending on the sector, would be subject tion limits competition between Jordanians and to social security, with voluntary reduced contri- non-Jordanians. With less competition, firms bution rates.32 Additionally, it introduced a pro- thrive on inefficiency, leading to low productiv- vision prohibiting discrimination based on gen- ity growth with subsequent lower wages. Thus, der in obtaining credit through the Central leveling the playing field across all nationalities is Bank’s instructions regarding dealing with clients paramount for equity and efficiency reasons. fairly and transparently. An instruction has been enacted as well to expand the modalities for Finally, leveling the playing field between men the provision of workplace-based childcare ser- and women improves women’s labor force par‑ vices, in accordance with Article 72b of the Labor ticipation rate, leading potentially to more for‑ Law.33 Finally, the government is planning on es- mal employment. The majority of informal work- tablishing a hotline and a portal for receiving ers are men; however, the bulk of inactive working workplace sexual harassment complaints in a con- age people are women. Inactive individuals tend fidential and effective manner. It also committed to persist in this employment status, partly due to remove occupational, sector, and other re- to a lack of other options (see Table 16 above). strictions to women in the workplace so as to en- Enacting policies to improve women’s participa- sure equal access to the labor market (Table 25). tion in the labor force may increase the cover- age base, by helping women transition from in- activity to formal private sector employment. 32. A companion paper “Voluntary Savings Schemes to Pro- This would entail reducing discrimination in tect Informal Workers in Jordan” (Rother et al. 2022) provides working conditions and changing regulations to more details on the new bylaws. 33. Article 72 of the Labor Law states that “An employer who support women’s employment in the private sec- employs at least twenty married female workers must pre- tor. Jordan has begun making important strides pare a suitable place in the custody of a qualified nanny to take toward leveling the playing field between men care of the children of female workers whose age is less than four years, provided that the number of them is not less than ten.” Policy Recommendations for Extending Social Protection Coverage 33 TABLE 25.  Government policies in Jordan and areas of opportunity Opportunities Government actions Additional interventions Leveling the playing field Increasing Passed a law in 2019 to establish the Technical Vocational Capital deepening to increase firm productivity and Skills Development Commission (TVSDC). productivity leading to higher wages and a growth in the greater likelihood for jobs to be formal. economy Leveling the Enacted instructions allowing high-skilled foreigners to work Ensure that domestic and foreign workers playing field across in occupations and sectors previously restricted to them are awarded the same pay when they all nationalities (2019). deliver the same type of work. For example, unify minimum wages. Leveling the • Introduced a provision prohibiting discrimination based Reducing discrimination in working playing field on gender in obtaining credit through the Central Bank’s conditions and changing regulations to between men and instructions. support women’s employment in the women • Expanded the modalities for the provision of workplace- private sector. based childcare services. • The government is planning on establishing a hotline and portal for receiving workplace sexual harassment complaints. • It also committed to removing occupational, sector, and other restrictions to women in the workplace so as to ensure equal access to the labor market. • Allowed flexible working arrangements for employees. • Committed to update the passport application form to equalize requirements and documents to apply for a passport for women and men. • Amended Social Security Law allowing the Social Security Corporation to use 25% of the maternity fund resources for maternity-related social protection programs. Ensuring regulations are effectively applied Improving The Government of Jordan has committed to update Improving information systems, generating inspection inspections and implement a National Integrated Inspection more data and data analytics, better Management System. training, and expanding the number of inspectors. Promoting • Developing an adequate communication knowledge and strategy. compliance with • Continuous coordination with social the law protection agencies. Improving Improvements in electronic payment mechanisms in the • Simplifying enrollment processes. administrative past five years and integrating SSC’s platform into these • Further enhancing e-platforms. processes for ePayment platforms to collect contributions. • Ensuring wage protection through coverage digital payments. Ensuring flexible • Introduced flexible work in the labor bylaws, then enacted Compliance could improve if labor market labor markets instructions on flexible work with minimum wage rates by regulations are more flexible, making it unit of hours. easier for firms to hire and dismiss formal • Enacted instructions that recognize pensions contributions workers. Adopting a strategy based on of workers under flexible work arrangements. flexicurity may lower firms’ costs from • Committed to amend the flexible work bylaw (22/2017) hiring formal workers. to facilitate wider implementation by providing sufficient flexibility to the employer and protecting workers right. (Continued next page) 34 ENHANCING WORKERS’ PROTECTION IN JORDAN TABLE 25 (continued) Opportunities Government actions Additional interventions Providing incentives to formalize Encourage firm • Committed to cancel the requirement to deposit 50% Smaller firms, and particularly micro growth of the company’s startup capital during the registration firms, are typically less productive and, process (2022). therefore, pay lower wages and ultimately • Implemented various measures to reduce business costs are responsible for the lion’s share of and improve regulatory quality, including: canceling informality. Extending flexicurity to the steps of obtaining approvals for water, electricity, workers in micro firms, exploring a range and telecommunication authorities as part of obtaining of changes to the business and regulatory construction permits for businesses; extending the validity environment for these firms, and making period of occupancy permits; and issuing a decision to financing available for existing firms to reduce the property transfer tax and the land sale tax. grow, rather than focusing only on funding for startups, could all assist in building the number of formal jobs in Jordan. Providing • Decreasing contribution rates—which comes at a cost Assessing the “Golden List Firms” incentives to firms of lower benefit adequacy and may jeopardize financial intervention and providing additional sustainability. perks to firms. • Establishing the “Golden List Firms,” providing perks to firms to comply. Providing Decreasing contribution rates but that comes at a cost Additional products and services offered incentives to of lower benefit adequacy and may jeopardize financial to individuals based on their needs (such workers sustainability. as vehicle insurance), including access to short-term benefits. Developing Developing a new defined contribution additional VSS to improve benefit adequacy and complementary protect workers in absence of lack of schemes compliance with mandatory scheme. Short-term and medium-term at both improving on the current SSC measures to encourage formalization among workers whose solutions current job can be formalized, and on proposing In the short and medium term and until more alternative protection mechanisms for workers productive jobs are created, policies to protect employed in jobs that cannot be formalized. workers against shocks are needed. The SSC has already implemented many measures aimed at im- Encouraging formalization among proving formalization, achieving some progress; workers whose current job can be however, similar to other countries, long-term chal- formalized lenges remain, with Jordan still struggling to improve coverage rates. This is because efforts are aimed at Policies that ensure labor regulations are ef‑ workers employed in jobs that can potentially be fectively applied are needed to improve for‑ formalized. The measures remain ineffective as malization efforts for workers whose jobs can protection for informal workers in jobs that can- be formalized, namely those employed in me‑ not be formalized (Kuddo, Robalino, and Weber dium and large firms. These policies may be suc- 2015), such as those employed in micro firms and cessful for high-skilled clusters and for women as hence comprising most of the informal workers. they are employed in relatively large firms (Tables Thus, the recommendations offered below aim 26 and 27). Policy Recommendations for Extending Social Protection Coverage 35 TABLE 26.  Policies by cluster of waged Jordanian men Cluster 3A Cluster 5A Cluster 1A Cluster 2A (15%) Cluster 4A (40%) Cluster 6A (4%) (18%) Crafts and (10%) Semi-skilled workers (13%) Agricultural Service and related trade Plant and machine in the less populated High-skilled workers sales workers workers operators governorates workers Description Sector Agriculture Trade Construction Transportation Low productivity All sectors and sectors including manufacturing administration and professional activities Firm size SMEs Micro firms Micro firms Micro firms SMEs Including large firms Capacity to Lowest earners Average Average Average monthly Average monthly Highest earners save with average monthly monthly wage JD 238; wage JD 233; formality with average monthly wage wage JD 249; wage JD 214; formality premium premium JD 126. monthly wage of JD 201; formality formality JD 83. JD 321; formality formality premium premium premium JD 75. premium JD 109. JD 115. highest at JD 136. Policies Ensuring Enforcement Enforcement Enforcement Enforcement Intensify Strengthen regulation is mechanisms mechanisms mechanisms mechanisms communication and enforcement effectively may not work may not work may not work may not work as outreach campaigns to mechanisms. applied as workers are as workers are as workers are workers are in promote knowledge in rural areas, in micro firms. in micro firms; micro firms. and compliance, and in farms. half are not simplify registration registered. procedures in remote governorates. Providing Offer VSS with Offer VSS with Offer VSS with Offer VSS with Offer VSS with Offer VSS incentives subsidized incentives to incentives to incentives to incentives to contribute incentives support to contribute at contribute at contribute and at the minimal level for higher provide them higher levels least at the access to products to complement contribution rates, with minimal then the minimal level, such as housing mandatory schemes as the capacity protection. minimal level, with the option and vehicle and improve adequacy, to save is high. as they have of subsidized subsidized credit, especially with new Complements the capacity to support. using a defined SSC bylaws that allow mandatory contribute. contribution reduction of mandatory schemes and component as contribution rates with offers access to collateral or lower benefits. medium- and vehicle insurance. long-term savings. Enforcing formal employment regulation re‑ informality to formality. The analysis shows that quires more effort beyond formalizing firms. 75 percent of Jordanian waged informal workers Business formalization does not necessarily are regular employees employed in firms with equate to more formal jobs, so policies that aim commercial registration. These workers are bound to increase business registration will not, on their by social security regulations, but there is limited own, be successful in moving jobs from enforcement of policies to improve formalization. 36 ENHANCING WORKERS’ PROTECTION IN JORDAN TABLE 27.  Policies by cluster of waged Jordanian women Cluster 2B Cluster 6B Cluster 1B (9%) Cluster 3B Cluster 4B Cluster 5B (22%) (5%) Crafts and (15%) (17%) (32%) High-skilled workers Agricultural related trade Service and Elementary High-skilled in the less populated workers workers sales workers occupations workers governorates Description Sector Agriculture Manufacturing Trade All sectors Education and human All sectors including health administration and professional activities Firm size SMEs Micro firms Micro and All firm sizes All firm sizes including All firm sizes including medium firms including large firms large firms large firms Capacity to Lowest earners Average Average Average Average monthly Average monthly save with average monthly monthly monthly wage JD 246; wage of JD 219; monthly wage of wage JD 178; wage JD 224; wage JD 202; formality premium formality premium JD 76; formality formality formality formality JD 91. JD 43. premium premium premium premium highest at JD 111. JD 98. JD 68. JD 127. Policies Ensuring Enforcement Enforcement Strengthen Strengthen Strengthen Intensify outreach regulation is mechanisms mechanisms enforcement enforcement enforcement campaigns to effectively may not work may not work as mechanisms. mechanisms. mechanisms. promote knowledge applied as workers are workers are in and compliance, and in rural areas, in micro firms. simplify registration farms. procedures in remote governorates. Providing Offer VSS with Offer VSS with Offer VSS to Offer VSS to Offer VSS Offer VSS incentives subsidized incentives to complement complement incentives for higher incentives for higher support to contribute at mandatory mandatory contribution rates, as contribution rates as provide them least at the scheme. scheme. the capacity to save the capacity to save with minimal minimal level, is high. Complements is high. Complements protection. with the option mandatory schemes mandatory schemes of subsidized and offers access to and offers access to support. medium- and long- medium- and long- term savings. term savings. For better enforcement, inspection requires im- compliance system can address the root causes proved information systems, more data and data of noncompliance. Ultimately, if employers analytics, better training, and an expansion in the continue to infringe regulations, the system number of inspectors. The first step in strength- should enforce rules with effective and deter- ening enforcement mechanisms is providing the rent sanctions. Finally, the system should also necessary training and tools that support compli- include dispute-resolution mechanisms. The Gov- ance inspectors. The second step is to redesign ernment of Jordan has committed, in the Five-Year the system to accommodate preventive mea- Reform Matrix, to update and expand the inspec- sures; such a redesign would allow inspectors to tion criteria to include elements of the Code address shortcomings at the firm level, providing of Conduct in the Workplace and Wage Equity information and support on how to best comply as per Labor Law. The Ministry of Labor will with social security regulations, so that the also implement a national Integrated Inspection Policy Recommendations for Extending Social Protection Coverage 37 TABLE 28. Policies by cluster of waged non-Jordanian men Cluster 4D Cluster 5D Cluster 6D Cluster 1D Cluster 2D Cluster 3D (23%) (7%) (4%) (9%) (11%) (45%) Semi-skilled Semi-skilled High-skilled Service and Agricultural Craft and related workers in workers in white-collar sales Egyptian Egyptian trade Syrian registered micro registered medium workers in workers workers workers firms and large firms registered firms Description Sector Administration Agriculture Some in Low productivity Low productivity All sectors for construction sectors sectors professional sector activities Firm size Micro firms, half Micro firms, half Micro firms, Micro firms, Medium and large Mostly micro of which are not of which are not mostly mostly firms. firms registered registered registered registered Capacity to Highest earners Average Average monthly Average monthly Average monthly Average monthly save with average monthly wage JD 152; wage JD 213; wage JD 224; wage of JD 232; monthly wage of wage JD 240; formality premium formality formality premium formality JD 263; formality formality JD 116; half have premium JD 85; JD 100; most have premium JD 87; premium at premium work permits. most have work work permits. most have work JD 43; most JD 176; most permits. permits. have work have work permits. permits. Policies Ensuring Enforcement Enforcement Enforcement Enforcement Strengthen Enforcement regulation is mechanisms mechanisms mechanisms mechanisms enforcement mechanisms effectively may not work as may not work may not work may not work as mechanisms as may not work as applied workers are in as workers are as workers are workers are in many work in workers are in micro firms. in rural areas, in in micro firms. micro firms. medium and large micro firms and farms. Also, half are not firms, having work are not visible bound by SSC permits as well. even though regulations since highly skilled. they do not have work permits. Providing Offer VSS Offer VSS with Offer VSS with Offer VSS with Offer VSS to Offer VSS incentives incentives incentives to incentives to incentives to complement incentives for higher contribute. contribute at contribute. the mandatory for higher contribution least at the scheme. contribution rates as the minimal level, rates, as the capacity to save with the option capacity to save is high. of subsidized is high. support. Management System that has been developed in boundaries of sanctions, but at the same time accordance with the Inspection and Monitoring allows for the escalation of sanctions depending Law of 2017 (Table 25). on the incidence of violation, is key to achieve a responsive system of regulation. Implementing To be effective, enforcement could be selective. the enforcing system with the capacity to esca- There is strong evidence that responsive regulation late sanctions could also create a credible deter- delivers better outcomes than uniform sanctioning rence; the sanctions can be light enough to be of each and every violation (Balestra et al. 2018). used as needed, yet strong enough to outweigh Developing a framework that clearly states the potential profits from noncompliance. 38 ENHANCING WORKERS’ PROTECTION IN JORDAN Actively promoting compliance and attracting An adequate communication strategy needs to the informal workers to enroll and continue be established once the new bylaws by SSC are contributing is also key. Rather than assuming implemented. The new bylaws allow lower con- that knowledge and compliance with the law is a tribution rates and hence lower benefits.34 This responsibility of the firm, promoting and sup- may create wrong expectations that individuals porting compliance should be a key priority and will receive the same benefits as those who are function of inspection and enforcement struc- making regular, full formal sector contributions. tures. Promoting compliance starts with legisla- Communication messages should be responsive tion and the official mandates, but it also requires to the characteristics of each cluster to ensure significant resources to develop and broadcast that low-skilled workers are aware of the ex- guidance and information. This should be partic- pected outcome of each contributory rate. ularly targeted to those with the most need to understand the information, such as informal 34. See a companion paper, “Voluntary Savings Schemes to workers in remote geographical areas. A respon- Protect Informal Workers in Jordan,” for more details on the sive system of regulations should leverage a new bylaws. strong system for grievance redress and compli- ance complaints. Policy Recommendations for Extending Social Protection Coverage 39 Outreach requires a significant effort in coor‑ identification registries, and potentially identify- dinating social protection agencies, regulatory ing individuals through biometric methods, bodies, and ministries to work toward strate‑ would provide accurate information at the time gies in reaching individuals. Establishing clear of enrollment. In some cases, individuals may be communication mechanisms and specialized allowed easy enrollment into the scheme, while printed and electronic material to provide infor- requiring more complete information, like bene- mation is crucial to building trust. Members are ficiaries or other data, as they become familiar likely to have greater confidence in information with the scheme. Further, new contribution mech- from the channels they trust; in this sense, lever- anisms may need to be put in place to facilitate aging chambers, workers associations, and other contributions, as a significant portion of the popu- nongovernmental agencies can build up member lation remains without a formal bank account (33.1 participation in greater numbers. Continuous ef- percent of individuals have a bank account35). forts at communication will likely be necessary to Jordan has made significant improvements in build trust not only to enroll but also to continue electronic payment mechanisms in the past five to contribute. SSC efforts have already identified years, introducing Jo-Net, Efawateercom Pay- potential channels to get workers into the cur- ments, and JoMoPay. SSC’s platform is reported rent scheme. For example, SSC has undertaken to be integrated into these ePayment platforms efforts to establish linkages with the transport to collect contributions. However, a large share authority (taxi drivers), thereby targeting cluster of the population remains without access to 4A (Plant and machine operators) that forms 10 these readily available contribution mechanisms. percent of informal Jordanian employees, and a For example, JoMoPay reports having 1.2 million share of cluster 2C (Low-skilled workers in the mobile wallets,36 which is not enough compared less populated governorates) that forms 39 per- to the overall population. As such, a review of the cent of self-employed Jordanians. SSC also has way JoMoPay can be integrated to facilitate these reached out to the Ministry of Digital Economy contributions, including potentially standing or- for the IT sector, which will help to target the ders on the wallet accounts, may be needed. A high-skilled clusters. More detailed analysis of correlating transformation plan for ensuring wage the configuration of the linkages would likely protection through digital payments should be provide a greater overarching outreach strategy developed by the government, as outlined in the that encompasses different clusters of workers in Jordan Five-Year Reform Matrix, 2018–2024 (Table the informal sector. 25). In addition, the Council of Ministers is plan- ning to issue a decision in 2021 requiring all gov- Compliance can also be achieved by simplify‑ ernment agencies to coordinate all digital trans- ing enrollment processes, which would require formation projects with the Ministry of Digital the administrative readiness to do so. Compli- Economy and Entrepreneurship. While this will ance with the law may be low because enroll- help cover the compliance aspect of eased ac- ment processes are too complex or financial in- cess, improving the digital economy infrastruc- clusion within the country is limited. Enrollment ture remains a key element. processes should be streamlined, with a focus on reducing, if not eliminating, data requirements for individuals subject to and enrolling into the 35. National Financial Inclusion Strategy 2018–2020. 36. JoMoPay October 2020 report: https://jopacc.com/ scheme. Leveraging national identification num- e bv 4 . 0/ro o t _ s to rag e /e n /e b _ l i s t _ p ag e / j o m o p ay _ bers and simply referencing data from the national (%D9%90oct)_english.pdf 40 ENHANCING WORKERS’ PROTECTION IN JORDAN Compliance could also improve if labor market to the employer and protecting workers’ rights.37 regulations were more flexible, making it eas‑ However, a flexicurity approach depends on all ier for firms to hire and dismiss formal work‑ agents (governments, employers, and trade ers. Adopting a strategy based on flexicurity may unions) being interested in making the system lower firms’ costs from hiring formal workers. work well (Packard et al. 2019). The current Labor Law on dismissal of workers is relatively rigid. It prohibits abusive dismissals, Decreasing employment costs for firms may not stating that “if a worker institutes judicial pro- lead to a proportional increase in formalization. ceedings within sixty days of his dismissal and a International experience shows mixed results on competent court finds the dismissal arbitrary and the impact of reducing contribution rates on for- in violation of the provisions of this law, the em- malization. On average, a 10 percent reduction in ployer may be ordered to reinstate the worker or contribution rates results in no more than a 3 per- pay him damages.” The law also requires notifica- cent increase in employment (Hamermesh 1993). tion of relevant authorities when redundancies From a pension system sustainability standpoint, are made. Defense Order 6, Article 8, promul- this means that the loss in revenue from a 10 per- gated during the COVID-19 crisis, further prohib- cent reduction is not fully compensated by the its firms from dismissing workers. A flexicurity increase in formalization. A study of Colombia model would allow the relaxation of regulation found that a 10 percent increase in payroll taxes that limits the ability of employers in firing and lowered formal employment by 4–5 percent hiring (Box 1), while providing protection at the same time to individuals who are dismissed. In 37. The amendment provides specific definitions of flexible Jordan, flexicurity requires addressing pressing is- work (which were not available in the original bylaw). It also sues in the law that prevent a flexible labor mar- provides enhanced protection to workers by specifying the regulatory pillars of the flexible work contract as well as the ket, such as the large costs implied in termination rights and responsibilities of the employer and the worker. of contracts. Amendments are needed to the The original bylaw can be found at https://ammanchamber. flexible work bylaw (22/2017) to facilitate wider org.jo/Uplaoded/PRNews/1731(2).pdf. The bylaw’s amend- ment can be found at http://www.lob.jo/?v=1.14&url=ar/Draf implementation by providing sufficient flexibility tDetails?DraftID:598,AddComment:0,PageIndex:1. Box 1. Flexicurity in Denmark The emergence of a new approach to social security in Europe aims at balancing flexibility for employers and income security for workers. The precursor is a Danish arrangement that emerged in the 1990s, which combines three key elements: (i) flexible hiring and firing laws, (ii) generous unemployment benefits, and (iii) active labor market programs. As a result of flexicurity, Denmark’s position in the OECD Protection Legisla- tion Index fell from 2.4 in 1983 to 1.5 in 2009, indicating more flexible hiring and firing regulations, while unemployment fell from 10 percent in 1993 to 3 percent in 2008. At the same time, unemployment insurance, financed by both contributions and taxes, covered around 80 percent of the labor force and provided up to four years of unemployment benefits. Flexicurity in Denmark also includes active labor market policies that assist, among other things, with job-search assistance and training. Source: Arias and Sanchez-Paramo (2014). Policy Recommendations for Extending Social Protection Coverage 41 (Kugler and Kugler 2009). Sweden implemented a that list will be offered many perks, such as a large and long-lasting employer payroll tax rate waiver for bank guarantees when hiring foreign cut, from 31 percent down to 15 percent for workers. To be eligible, a firm must demonstrate young workers, with positive effects on the em- that it is compliant with all labor regulations, in- ployment rate of the targeted young workers of cluding covering its workers with social security. about 2–3 percentage points. These effects were It is not clear to what extent the “Golden List stronger in credit-constrained firms (Saez, Firms” program is incentivizing firms to comply Schoefer, and Seim 2019). with current regulations. However, the govern- ment, in its Five-Year Reform Matrix, 2018–2024, Finally, enforcing regulations may not be suffi‑ committed to assessing the current incentive cient to expand coverage; policies that provide system of the “Golden List Firms,” making it more incentives for firms to formalize their workers attractive and ensuring that the criteria for inclu- are also needed. Incentives can also be offered sion complies with the core labor standards in to employers to increase coverage of their work- Jordan (Table 25). Supplementary benefits may be ers and incentivize compliance. Toward that end, offered to firms to incentivize compliance, in- the Government of Jordan established the cluding, for example, preferential treatment “Golden List Firms,” where establishments within within government procurement process. 42 ENHANCING WORKERS’ PROTECTION IN JORDAN Offering workers in jobs that can’t The VSS may also be made available to workers be formalized alternative protection in jobs that can be formalized as an additional mechanisms protection mechanism to improve benefit ade- quacy and access to medium- and long-term sav- Formalization efforts may not be effective for ings. This would apply to high-skilled Jordanian a large cohort of informal workers due to dif‑ men (Cluster 6a) and most women (Tables 26 and ficulties in enforcing social security regula‑ 27). tions. This cohort comprises regular workers who are employed in micro and small firms, or The VSS would thus be an additional compo‑ irregular workers, or the self-employed. Four out nent to the SSC mandatory scheme, helping of the six analyzed clusters for Jordanian men in- improve adequacy for those who comply with clude workers employed in micro firms, making it the mandatory contributions and introduce in‑ difficult for inspectors to identify these firms and centives for the informal sector to enroll and enforce regulations (Table 26). The same applies contribute. With the potential new bylaws, SSC for non-Jordanian men who are largely employed is allowing individuals to choose the tranche at in micro firms (Table 28). As a consequence, man- which they will contribute (allowed tranches are dating coverage of non-Jordanians with work per- 75, 50, 25, or 10 percent of the normal contribu- mits in the SSC regulations may not significantly tion). The proposal of the voluntary scheme adds improve formality. Finally, around one-fourth of to this design by introducing a voluntary compo- Jordanian informal workers are irregular, and 17.6 nent that would encourage the selection of the percent are self-employed in the private sector tranche based on the characteristics of the dif- (Table 2), again limiting enforcement of regula- ferent clusters. Different benefits would then be tions and identification of the income they earn. offered depending on the level of contributions and selected contribution tranches. A new, defined contribution Voluntary Savings Scheme (VSS) that would complement the cur‑ Establishing additional incentives and offering rent pension scheme may be offered to these new products and services is especially impor‑ workers as alternative or additional protection tant in light of the new bylaws that reduce con‑ mechanisms against shocks. A VSS should be a tribution rates, and as such, benefits as well. key component of Jordan’s social security sys- The benefits may be too small for individuals to tem. Informal and irregular workers, as well as the take advantage of the pension system. Simply self-employed, are often left out of Jordan’s so- put, establishing bylaws to make contributions cial protection system, remaining vulnerable to mandatory for individuals who are not bound by shocks (such as old age and unemployment). current regulation will not be enough to cover all While some of those workers earn such a low informal sector workers and provide them with income that they would not be able to contrib- adequate pensions. ute to any social insurance system, these workers would normally, due to their vulnerability, be the The packages of benefits (products and ser‑ recipients of aid through social assistance pro- vices) offered to individuals as part of the grams. But for those workers employed infor- VSS would be tailored to clusters of informal mally beyond poverty levels and non-vulnerable, workers based on their needs and capacity to as well as those working irregularly and those save and contribute. SSC’s efforts to extend working on their own (that is, self-employed), a coverage provide a solid ground floor from complementary voluntary savings account could which informal sector workers and self-em- be an option to extend coverage in Jordan. ployed individuals can begin to be covered. Policy Recommendations for Extending Social Protection Coverage 43 However, extending current benefits under the contribution for pensions. Identifying these new bylaws may further SSC’s efforts in broaden- short-term benefits (for example, access to ing coverage and provide a more appealing prod- healthcare or insurance against income shocks) uct to workers in the different clusters. For in- may provide some short-term certainty for indi- stance, informal waged and self-employed viduals who may not be saving or contributing Jordanians in clusters 4A and 2C, respectively, for retirement due to these short-term risks. working as machine operators in the transporta- tion sector, may be interested in a packaged of- The importance of offering short-term bene‑ fer that includes liability or other insurance for fits has been made clear during the COVID-19 their vehicles as part of the contributions they crisis. During this crisis, short-term support has make to social protection. For the clusters of targeted over 15,000 individuals through SSC women, offering childcare (with fiscal implica- benefits,38 providing significant relief to individu- tions taken into account) can be an important als who have lost income. The National Aid Fund incentive. For the highly educated, self-employed in Jordan has also extended cash and supplemen- Jordanians in clusters 3C and 6C, access to low- tary support to an additional 150,000 families interest micro-credit may be an incentive for (where 50,000 households were added during them to contribute, especially if their capacity to 2020).39 Further, right before the COVID-19 crisis, contribute is higher than the low-skilled workers. in March 2019, the SSC enacted regulations that For clusters where earnings are very low, other allowed it to use 25 percent of the maternity effective tools to enroll members may include fund resources for maternity-related social pro- monetary incentives, such as matching contribu- tection programs. There is therefore clearly a tions for a short period of time, or other behav- need for both some short-term assistance mech- ioral tools to encourage enrollment and contri- anisms and for a greater social protection struc- butions (Akbas et al. 2016). These clusters include ture to provide some medium-term protection workers, including Syrian refugees, in the agricul- to individuals. ture, manufacturing, and construction sectors who may not have the capacity to save even if Offering additional incentives to workers, offered the option of a VSS, so subsidized sup- whether in the form of short- or long-term port is needed to provide them with minimal pro- benefits, implies catalyzing synergies across in‑ tection (Tables 26, 27, and 28). However, including stitutional products. Exploring synergies with any form of subsidized pooled insurance policy different government agencies is needed, not requires a long-term fiscal viability analysis. only as outreach channels but as a way to iden- tify products generally required by those indi- The packages of products and services offered viduals that could be part of the overall incentive as part of VSS would include short-term ben‑ structure. Not all products are likely to be pro- efits as well, since they can attract longer con‑ vided by SSC (for example, vehicle insurance); tribution commitments. Extending social pro- other private parties could provide a pooled tection requires developing flexible mechanisms service for those who do not currently have ac- for low-paid informal workers with low or irregu- cess to important financial services. This would lar capacity to make contributions. When work- entail packaging those other services together ers accept informal employment under precari- with SSC. ous conditions, they also often postpone caring for their future in order to meet immediate basic 38. COVID-19 Emergency Unemployment and Employment needs. Short-term benefits could help to attract Stabilization Fund, August 2020. 39. COVID-19 Emergency Unemployment and Employment informal workers to commit to long periods of Stabilization Fund, August 2020. 44 ENHANCING WORKERS’ PROTECTION IN JORDAN Finally, when offering incentives, the Govern‑ The proposed VSS, complementing the current ment of Jordan needs to pay special attention SSC’s mandatory scheme, will be the first to the system’s financial sustainability. SSC is scheme of its kind in the MENA region if imple‑ already providing incentives to formalize by re- mented; however, it needs to be piloted first. ducing the cost of contributions, particularly as a As described above, the VSS would provide dif- result of the health emergency triggered by CO- ferent levels of contributions paired with bene- VID-19. Incentives, however, can compromise the fits specifically designed for the target popula- financial sustainability of the system. Jordan tion groups based on the cluster analysis. The could turn for lessons to the fiscal and financial companion paper to this study, “Voluntary Sav- hazards in pension systems around the world. ings Schemes to Protect Informal Workers in Jor- The post-financial crisis European pension sys- dan,” provides details on how such a voluntary tems face the dual challenges of improving sus- scheme can work, making use of the statistical tainability while maintaining adequacy. The chal- cluster analysis developed in this paper to pro- lenge is different for other emerging economies pose alternative packages for different types of with younger populations and smaller fiscal ad- informal workers. The paper also stresses the im- justment needs: improving pension adequacy portance of piloting the VSS, in order to ensure and coverage while maintaining sustainability its successful implementation. (Clements, Eich, and Gupta 2014). Jordan needs to make sure that any further incentives do not cre- Going forward, VSSs will likely become even ate a financial or fiscal sustainability risk that may more relevant as employment practices change. compromise the system. While VSSs play an important role in improving benefit adequacy in a financially sustainable way, they are also fundamental in adapting social pro- tection policies to the changing nature of jobs. Increasingly, non-standard forms of employment are emerging that are not covered by the tradi- tional social insurance schemes, especially with the expansion of the gig economy (WDR 2019). 4 The Way Forward Despite all the efforts to expand social insurance coverage in Jordan, an impor‑ tant share of the working population is still not covered by any social security scheme. Today the Jordanian social security system (administered by SSC) provides benefits to less than 50 percent of its total population for old age, disability and survivors, maternity, work injury, and unemployment insurance. Workers who are not covered by social security include both Jordanians and non-Jordanians. They are predominately male employees of low education working in micro firms, a sig- nificant share of which are commercially registered, and not just self-employed workers as might be expected. Therefore, there is a clear need to rethink policy making. Reforming social insur- ance systems and introducing new instruments for coverage extension are neces- sary but complex undertakings. The aim is not to attract people to only register in a social security institution for short-term benefits, but to improve the coverage of good-quality pensions—where good quality means financially sustainable and af- fordable pensions that deliver adequate income in old age, in a way that is efficient in terms of costs, investment returns, and impact on the capital and labor markets. When rethinking policy making, the heterogeneity of informal workers needs to be accounted for. The analysis in this report, including the cluster analysis, shows that informal workers are not homogeneous. Policies should thus be tar- geted to the specific needs of individuals while keeping the system simple. For in- stance, additional incentives provided to workers would be based on the charac- teristics of the cluster they belong to. Furthermore, workers’ ability to comply with 45 46 ENHANCING WORKERS’ PROTECTION IN JORDAN mandatory coverage or the extent of their con- studies, surveys, and field focus groups could be tribution to a voluntary scheme depends on established for the clusters identified in the their capacity to save, which varies from one previous section of the paper, facilitating a cluster to another. generalized review of the demand for the social protection product, as well as providing insight This report goes only so far in attempting to into the very specific needs of each of the clusters. profile informal workers and subsequently The demand-side review may also provide insight recommending policies to address informality, on the strategies SSC could establish to reach as it is mainly reliant on supply-side data. 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DC: World Bank. doi:10.1596/978-1-4648-1328- Organisation for Economic Co-operation and 3. License: Creative Commons Attribution CC Development (OECD). 2019. “Tackling Vulner- BY 3.0 IGO. ability in the Informal Economy.” OECD, Paris. ———. 2020. “Jordan Fiscal Expenditure Review ———. 2020. “Employment Outlook 2020: Fac- (FPER): Social Security Corporation (SSC): To- ing the Jobs Crisis.” OECD, Paris. ward Coverage Expansion and a More Ade- Packard, T., U. Gentilini, M. Grosh, P. O’Keefe, R. quate, Equitable and Sustainable Pension Sys- Palacios, D. Robalino, and I. Santos. 2019. Pro- tem.” Final draft, June 2020. World Bank, tecting All: Risk Sharing for a Diverse and Di- Washington, DC. versifying World of Work. Washington, DC: ———. 2021. Job Structures Tool. World Bank. Annexes Annex A: Data and methodology For the current report, two main sources of information were used. The first one is the Jordan Labor Market Panel Survey (JLMPS) 2016 (see DS 2016). This is a panel survey that provides retrospective information regarding respondents’ current and past jobs, as well as some background information on their household and parents activities. The survey is nationally representative and has 33,450 registries. Never- theless, depending on the type of exercise its being performed, the real sample (once missing values are removed) is 1,080 observations. The second source of in- formation is the Labor Force Survey (LFS) 2018 (see DS 2018). With higher resolution then the JLMPS, this survey has 271,081 observations that collect the information of respondents on standardized labor force-related questions. Whereas the LFS 2018 has more observations and its more recent, there are several relevant questions linked to this work that are not available on it. In these cases, the results from the JLMPS 2016 were displayed. For all other cases, unless an explicit comparison needs to be done, the results displayed were on the LFS 2018, and, although not reported, similar exercises were performed on the JLMPS 2016 for robustness of the results. While most of the quantitative analysis presented on the results emerge from crosstabulations and descriptive exercises, two advanced statistical processes have been done on the report. The first one, presented on Annex B, relates to a regres- sion analysis performed to evaluate the preferences of workers for the public or the private sector. The second one, detailed in Annex C, describes the profiling methodology used to group the informal individuals into groups. 49 50 ENHANCING WORKERS’ PROTECTION IN JORDAN Annex B: Public versus variable that takes a value of one if a worker has no social security and zero otherwise. “Monthly private sector preferences wage” is the value of a worker’s monthly wage. As part of the analysis regarding informality, it “Number of hours worked” is the number of was important to evaluate the preferences of in- hours worked per week. “No paid vacation” is a dividuals to engage with the formal sector. For dummy variable that takes a value of one if a this reason, two exercises were performed. worker gets no paid vacation and zero otherwise. Similarly, “No health insurance from work” is a The first exercise was based on the JLMPS 2016. In dummy variable that takes a value of one if a this case, the dependent variable is dichoto- worker has no health insurance from work and mous, taking a value of one for those employed zero otherwise. Regarding the sample size, it is in the private sector but who prefer to work in limited to Jordanian workers in the private sector, the public sector. It takes a value of zero for yet the regression is estimated using JLMPS 2016 those employed in the private sector but who individual sample weights. Finally, the standard prefer to work in the private sector. The explana- errors are estimated using Hubber/White robust tory variable “No social security” is a dummy standard errors. TABLE B.1.  Determinants of employment preferences: public vs. private sector Variable Value Employment conditions No social security 0.12** (2.28) Monthly wage −5.24e-07 (-1.05) Number of hours worked 0.001 (1.12) No paid vacation 0.12*** (2.59) No health insurance from work 0.09* (1.73) Other controls Age Yes Job skill requirements Yes Temporary vs. permanent, seasonal, or casual Yes Educational attainment Yes Sex Yes Place of residence (rural vs. urban) Yes Governorate Yes Type of occupation Yes Number of observations 1080 Source: JLMPS (2016). Note: Figures in parentheses are t-statistics. *** p<0.01, ** p<0.05, and * p<0.1. Annexes 51 Complementing the previous exercise, the sec- column 3 presents the full model further control- ond regression is based on the LFS 2018 and aims ling for educational attainment, sex, type of work to explore the determinants of informality. The contract, type of employment (permanent vs. results are based on estimating a linear probabil- temporary), type of occupation, and firm size. ity model in which the dependent variable is di- The reported coefficients are probability esti- chotomous taking a value of one for formal mates of joining formal employment. Similar to workers and zero for informal workers. Column 1 the previous case, the regression is estimated us- presents the results for a parsimonious model ing individual sample weights and the standard controlling for workers’ age. Column 2 adds mari- errors are estimated using Hubber/White robust tal status and governorate of residence, while standard errors. TABLE B.2.  Determinants of formality Variable 1 2 3 Age groups 25-49 0.1516*** 0.1869*** 0.0188* (14.04) (15.43) (1.83) 50-64 0.1474*** 0.2015*** 0.0245 (9.46) (11.3) (1.64) 64+ 0.1697*** 0.2256*** -0.0053 (3.66) (4.76) (-0.16) Marital status Married -0.0607*** 0.0245 (-6.15) (2.95) Educational attainment Secondary 0.0332** (2.35) Tertiary 0.0183 (1.25) Gender Female Female (3.27) Type of contract No No Yes Permanent vs. temporary No No Yes Governorate Yes Yes Yes Type of occupation No No Yes Firm size No No Yes N 18286 18286 14802 Source: LFS (2018). Note: Figures in parentheses are t-statistics. *** p<0.01, ** p<0.05, and * p<0.1. 52 ENHANCING WORKERS’ PROTECTION IN JORDAN Annex C: Statistical profiling Individual skills: This dimension is approximated via the educational level of the individual. In this of informality case, as the report of education is ordinal, the variable was transformed into a set of six dum- Profiling strategy mies that allow the clusters to capture the hier- The purpose of this methodological note is to archy of the education levels. The first dummy develop the different steps taken to generate assigned a value of 1 to all individuals who at least the statistical profiling strategy presented in the know how to read and write. The second dummy current research. As stated in the main text of the assigned a value of 1 to all individuals who at least document, the strategy identifies groups of in- completed primary studies. The third dummy as- formal individuals who have similar traits, in order signed a value of 1 to all individuals who at least to support evidence-based policies that take completed their preparatory studies. The fourth into account these differences in the population dummy assigned a value of 1 to all individuals and have a greater impact. who have technical and vocational education and training (TVET). The fifth dummy assigned a In order to develop this procedure, three steps value of 1 to the individuals who at least com- are followed: data selection, data processing, and pleted secondary studies. Finally, the sixth cluster analysis. dummy assigned a value of 1 to all individuals who have tertiary education. To give an example, an individual whose maximum education level 1. Data selection was secondary will have values of 1 in dummies Intrinsic to any profiling is the idea that the social one, two, three, and five, and 0 in the rest. dynamics—in this case related to informality— cluster and segregate individuals into niches that Job characteristics: This dimension included can be defined by the characteristics of the dummies for industries and occupations (first workers and of their jobs. Therefore, the first levels of disaggregation, 9 for occupation, and 17 step of the profiling strategy is identifying those for industry). Besides these variables, two addi- variables that characterize each market niche. For tional variables were created. The first one was this purpose, the LFS 2018 was reviewed, and four the type of contract, which is a variable that dis- groups of variables were selected: tinguishes between temporary and permanent contracts. The second variable presents the num- Demographic characteristics: This group in- ber of hours worked by the individual. cluded their age, marital status, and socioeco- nomic status, where this last variable was approx- Firm characteristics: The first variables of this imated by using their current reported salary. It is group are dummies related to the governorate also important to note that some individuals did where the company is located. The second group not report their salary. Therefore, to avoid losing is related to the size of the firm. It uses a set of 5 these observations, the wage value of these increasing dummy variables where the first cases was fixed as 0 and an auxiliary dummy vari- dummy is designed for firms with at least 10 able was created such that it takes values of 1 if workers. The second dummy is designed for the individuals reported their salaries, and 0 if firms with at least 20 workers. The third dummy they did not report it. Finally, for non-Jordanians, is designed for firms with at least 50 workers. The there were dummies created associated with fourth dummy is designed for firms with at least their nationalities and possession of a work 100 workers, and the fifth variable captures regis- permit. tries where the size of the firm was not available. Annexes 53 54 ENHANCING WORKERS’ PROTECTION IN JORDAN In this group of firm characteristics, there is also explanatory power that the variables have over a dummy variable that identifies those firms reg- the likelihood of being formal). However, these istered with the commercial or tax authorities. Fi- exercises produced similar qualitative results to nally, there is also a variable that identifies those the initial standardization, and therefore, under firms that keep written records or accounts. a parsimonious criterion, they are not displayed in this work. Filtering by observations with complete registers on these variables, the sample size for Jordanians Once the variables were standardized, a hierar- and non-Jordanians is presented in Table C.1. chical Ward clustering was performed over the full set of variables. Different types of clustering were considered, including single linkage, com- 2. Data processing plete linkage, and Ward linkage. However, once The second step of the profiling is the creation the results were analyzed, the strategy that pro- of the clusters. The procedure that will be de- duced more stable groups was the Ward linkage. scribed in the following text was performed, in- For illustration, Figure C.1 presents the dendro- dependently, for the following groups of inde- gram obtained for male Jordanian workers. pendent individuals: male employed Jordanians, female employed Jordanians, male Jordanians The number of groups was fixed at six. This num- that are employers or self-employed, and male ber came from the evaluation of multiple op- employed non-Jordanians. The other options tions based on the size of the clusters, the reduc- were not calculated due to their small sample size. tion of the variance within the clusters, and the capacity to design a reasonable number of poli- In order to develop this process, the variables cies to tackle the challenges of informality. were standardized (transformed to have mean 0 and standard deviation 1), so that the clustering 3. Degree of formalization by clusters process guarantees equal weights to all the vari- ables. Robustness checks were developed by as- Once the clustering was performed, the next sessing different weighting strategies. For exam- step is to evaluate how viable it is for the indi- ple, in one exercise done, the variables were viduals of each cluster to become formalized. For standardized so the sample mean is 0 and the this purpose, the conceptual strategy is con- standard deviation is the semi-partial correla- struct a counterfactual individual for current for- tion of that variable with respect to formality mal workers to evaluate, which will be their clus- (that is, the weights were proportional to the ter if they were informal. By doing this exercise, TABLE C.1.  Sample size used for the clustering Nationality Workers Female Male Total Jordanians Employer 55 1,523 1,578 Jordanians Self-employed 130 3,379 3,509 Jordanians Waged worker 551 5,881 6,432 Non-Jordanians Waged worker 89 2,410 2,499 Total general 825 13,193 14,018 Annexes 55 FIGURE C.1.  Dendrogram for male Jordanian workers Clustering individuals Ward Clustering 1500 Distance 1000 500 0 Individuals and reviewing where formal workers allocate, the four corresponding clustering groups (for exam- report evaluates how reasonable is for individuals ple, Jordanian male employees) is inputed into in each cluster to become formalized. To de- the model and the individuals are classified into velop this analysis, a Classification and Regression the different informality clusters. Tree (CART) was used to estimate the cluster that the formal individuals in the sample will belong At this point, both the formal and informal work- to, if they are informal workers. The advantage of ers of the relevant groups have been assigned to using this methodology is that it uses the current the corresponding clusters. Thence, the share of data structure and evaluates both the functional informal workers per cluster was calculated, and form of a prediction model as well as the vari- the clusters were labelled accordingly to the ables that feed it, without the need of imposing share of informality. specific requirements on the data (Hastie, Tibshi- rani, and Friedman 2001). It is important to note that this procedure could not be performed on the group of self-employed To implement the CART, the first stage was tun- and employers. In this case, the LFS 2018 does not ing the model, which was done using the infor- present any information regarding their coverage mal workers and the clusters in which they were by social security. However, from secondary in- previously allocated. The number of nodes per formation sources, which included the JLMPS leaf was selected to have a perfect fit (for ex- 2016, the share of formality in these groups is ample, a highly overfitted tree), guaranteeing minimal, so it was assumed that all the individuals that it is the smallest decision tree that can per- in this group are informal, and the clusters are fectly classify all informal workers in their as- named aiming to match those with comparable signed clusters. Once the tree has been tuned, a characteristics in the other groups. new sample based on the formal workers of the 56 ENHANCING WORKERS’ PROTECTION IN JORDAN 4. Detailed clustering results each of the groups and the corresponding policy measures that can be targeted to each of them. After the labels were organized, each cluster was Finally, the last part of this section presents the analyzed under the light of the variables defined detailed distribution of characteristics along with in the first stage. By studying the distribution of the different clusters. The following subsections values within and between clusters, an open pro- present the main figures that support the evi- cess was done between technical and policy ex- dence presented in the results of the profiling. perts to identify the characteristics that define Annexes 57 Employed Jordanian men FIGURE C.2.  Informality clusters among employed Jordanian males Informality by groups Jordanians 100 75 Share of informality 50 Informal Forma l 25 0 1 2 3 4 5 6 Profiled groups Source: Own calculations based on DS (2018) Labor Force Survey 2018. FIGURE C.3.  Informality clusters among employed Jordanian males by education Education level by groups Jordanians 100 75 Illiterate Read & write Elementary Share 50 Preparatory Basic education Vocational apprenticeship Secondary 25 Tertiary 0 1 2 3 4 5 6 Profiled groups Source: Own calculations based on DS (2018) Labor Force Survey 2018. 58 ENHANCING WORKERS’ PROTECTION IN JORDAN FIGURE C.4.  Informality clusters among employed Jordanian males by age groups Age by groups Jordanians 60 50 1 2 Age 40 3 4 5 30 6 20 1 2 3 4 5 6 Profiled groups Source: Own calculations based on DS (2018) Labor Force Survey 2018. FIGURE C.5.  Informality clusters among employed Jordanian males by occupation Occupation by groups Jordanians 100 75 Professionals Technicians and associate professionals Clerical support workers Share Service and sales workers 50 Skilled agricultural, forestry, and fishing Craft and related trades workers Plant and machine operators, and assemblers 25 Elementary occupations 0 1 2 3 4 5 6 Profiled groups Source: Own calculations based on DS (2018) Labor Force Survey 2018. Annexes 59 FIGURE C.6  Informality clusters among employed Jordanian males by economic sector Industry by groups Jordanians Agriculture, forestry, and fishing 100 Mining and quarrying Manufacturing Electricity, gas, steam, and air conditioning supply 75 Water supply Construction Wholesale and retail trade Share Transportation and storage 50 Accommodation and food services Information and communication Financial and insurances Real estate 25 Professional, scientific, and technical activities Administrative and support services Education 0 Human health and social works 1 2 3 4 5 6 Arts, entertainment, and recreation Profiled groups Source: Own calculations based on DS (2018) Labor Force Survey 2018. FIGURE C.7.  Informality clusters among employed Jordanian males by governorate Governorates by groups Jordanians 100 Amman Irbid 75 Zarqa Balqa Mafraq Share 50 Karak Jerash Madaba Ajloun 25 Aqaba Ma’an Tafilah 0 1 2 3 4 5 6 Profiled groups Source: Own calculations based on DS (2018) Labor Force Survey 2018. 60 ENHANCING WORKERS’ PROTECTION IN JORDAN FIGURE C.8.  Informality clusters among employed Jordanian males by firm size Firm size by groups Jordanians 100 75 1−9 Workers Share 10−19 Workers 50 20−49 Workers 50−99 Workers 100+ Workers 25 0 1 2 3 4 5 6 Profiled groups Source: Own calculations based on DS (2018) Labor Force Survey 2018. FIGURE C.9.  Informality clusters among employed Jordanian males by firm registration Employer registration by groups Jordanians 100 75 Share 50 No Yes 25 0 1 2 3 4 5 6 Profiled groups Source: Own calculations based on DS (2018) Labor Force Survey 2018. Annexes 61 FIGURE C.10.  Informality clusters among employed Jordanian males by salary deciles Salary decile by groups Jordanians 100 75 2 3 4 Share 50 5 7 8 9 25 10 0 1 2 3 4 5 6 Profiled groups Source: Own calculations based on DS (2018) Labor Force Survey 2018. FIGURE C.11.  Informality clusters among employed Jordanian males by workplace Work place by groups Jordanians 100 Home 75 Structure attached Client home Office Share Fixed stall 50 Non-fixed stall Street Farm Transport vehicle 25 Construction site Other 0 1 2 3 4 5 6 Profiled groups Source: Own calculations based on DS (2018) Labor Force Survey 2018. 62 ENHANCING WORKERS’ PROTECTION IN JORDAN FIGURE C.12.  Informality clusters among employed Jordanian males by type of contract Contract frequency by groups Jordanians 100 75 Share 50 Permanent Temporal 25 0 1 2 3 4 5 6 Profiled groups Source: Own calculations based on DS (2018) Labor Force Survey 2018. FIGURE C.13.  Informality clusters among employed Jordanian males by working hours Working hours Jordanians 75 1 Weekly hours 2 50 3 4 5 6 25 1 2 3 4 5 6 Profiled groups Source: Own calculations based on DS (2018) Labor Force Survey 2018. Annexes 63 Employed Jordanian women FIGURE C.14.  Informality clusters among employed Jordanian females Informality by groups Jordanians 100 75 Share of informality 50 Informal Formal 25 0 1 2 3 4 5 6 Profiled groups Source: Own calculations based on DS (2018) Labor Force Survey 2018. FIGURE C.15.  Informality clusters among employed Jordanian females by education Education level by groups Jordanians 100 75 Illiterate Read & write Elementary Share 50 Preparatory Basic education Vocational apprenticeship Secondary 25 Tertiary 0 1 2 3 4 5 6 Profiled groups Source: Own calculations based on DS (2018) Labor Force Survey 2018. 64 ENHANCING WORKERS’ PROTECTION IN JORDAN FIGURE C.16.  Informality clusters among employed Jordanian females by age groups Age by groups Jordanians 60 50 1 2 Age 40 3 4 5 6 30 20 1 2 3 4 5 6 Profiled groups Source: Own calculations based on DS (2018) Labor Force Survey 2018. FIGURE C.17.  Informality clusters among employed Jordanian females by occupation Occupation by groups Jordanians 100 75 Managers Professionals Technicians and associate professionals Share 50 Clerical support workers Service and sales workers Skilled agricultural, forestry, and fishing Craft and related trades workers 25 Elementary occupations 0 1 2 3 4 5 6 Profiled groups Source: Own calculations based on DS (2018) Labor Force Survey 2018. Annexes 65 FIGURE C.18  Informality clusters among employed Jordanian females by economic sector Industry by groups Jordanians 100 Agriculture, forestry, and fishing Manufacturing Electricity, gas, steam, and air conditioning supply Water supply 75 Construction Wholesale and retail trade Transportation and storage Share 50 Accommodation and food services Information and communication Financial and insurances Real estate 25 Professional, scientific, and technical activities Administrative and support services Education Human health and social works 0 1 2 3 4 5 6 Arts, entertainment, and recreation Profiled groups Source: Own calculations based on DS (2018) Labor Force Survey 2018. FIGURE C.19.  Informality clusters among employed Jordanian females by governorate Governorates by groups Jordanians 100 Amman Irbid 75 Zarqa Balqa Mafraq Share 50 Karak Jerash Madaba Ajloun 25 Aqaba Ma’an Tafilah 0 1 2 3 4 5 6 Profiled groups Source: Own calculations based on DS (2018) Labor Force Survey 2018. 66 ENHANCING WORKERS’ PROTECTION IN JORDAN FIGURE C.20.  Informality clusters among employed Jordanian females by firm size Firm size by groups Jordanians 100 75 1−9 Workers Share 10−19 Workers 50 20−49 Workers 50−99 Workers 100+ Workers 25 0 1 2 3 4 5 6 Profiled groups Source: Own calculations based on DS (2018) Labor Force Survey 2018. FIGURE C.21  Informality clusters among employed Jordanian females by firm registration Employer registration by groups Jordanians 100 75 Share 50 No Yes 25 0 1 2 3 4 5 6 Profiled groups Source: Own calculations based on DS (2018) Labor Force Survey 2018. Annexes 67 FIGURE C.22.  Informality clusters among employed Jordanian females by salary deciles Salary decile by groups Jordanians 100 75 2 3 Share 4 50 5 7 9 10 25 0 1 2 3 4 5 6 Profiled groups Source: Own calculations based on DS (2018) Labor Force Survey 2018. FIGURE C.23.  Informality clusters among employed Jordanian females by workplace Work place by groups Jordanians 100 75 Home Structure attached Client home Share Office 50 Fixed stall Street Farm Transport vehicle 25 Construction site 0 1 2 3 4 5 6 Profiled groups Source: Own calculations based on DS (2018) Labor Force Survey 2018. 68 ENHANCING WORKERS’ PROTECTION IN JORDAN FIGURE C.24.  Informality clusters among employed Jordanian females by contract Contract frequency by groups Jordanians 100 75 Share 50 Permanent Temporal 25 0 1 2 3 4 5 6 Profiled groups Source: Own calculations based on DS (2018) Labor Force Survey 2018. FIGURE C.25.  Informality clusters among employed Jordanian females by working hours Working hours Jordanians 60 1 Weekly hours 2 40 3 4 5 6 20 1 2 3 4 5 6 Profiled groups Source: Own calculations based on DS (2018) Labor Force Survey 2018. Annexes 69 Self-employed/employers Jordanian men FIGURE C.26.  Informality clusters among self-employed/employer Jordanian males by education Education level by groups Jordanians 100 75 Illiterate Read & write Elementary Share 50 Preparatory Basic education Vocational apprenticeship Secondary 25 Tertiary 0 1 2 3 4 5 6 Profiled groups Source: Own calculations based on DS (2018) Labor Force Survey 2018. FIGURE C.27.  Informality clusters among self-employed/employer Jordanian males by age Age by groups Jordanians 60 50 1 2 Age 40 3 4 5 30 6 20 1 2 3 4 5 6 Profiled groups Source: Own calculations based on DS (2018) Labor Force Survey 2018. 70 ENHANCING WORKERS’ PROTECTION IN JORDAN FIGURE C.28.  Informality clusters among self-employed/employer Jordanian males by occupation Occupation by groups Jordanians 100 Managers 75 Professionals Technicians and associate professionals Clerical support workers Share 50 Service and sales workers Skilled agricultural, forestry, and fishing Craft and related trades workers Plant and machine operators, 25 and assemblers Elementary occupations 0 1 2 3 4 5 6 Profiled groups Source: Own calculations based on DS (2018) Labor Force Survey 2018. FIGURE C.29.  Informality clusters among self-employed/employer Jordanian males by economic sector Industry by groups Jordanians Agriculture, forestry, and fishing 100 Mining and quarrying Manufacturing Electricity, gas, steam, and air conditioning supply 75 Water supply Construction Wholesale and retail trade Share Transportation and storage 50 Accommodation and food services Information and communication Financial and insurances Real estate 25 Professional, scientific, and technical activities Administrative and support services Education 0 Human health and social works 1 2 3 4 5 6 Arts, entertainment, and recreation Profiled groups Source: Own calculations based on DS (2018) Labor Force Survey 2018. Annexes 71 FIGURE C.30.  Informality clusters among self-employed/employer Jordanian males by governorates Governorates by groups Jordanians 100 Amman Irbid 75 Zarqa Balqa Mafraq Share 50 Karak Jerash Madaba Ajloun 25 Aqaba Ma’an Tafilah 0 1 2 3 4 5 6 Profiled groups Source: Own calculations based on DS (2018) Labor Force Survey 2018. FIGURE C.31.  Informality clusters among self-employed/employer Jordanian males by firm size Firm size by groups Jordanians 100 75 1−9 Workers Share 10−19 Workers 50 20−49 Workers 50−99 Workers 100+ Workers 25 0 1 2 3 4 5 6 Profiled groups Source: Own calculations based on DS (2018) Labor Force Survey 2018. 72 ENHANCING WORKERS’ PROTECTION IN JORDAN FIGURE C.32.  Informality clusters among self-employed/employer Jordanian males by firm registration Employer registration by groups Jordanians 100 75 Share 50 No Yes 25 0 1 2 3 4 5 6 Profiled groups Source: Own calculations based on DS (2018) Labor Force Survey 2018. FIGURE C.33.  Informality clusters among self-employed/employer Jordanian males by workplace Work place by groups Jordanians 100 Home 75 Structure attached Client home Office Share Fixed stall 50 Non-fixed stall Street Farm Transport vehicle 25 Construction site Other 0 1 2 3 4 5 6 Profiled groups Source: Own calculations based on DS (2018) Labor Force Survey 2018. Annexes 73 FIGURE C.34.  Informality clusters among self-employed/employer Jordanian males by contract Contract frequency by groups Jordanians 100 75 Share 50 Permanent Temporal 25 0 1 2 3 4 5 6 Profiled groups Source: Own calculations based on DS (2018) Labor Force Survey 2018. FIGURE C.35.  Informality clusters among self-employed/employer Jordanian males by working groups Working hours Jordanians 75 1 Weekly hours 2 50 3 4 5 6 25 1 2 3 4 5 6 Profiled groups Source: Own calculations based on DS (2018) Labor Force Survey 2018. 74 ENHANCING WORKERS’ PROTECTION IN JORDAN Employed non-Jordanian men FIGURE C.36.  Informality clusters among employed non-Jordanian males Informality by groups Non Jordanians 100 75 Share of informality 50 Informal Formal 25 0 1 2 3 4 5 6 Profiled groups Source: Own calculations based on DS (2018) Labor Force Survey 2018. FIGURE C.37.  Informality clusters among employed non-Jordanian males by education Education level by groups Non Jordanians 100 75 Illiterate Read & write Elementary Share 50 Preparatory Basic education Vocational apprenticeship Secondary 25 Tertiary 0 1 2 3 4 5 6 Profiled groups Source: Own calculations based on DS (2018) Labor Force Survey 2018. Annexes 75 FIGURE C.38.  Informality clusters among employed non-Jordanian males by age Age by groups Non Jordanians 60 50 1 2 3 Age 40 4 5 30 6 20 1 2 3 4 5 6 Profiled groups Source: Own calculations based on DS (2018) Labor Force Survey 2018. FIGURE C.39.  Informality clusters among employed non-Jordanian males by occupation Occupation by groups Non Jordanians 100 75 Professionals Technicians and associate professionals Clerical support workers Share Service and sales workers 50 Skilled agricultural, forestry, and fishing Craft and related trades workers Plant and machine operators, 25 and assemblers Elementary occupations 0 1 2 3 4 5 6 Profiled groups Source: Own calculations based on DS (2018) Labor Force Survey 2018. 76 ENHANCING WORKERS’ PROTECTION IN JORDAN FIGURE C.40.  Informality clusters among employed non-Jordanian males by economic sector Industry by groups Non Jordanians 100 Agriculture, forestry, and fishing Mining and quarrying Manufacturing Electricity, gas, steam, and air conditioning supply 75 Water supply Construction Wholesale and retail trade Share 50 Transportation and storage Accommodation and food services Information and communication Financial and insurances 25 Professional, scientific, and technical activities Administrative and support services Education Human health and social works 0 1 2 3 4 5 6 Arts, entertainment, and recreation Profiled groups Source: Own calculations based on DS (2018) Labor Force Survey 2018. FIGURE C.41.  Informality clusters among employed non-Jordanian males by governorates Governorates by groups Non Jordanians 100 Amman Irbid 75 Zarqa Balqa Mafraq Share 50 Karak Jerash Madaba Ajloun 25 Aqaba Ma’an Tafilah 0 1 2 3 4 5 6 Profiled groups Source: Own calculations based on DS (2018) Labor Force Survey 2018. Annexes 77 FIGURE C.42.  Informality clusters among employed non-Jordanian males by firm size Firm size by groups Non Jordanians 100 75 1−9 Workers Share 10−19 Workers 50 20−49 Workers 50−99 Workers 100+ Workers 25 0 1 2 3 4 5 6 Profiled groups Source: Own calculations based on DS (2018) Labor Force Survey 2018. FIGURE C.43.  Informality clusters among employed non-Jordanian males by firm registration Employer registration by groups Non Jordanians 100 75 Share 50 No Yes 25 0 1 2 3 4 5 6 Profiled groups Source: Own calculations based on DS (2018) Labor Force Survey 2018. 78 ENHANCING WORKERS’ PROTECTION IN JORDAN FIGURE C.44.  Informality clusters among employed non-Jordanian males by salary deciles Salary decile by groups Non Jordanians 100 75 2 3 4 Share 50 5 7 8 9 25 10 0 1 2 3 4 5 6 Profiled groups Source: Own calculations based on DS (2018) Labor Force Survey 2018. FIGURE C.45.  Informality clusters among employed non-Jordanian males by workplace Work place by groups Non Jordanians 100 Home 75 Structure attached Client home Office Share Fixed stall 50 Non-fixed stall Street Farm Transport vehicle 25 Construction site Other 0 1 2 3 4 5 6 Profiled groups Source: Own calculations based on DS (2018) Labor Force Survey 2018. Annexes 79 FIGURE C.46.  Informality clusters among employed non-Jordanian males by contract Contract frequency by groups Non Jordanians 100 75 Share 50 Permanent Temporal 25 0 1 2 3 4 5 6 Profiled groups Source: Own calculations based on DS (2018) Labor Force Survey 2018. FIGURE C.47  Informality clusters among employed non-Jordanian males by working hours Working hours Non Jordanians 75 1 Weekly hours 2 50 3 4 5 6 25 1 2 3 4 5 6 Profiled groups Source: Own calculations based on DS (2018) Labor Force Survey 2018. 80 ENHANCING WORKERS’ PROTECTION IN JORDAN FIGURE C.48.  Informality clusters among employed non-Jordanian males by working permit Work Permit by groups Non Jordanians 100 75 Share Yes−valid 50 Yes−expired No 25 0 1 2 3 4 5 6 Profiled groups Source: Own calculations based on DS (2018) Labor Force Survey 2018. FIGURE C.49.  Informality clusters among employed non-Jordanian males by nationality Nationality by groups Non Jordanians 100 75 Share Egyptian 50 Syrian Other 25 0 1 2 3 4 5 6 Profiled groups Source: Own calculations based on DS (2018) Labor Force Survey 2018. Annexes 81 Annex D: Photo credits All photos are shared by the creators under the following Creative Commons license: Attribution-NonCommercial-NoDerivs 2.0 https://creativecommons.org/licenses/by-nc-nd/2.0/ Page iii (from top): 1. Guillaume Megevand/ILO (Jordan, 2013/12). https://www.flickr.com/photos/ilopictures/51062455428/in/ album-72157714132237746/ 2. Jared J. Kohlerl/ILO (Jordan, 2012/12). https://www.flickr.com/photos/ilopictures/51018432040/in/album-72157714132237746/ 3. ILO/Apex Image (Jordan, 2010). https://www.flickr.com/photos/ilopictures/51087442376/in/album-72157714132237746/ 4. Marcel Crozet/ILO (Jordan, 2016/04). https://www.flickr.com/photos/ilopictures/49934172906/in/ album-72157714132237746/ 5. Jared J. Kohlerl/ILO (Jordan, 2012/12). https://www.flickr.com/photos/ilopictures/51084163268/in/album-72157714132237746/ Page viii: ILO/Apex Image (Jordan, 2001). https://www.flickr.com/photos/ilopictures/51087531847/in/album-72157714132237746/ Page ix (from top): 1. Jared J. Kohlerl/ILO (Jordan, 2012/12). https://flic.kr/p/2kQroD4 2. Jared J. Kohlerl/ILO (Jordan, 2012/12). https://www.flickr.com/photos/ilopictures/50999591570/in/ album-72157714132237746/ 3. Jared J. Kohlerl/ILO (Jordan, 2012/12). https://www.flickr.com/photos/ilopictures/51018431955/ 4. Marcel Crozet/ILO (Jordan, 2016/04). https://www.flickr.com/photos/ilopictures/49933668448/in/ album-72157714132237746/ 5. Jared J. Kohlerl/ILO (Jordan, 2012/12). https://www.flickr.com/photos/ilopictures/51087707462/ Page xi: Abdel Hameed Al Nasier/ILO (Jordan, 2018/09). https://www.flickr.com/photos/ilopictures/51001055929/in/ album-72157714132237746/ Page 1 (from top): 1. Jared J. Kohlerl/ILO (Jordan, 2012/12). https://www.flickr.com/photos/ilopictures/51063854807/in/album-72157714132237746/ 2. Guillaume Megevandl/ILO (Jordan, 2021/03). https://www.flickr.com/photos/ilopictures/51087670147/in/ album-72157714132237746/ 3. Jared J. Kohlerl/ILO (Jordan, 2012/12). https://www.flickr.com/photos/ilopictures/51087707472/in/album-72157714132237746/ 4. Marcel Crozet/ILO (Jordan, 2016/04). https://www.flickr.com/photos/ilopictures/49934493022/in/ album-72157714132237746/ 5. Abdel Hameed Al Nasier/ILO (Jordan, 2019/06). https://www.flickr.com/photos/ilopictures/51012252495/in/ album-72157714132237746/ Page 5 (from top): 1. Marcel Crozet/ILO (Jordan, 2016/04). https://www.flickr.com/photos/ilopictures/49934490267/in/ album-72157714132237746/ 2. ILO photo (Jordan, 2014/02). https://www.flickr.com/photos/ilopictures/51081784991/in/album-72157714132237746/ 3. Abdel Hameed Al Nasier​ /ILO (Jordan, 2018/06). https://www.flickr.com/photos/ilopictures/51081784991/in/ album-72157714132237746/ 4. Ala’a al Sukhn​/ILO (Jordan, 2016/11). https://www.flickr.com/photos/ilopictures/51085903271/in/album-72157714132237746/ 5. Jared J. Kohler/ILO (Jordan, 2012/12). https://www.flickr.com/photos/ilopictures/51063768321/in/album-72157714132237746/ Page 7: Guillaume Megevand/ILO (Jordan, 2013/12). https://www.flickr.com/photos/ilopictures/51063163361/in/ album-72157714132237746/ 82 ENHANCING WORKERS’ PROTECTION IN JORDAN Page 19: Abdel Hameed Al Nasier​/ILO (Jordan, 2020/02). https://www.flickr.com/photos/ilopictures/51082522553/in/ album-72157714132237746/ Page 30 (from top): 1. Lord R./©Richard Lord (Jordan, 2020/05). https://www.flickr.com/photos/ilopictures/49846710547/in/ album-72157714132237746/ 2. Jared J. Kohler/ILO (Jordan, 2012/12). https://www.flickr.com/photos/ilopictures/51068775561/in/album-72157714132237746/ 3. Jared J. Kohler/ILO (Jordan, 2012/12). https://www.flickr.com/photos/ilopictures/51068869292/in/album-72157714132237746/ 4. Abdel Hameed Al Nasier​ /ILO (Jordan, 2019/03). https://www.flickr.com/photos/ilopictures/51001052884/in/ album-72157714132237746/ 5. Jared J. Kohler/ILO (Jordan, 2012/12). https://www.flickr.com/photos/ilopictures/51063854832/in/album-72157714132237746/ Page 32: Abdel Hameed Al Nasier/ILO (Jordan, 2020/08). https://www.flickr.com/photos/ilopictures/50993073998/in/ album-72157714132237746/ Page 38: Jared J. Kohler/ILO (Jordan, 2012/12). https://www.flickr.com/photos/ilopictures/51068775501/in/album-72157714132237746/ Page 41: Jared J. Kohler/ILO (Jordan, 2012/12). https://www.flickr.com/photos/ilopictures/51063855357/in/album-72157714132237746/ Page 44: Marcel Crozet/ILO (Jordan, 2016/04). https://www.flickr.com/photos/ilopictures/49933667433/in/album-72157714132237746/ Page 45 (from top): 1. Jared J. Kohler/ILO (Jordan, 2012/12). https://www.flickr.com/photos/ilopictures/51068776036/in/album-72157714132237746/ 2. Marcel Crozet/ILO (Jordan, 2016/04). https://www.flickr.com/photos/ilopictures/49934173996/in/ album-72157714132237746/ 3. Jared J. Kohler/ILO (Jordan, 2012/12). https://www.flickr.com/photos/ilopictures/51028544366/in/album-72157714132237746/ 4. ILO photo (Jordan, 2014/02). https://www.flickr.com/photos/ilopictures/51081878417/in/album-72157714132237746/ 5. Jared J. Kohler/ILO (Jordan, 2012/12). https://www.flickr.com/photos/ilopictures/51027775698/in/album-72157714132237746/ Page 46: Nisreen Bathish/ILO (Jordan, 2016/02). https://www.flickr.com/photos/ilopictures/51062758522/in/album-72157714132237746/ Page 49 (from top): 1. Jared J. Kohler/ILO (Jordan, 2012/12). https://www.flickr.com/photos/ilopictures/51002691864/in/album-72157714132237746/ 2. Jared J. Kohler/ILO (Jordan, 2012/12). https://www.flickr.com/photos/ilopictures/51084163213/in/album-72157714132237746/ 3. Jared J. Kohler/ILO (Jordan, 2012/12). https://www.flickr.com/photos/ilopictures/51087616966/in/album-72157714132237746/ 4. Ala’a al Sukhn​/ILO (Jordan, 2016/11). https://www.flickr.com/photos/ilopictures/51085903381/in/album-72157714132237746/ 5. Abdel Hameed Al Nasier​ /ILO (Jordan, 2019/06). https://www.flickr.com/photos/ilopictures/51001052454/in/ album-72157714132237746/ Page 53: Marcel Crozet/ILO (Jordan, 2016/04). https://www.flickr.com/photos/ilopictures/49933654498/in/album-72157714132237746/ Page 56: Marcel Crozet/ILO (Jordan, 2016/04). https://www.flickr.com/photos/ilopictures/49934171031/in/album-72157714132237746/ Page 83: ILO/Apex Image (Jordan, 2010/07). https://www.flickr.com/photos/ilopictures/51083988478/in/album-72157714132237746/ Social Protection & Jobs Discussion Paper Series Titles 2020-2022 No. Title 2205 Enhancing Workers’ Protection in Jordan by Friederike Rother, Carole Chartouni, Javier Sanchez-Reaza, Gustavo Paez Salamanca, Belal Fallah April 2022 2204 Humanitarian and Social Protection Linkages with Examples from South Asia by Steen Lau Jorgensen and Maria Virginia Ceretti April 2022 2203 Cash in the City: The Case of Port-au-Prince by Olivia D’Aoust, Julius Gunneman, Karishma V. 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C. Thomas, Victoria C. P. Knowland, Cathy Rogers January 2020 To view Social Protection & Jobs Discussion Papers published prior to 2020, please visit www.worldbank.org/sp. ABSTRACT This paper exploits a rich database to provide comprehensive profiling of informality in Jordan, including who informal workers are, their characteristics, and where they work, as well as providing policy recommendations to address informality. The structural framework developed through the comprehensive profiling is followed by an analysis of why workers are informal, using inferential multivariate analysis. Statistical techniques (that is, cluster analysis) are used to group workers by similar characteristics (including education, gender, income, and form of employment) to allow policy makers to pinpoint specific policy tools that can target each group. The paper offers long term policy solutions to address informality, including fostering competition to boost productivity and providing a level playing field. It also proposes short- and medium-term policy options to protect workers against shocks until more productive jobs are created, for instance through the provision of short-term benefits through defined contribution schemes. Heterogeneity is addressed by tailoring policy instruments to clusters of workers. ABOUT THIS SERIES Social Protection & Jobs Discussion Papers are published to communicate the results of The World Bank’s work to the development community with the least possible delay. This paper therefore has not been prepared in accordance with the procedures appropriate for formally edited texts. For more information, please contact the Social Protection Advisory Service via e-mail: socialprotection@ worldbank.org or visit us on-line at www.worldbank.org/sp