Between 2011 and 2015, the Jordanian population expanded by 2.5 million people—including population growth and outsiders entering the country—as much as it had during the previous fifteen years. This was mostly driven by Syrians fleeing the conflict in Syria, who now account for around 10 percent of the kingdom’s population.

Given the ensuing economic strains, successive Jordanian governments have been working with the European Union and the international community to turn the situation into a growth opportunity. The initiatives that have been passed will likely prove beneficial in the long run, but structural economic challenges, particularly having to do with the large number of workers without work permits, might mitigate this in the near future.

In 2016, real GDP growth in Jordan slowed for the second year in a row to an estimated 2.3 percent, while per capita growth rates have been consistently low, near zero, since 2012. The reasons for such figures cannot be pinned solely on the refugee crisis. They are also tied to the closing of land trade routes to Iraq and Syria, which jointly took in around 16 percent of Jordan’s exports in 2014. According to an International Monetary Fund study from 2016, the Syrian and Iraqi conflicts lowered Jordan’s GDP growth rate by 1 percentage point in 2013.

The slowdown in growth has exacerbated the longstanding structural inability of the Jordanian labor market to create enough high-quality jobs to absorb new workers. Even when growth was strong at around 5 percent per year, job growth in the private sector was weak, or negative. According to an International Labor Organization (ILO) study from 2015, 45,000 jobs had by then been created since 2010, compared to 75,000 new entrants into the labor market. As a result, the unemployment rate rose to a historic high of 15.9 percent in the third quarter of 2016, while over a third of youths are unemployed. The labor force participation rate, which measures the percentage of the working-age population employed or seeking employment in the labor market, has also fallen by around 4 percentage points, from around 40 percent in 2010 to just over 36 percent in 2016.

The Syrian Workforce

The last Jordanian national census was conducted in 2015 and estimated the total number of Syrians living in Jordan at around 1.27 million, some 650,000 of whom are registered with the United Nations High Commissioner for Refugees. The refugees, who are younger than the Jordanian population on average, also tend to have lower qualifications.

Employment in the labor market is almost equally split between Jordanians and migrants, with approximately 1.4 million each. However, the number of work permits issued by the Ministry of Labor stands at only around 400,000. Estimates of the numbers of Syrians active in the market vary between 90,000 and over 140,000, of whom only around 37,000 hold work permits. The Syrian presence, although sizeable, therefore comes against the endemic reality that many people in Jordan today work without a permit.

The Jordan Compact, announced at the London Conference in February 2016, seeks to address the Syrian refugee crisis. According to the compact, Jordan will seek to create 200,000 jobs for Syrians while they remain in the country—the first 50,000 of which were to come by end 2016, a target that was not met. This process entails creating incentives for businesses and Syrian workers to legalize the workers’ status by loosening restrictions on labor market access.

Granting work permits to Syrians has been advocated by economists and public-policy specialists as a way of improving the refugees’ standard of living. Indeed, the total number of Syrians who have received work permits in Jordan has increased by more than a factor of six since 2015. However, the response was much weaker than anticipated, pushing the government to twice extend an application fee exemption period—first in July 2016 and again in December 2016. The government also recently extended the work provisions to residents of refugee camps, who account for some 10 percent of the total number of Syrians in the country. This has contributed to growing concerns among locals in cities such as Irbid, close to the country’s largest refugee camp in Zaatari, about increased competition from Syrians in the job market.

Why the weak Syrian response on work permits? Preliminary evidence from ILO-run focus groups last year suggests the reasons for the stagnating figures include restrictions on mobility between employers. In two of the main sectors open to Syrians, construction and agriculture, being tied to a single employer—a condition for obtaining a work permit—is a difficult obligation to meet. Refugees are also wary of formalizing their presence in the labor market for fear of losing their access to aid from humanitarian organizations, alongside the extra costs arising from mandatory social security contributions.

A Challenge To Free Trade With The EU

The large number of workers without work permits poses a serious challenge. It threatens the short-term effectiveness of a main channel by which jobs are meant to be created for Syrians and Jordanians under the Jordan Compact, namely preferential access for Jordanian goods to European Union markets.

Although a free-trade agreement with the EU was enacted in 2002, Jordanian industry has struggled to use it to its advantage. This is likely to have a profound bearing on the hiring of Syrians. Over the past decade, Jordanian exports to EU markets grew by around 46 percent, while EU exports to Jordan grew by 52 percent. Jordan’s trade deficit with the EU has widened practically every year over the same time period and currently stands at approximately $4 billion.

The reasons for these persistent imbalances may have to do with structural issues affecting Jordanian industry, notably high transportation costs and an overvalued currency. However, stringent requirements on the origins of raw materials used in manufacturing are a unique aspect of the EU agreement, and are particularly troublesome given Jordan’s natural resource scarcity.

Last July, a derogation of the rules of origin requirement was extended to manufacturers of certain goods operating in eighteen designated Jordanian economic zones and industrial areas. An additional key EU requirement is that 15 percent of the jobs at exporting companies be held by Syrians, a figure meant to rise to 25 percent in 2019.

Flexibility on the rules of origin requirement is welcome and will probably yield significant positive results in the long run. However, it raises questions of fairness for Jordanian manufacturers willing and able to export to the EU under the new rules, but for whom an expansion in workforce would be unduly onerous or wholly unnecessary. Alternatively, if manufacturers decide to replace employed Jordanians and other migrant workers with Syrians, this will likely reinforce two negative trends: growing Jordanian unemployment and an increase in the numbers of migrant laborers working without permits.

Seven companies have so far reportedly been authorized to export under the new agreement, but have yet to begin doing so while technical issues relating to the compliance of Jordanian products with European specifications are resolved. Considering that some eight months have already passed since the agreement came into effect, its positive net effects will perhaps not be realized as quickly as the Syrian refugee situation requires.

In light of this, and given that the agreement stipulates that modifications of its conditions are to be reviewed after four years, the EU should consider a more flexible approach. The relaxation of requirements on the rules of origin, which would allow manufacturers to use a greater proportion of inputs from outside Jordan and the EU, could be relaxed further still. Also, the requirement of having Syrians represent a minimum of 15 percent, and later 25 percent, of a manufacturer’s workforce could be lowered, or applied to new hires only.

The Jordanian government’s efforts in actively tackling a precarious situation are commendable, and it has a crucial role to play in easing refugee access to the labor market. Deporting undocumented workers and restricting the entry of additional migrant laborers will likely yield only limited results given the scale of the phenomenon. Penalizing employers who gratuitously employ undocumented laborers would raise the costs of hiring them enough to remove any incentive to do so. If the bureaucratic process of granting work permits to Syrians is made easier, this would allow Jordanian companies and Syrian laborers to enjoy the benefits of the expanded free-trade agreement with the EU, while also providing relief to the economy.