Need for long-term vision to address labour market problems

Every Labour Day, the government, employers and employees put differences aside and recognise the contribution of workers to our shared prosperity.  This year, in the week leading up to Labour Day, a controversy about the Jordanian Labour market has played out in the media and deserves further open debate.

In a recent television interview, Labour Minister Samir Murad reflected on the very large number of migrant workers present in Jordan and said that many of them earn salaries that Jordanians should consider attractive.  Strongly criticising the minister’s comments, several columnists argued that the jobs held by migrant workers are unacceptable in terms of salaries as well as working conditions. 

While there are significant areas of disagreement, it is useful to start from the crucial point on which there is agreement: there are many jobs currently held by migrant workers that Jordanians are unwilling to accept.  In order to pinpoint the nature of the challenge we face, we need to explicitly address two difficult questions.  

The first is on why Jordanians are often unwilling to accept the jobs held by migrant workers.  We talk a lot — and argue a lot — about whether the salaries of these jobs are adequate for Jordanians.  Certainly a salary is crucial factor when considering a job, but there are many other aspects that are as important.

We can rule out the “culture of shame” hypothesis.  There is no evidence that Jordanian workers have an immutable “culture of shame” that makes certain occupations anathema.  A generation ago, all occupations were filled with Jordanians. And, more recently, we have seen Jordanians returning to occupations like gas station attendants that for years have been dominated by Egyptians.  If acceptability of a job is not fully explained by the type of work or the salary, then what is the issue?

In a recent study by the International Labour Organisation (ILO), on-time payment of salaries and compensation for overtime were the main issues identified by the workers interviewed.  The difference between Jordanian workers and migrant workers was that the latter felt compelled to accept late-payment and non-payment for overtime — despite that fact that these practices are in violation of the Labour Law.  The study concluded that a major reason Jordanians are often unwilling to accept jobs held by migrant workers is that those jobs are often non-compliant with legal rights.  

The second question that we have to deal with pertains to the impact of large numbers of migrant workers on the Jordanian economy.  It is a basic principle of economics that an increase in supply causes a reduction in price.  This principle is as true in the market for labour as it is for products: an increase in the number of people looking for work will result in a decrease in the package of compensation paid to workers — which includes on-time payment and payment for overtime, as well as salaries.

There is no doubt that the very large number of migrant workers present in Jordan keeps the total package of compensation lower than it would otherwise be.  In fact, many argue that migrant workers are crucial to Jordan’s economy precisely because the lower compensation makes it possible for Jordan to keep production costs in check.  What about long term consequences?

There is strong evidence that although high reliance on migrant workers benefit employers in the short term, it hurts Jordanian prosperity in the long term.  Contrary to what we would expect from a well-educated middle-income country, the Jordanian economy is largely based on low-productivity activities.  Jordan’s Economic Complexity Index has been falling since the 1970s according to an analysis by the Jordan Strategy Forum. While other countries have shifted into higher value-added products and production techniques, Jordan has remained stagnant with continuing emphasis on the garment sector and labour-intensive, often unnecessarily grueling construction techniques.

Consider, for example, the scaffolding we use in buildings, assembled labouriously onsite from sticks, while many other middle-income countries utilise prefabricated modular systems.  Because modern scaffolding requires up-front capital investment but little manual labour, it is quickly adopted wherever labour is expensive.  The fact that we still rely on traditional wooden scaffolding reflects our continued emphasis on a low-productivity, poorly-compensated workforce — a workforce that is not coincidentally dominated by migrant workers.

This should prompt us to look for the way forward instead of staying where we are. In his interview, the labour minister emphasised the importance of professionalising sectors like construction in order to upgrade productivity and the prosperity of the middle class. His critics undoubtedly agree with that vision, but are uncertain about how to move ahead.

Better enforcement of on-time payment and payment for overtime is an important start.  Mandatory electronic payment of wages, like those that exist for migrant workers in several Gulf countries, can help the government monitor compliance.  If practices that illegally suppress compensation of migrant workers are reduced, Jordanian workers would no longer have to compete on the basis of working conditions that are inconsistent with our Labour Law. As interviews with employers have shown, it is the greater “flexibility” of working conditions that makes migrant workers desirable.

Migration policy — applied consistently and without the magic power of wasta  — will also be essential.  A reduced supply of migrant workers would lead to better compensation for Jordanian workers, which is equivalent to saying that labour would be more expensive for employers.

In the short term, higher labour costs are likely to be unpopular with employers.  In the long term, however, controlling labour supply is necessary for the prosperity that will benefit employers and workers alike.

A reduced supply of migrant workers would create market incentives for employers to move to higher productivity products and production techniques.  But so long as we allow a large supply of often vulnerable migrant workers, we perpetuate a market that inherently results in stagnant economic productivity and jobs that are poorly compensated — certainly in terms of on-time payment and payment for overtime — if not salaries as well.

The writer is a former World Bank economist and the principal author of the ILO report: A Challenging Market Becomes More Challenging. [email protected]