Informal economy signifies weakening of national economy — experts

AMMAN — Nearly 45 per cent of workers were employed in the informal economy, in 2012, a phenomenon which experts say financially weakens the country, results in socio-economic distortions, and exposes workers to human rights violations.

While the informal economy accounted for 25 per cent of the Gross Domestic Product (GDP) in 2012, such means of obtaining an income weakens the economy overall as non-registered workers fail to pay taxes, and the economy is unfairly distributed among the people of Jordan, according to experts.

“Unregulated economic activities help [workers] evade all the entitlements resulting from the state towards fees and taxes while benefiting from most of the services provided to other sectors,” economist Mazen Irsheid told The Jordan Times on Monday.

“Such activities effectively weaken the Kingdom financially and bring about socio-economic distortions, such as the inequitable distribution of the economy among citizens,” Irsheid said.

Due to the fact that workers in the shadow economy do not pay taxes, public finances are weakened, political economy consultant Zayyan Zawaneh told The Jordan Times on Monday. 

“As the shadow economy gets bigger, the national economy is weakened and the government gets more absent from the over-all dynamics: Economic, social political and security-wise,” Zawaneh said.

Because of the nature of the shadow economy, in which workers are paid cash for their work and work without work permits, economist and investment consultant, Wajdi Makhamreh told The Jordan Times it can be difficult for the government to prevent people from working informally, as those within the informal economy do not submit applications to the Labour Ministry.

Ultimately, the taxes that such workers fail to pay result in a large financial burden on the government which has the potential to imply a budget deficit, according to Makhamreh.

“Jordan must seek [to lower] the rate of the shadow economy,” Irsheid said. “By doing so, it would increase the ability of the state to regulate and control economic activities and reduce tax evasion, and, therefore, the ability to estimate the size of the general domestic product more accurately, being the most important tool to measure economic activities.”

While working conditions are not optimal among most waged workers in Jordan, those working in the informal economy are often subject to working conditions even worse than those in the formal economy, according to a report by Ahmad Awad, director of the Phenix Centre.

“The extreme majority of informal workers and/or the workers in the informal economy are exposed to violations in terms of wages, less than minimum wages, a lack of timely payment of wages, lack of social protection under social security system, and lack of annual, sick and official leaves and working for long hours, all of which are contrary to human rights standards,” Awad said in an interview with The Jordan Times. 

According to Awad the informal economy is most closely associated with work in which employees do not have any form of social protection. 

“The expansion of informal labour is an indicator of weak labour policies and weak working conditions,” Awad said. “This is contrary to the various international labour standards, which constitute a fundamental component of human rights. “

“All workers must enjoy full and fair labour rights,” Awad added.