Jordan is a small country (90,000 km square) in the west of Asia, with a high population (9.702 million in 2019). Jordan suffers from some economic challenges, such as high rates of poverty, unemployment, inflation, large budget deficit, and public debt that is around 90% of GDP [20].
Unemployment is an important issue in developing countries. The high rate of unemployment means that the country is not using the labor resource efficiently. Unemployment is the greatest economic problem because of its negative effect on the individual and the society Amerah, and Khasawneh [10], and the speed of spreading in the world, such as the drug addiction (Anbaraki and Ismaili [11], Nagelhout et al. [27]), and crime in many countries [17].
The issue of unemployment in Jordan reached its highest level in 2019 (around 19%). It created a state of the economic recession caused by a decrease in demand for goods and services that led to a decrease in the production rate. The unemployment problem in Jordan is very serious, and it is mainly among the youth (15–24 years), 35% among males, and 40% among females. These drastic figures reflect unemployment among university graduates and school levers [19].
During the last five years, Jordan's economy has not shown any sign of positive growth to provide new job opportunities to absorb university graduates into the labor market. Government capital expenditure didn’t grow much in the past few years due to the lack of resources and a reduction in tax revenue (Department of statistics, Jordan). The government was not spending enough money for production purposes. The private sectors couldn’t complete their responsibilities and tasks in creating new projects and job opportunities because of the political instability around Jordan's borders in Syria and Iraq.
The main goal of this paper is to investigate the nexus among the unemployment rate and education, economic growth, urban population, and female population in Jordan from 1991 to 2019 (Fig. 1).
Jordan is suffering from the lack of natural resources, while the majority of Middle East countries have so much oil, gas, and other mineral resources. This shortage of resources is one of the main reasons for the low GDP in Jordan. Also low national income and small investment because of the high tax rates are the another reason of low GDP in Jordan. When the unemployment rate is reduced, the economy will be in the full capability of its production and the economy will be powerful as it increases consumption and purchasing power.
Although Jordan has a high population and it’s also one of the most well-educated countries in the region especially the youth. There are many reasons for unemployment, but the most important reasons are; first of all, the young Jordanian have been educated in a field that does not match with the demand for the labor in market (Supply of labor cannot respond the demand for labor), secondly, the high ratio of foreign labors work in the minimum wage (it decrease the demand for local labor), thirdly, there is the weakness of the public sector and a lack of public investment.
The relationship between economic growth and unemployment shows that there is a high correlation between the economic growth rate and the decrease in unemployment rates. An increase in the growth rate increases the employment rate or decreases the unemployment rate. The relationship between economic growth and unemployment has been studied experimentally in the economic literature based on what is known as the Okun law, which shows that there is an inversely proportional relationship between the change in the growth rate (GDP) and the change in the unemployment rate. Okun [30] has succeeded to show that there is a reciprocal correlation between unemployment and economic growth. He found that if unemployment decreased by (1%), then this would be due to an increase in real gross domestic product (RGDP) by (3%) and vice versa, and when an increase in the RGDP occurs, an increase in employment is achieved.
It has been observed that there is an application of supply and demand theory that can be applied in this case. Similarly, the Keynesian Economics theory is also presented by Eichengreen [15] that applied different factors of macroeconomics to understand the aspects of economics and the methods of employment. As referred to the study of Efrianti et al. [14], there are different statements and arguments provided by the authors regarding to the impact and relationship of employment and economic growth that have supported the different aspects of employment and economic growth. Based on the assessment of Soylu et al. [32] and Efrianti et al. [14], it has been highlighted that the increasing economic growth in any country brings a huge increase in the GDP and labor productivity that can be effective for creating the opportunities for employment in the country. Similarly, Chand et al. [12] have also supported the fact that the increasing economy can contribute toward the rapid growth of labor force and will ultimately decrease the rate of unemployment in the country. On the other hand, Mihajlović [25] has presented the arguments that the absence of productivity in any country can also result in failing economy in the country and may also give rise to unemployment in this regard. The government and the policy makers have designed different methods that can contribute toward the increasing rate of employment and can provide better quality of life and standard of living to the people based on Al-Sawaiea et al. [8]. Therefore, it can be stated that the countries might get better means of economic growth that can support the common people in terms of getting the employment opportunities and contributing toward the overall progress and profitability of the country. However, there is one reason that can cause unemployment not to be related to the economic factors that include the company’s recession period and jobs are not utilized in an effective manner and it causes the demand of products to be affected [16].
Economic growth is the main goal of the governments that is an indicator of welfare, quality of living standard, and reduction in poverty. Some studies have empirically examined the linkage between economic growth and unemployment by implementing Okun’s law. Al-Habees [5] studied the linkage between unemployment and the economic growth in some Arab countries, and focused on Jordan as the main case study, by adopting a simple model of Okun law. The results showed a significant correlation exists between growth and changing rates of unemployment and revealed the efficiency of the economic policies strive to reduce the unemployment rate with a balanced rate of economic growth. Also, Kreishan, [23], accounted for the linkage between unemployment and economic growth in Jordan along with the enforcement of Okun’s law and Augmented Dickey–Fuller (ADF) for unit root for the period 1970–2008, founded that the shortage of economic growth doesn't clarify the unemployment phenomena in Jordan.
Akeju and Olanipekun [3] examined the Okun’s law in Nigeria to investigate the linkage between unemployment and economic growth by using ECM and ARDL Johansen cointegration test which led to a noteworthy linkage between unemployment and economic growth.
Abdul-khaliq [1] tested that the linkage between unemployment and gross domestic product growth in nine Arab Countries throughout 1994 and 2010. He found a noteworthy negative effect of growth on the unemployment rate and a positive relationship between the population growth rate and the unemployment rate. Rahman, [31], studied the relationship through GDP, GDP per capita, literacy rate, and the unemployment rate in OECD countries and found that GDP is not significantly related to GDP per capita, literacy rate or unemployment rate.
Khrais and ve Al-Wadi [22] studied the linkage between economic growth and unemployment in MENA countries in the period of 1990 to 2016, using simple linear regression, and found a weak linkage among the mentioned variables. Alawin [4], tried to show the linkage between trade balance and the unemployment rate in Jordan over thirteen years between 2000 and 2012, using the ADF test and Johansen’s co-integration, and he understood that decline in the trade balance can increase the unemployment rate, and unemployment can have a negative effect in the trade balance in the short-run.
Additionally, Soylu et al. [33] examined the linkage between unemployment and economic growth based on Okun’s law (which reflects the linkage among the unemployment and economic growth) in Eastern European Countries from 1992 to 2014 and found cointegration among the unemployment and GDP growth (negative relationship). Also, Noor et al. [28] have a similar study for the correlation among unemployment and the Malaysian economy by Okun’s law and discover a negative correlation among the output and unemployment.
Nagel [26] discussed the correlation between GDP growth and unemployment and found a negative correlation between economic growth and unemployment. Besides, Ahmed [2] examined the relationship between the unemployment rate and growth rate in selected SAARC countries (Bangladesh, Bhutan, India, Pakistan, and Sri Lanka) throughout 1990–2010, using OLS and found a sign of the correlation among the economic growth rate and unemployment rate vary between the SAARC countries.
After that, Ali and Allan [6] claimed that economic growth has a positive and statistically significant impact on unemployment in Jordan over the period from 1991 to 2015. Moh’d AL-Tamimi and Mohammad (2019) studied the impact of the unemployment rate on the economic growth in Jordan throughout 2009 and 2016 by using the OLS approach and found an insignificant impact of the unemployment rate (in total labor) on the economic growth.
Magnani [24] wanted to expand the Solow model which can define the unemployment explicated by the shortage of the aggregate demand which resulted as the increase in the aggregate demand will reduce the unemployment catalyze the GDP. Xesibe [34] studied the effect of unemployment on GDP growth in South Africa from 1994 to 2017. The results had shown that there is a negative correlation between the unemployment rate and economic growth rate in South Africa.
Finally, Ojima [29] examined the relationship among the unemployment and economic development in Nigeria for 35 years span from 1980 to 2017 and found that unemployment hurt economic development for Nigeria with an adverse linkage among the unemployment and economic development in Nigeria and recommended a fiscal and monetary policy in the purpose of creating job opportunities to sustain the economic growth for Nigeria. Dahmani, [13], found a negative relationship between the variables in the long-run, whereas in the short-run there was no correlation between unemployment and the economic growth in Algeria throughout 1970–2014.