Informal Employment in Jordan: A Quantitative Estimation Using the MIMIC Model from 2008 to 2024

Abstract

This study aims to estimate the size of informal employment in Jordan and examine its association with selected economic variables and labor market indicators using the Multiple Indicators Multiple Causes (MIMIC) model, based on quarterly data for the Jordanian economy during the period 2008–2024. The study treats informal employment as a latent variable that cannot be directly observed, but can be estimated by linking a set of economic determinants, including labor force size, real gross domestic product, construction activity, inflation, and agricultural value added, with a set of labor market indicators, including unemployment, the share of unemployed persons in the working-age population, economic inactivity, and the adjusted economic participation rate.

The results indicate that informal employment in Jordan followed an upward trend over the study period, increasing from about 156,000 workers at the beginning of the period to around 336,000 workers by the end of 2024. The findings also show that the expansion of informal employment is associated with the interaction of several economic and labor market factors, particularly the growth of labor supply, the nature of economic activity, sectoral dynamics, cost-of-living pressures, and the limited capacity of formal employment to absorb new entrants into the labor market. These relationships are not interpreted as direct causal effects, but rather as quantitative associations that help explain the factors linked to informal employment in Jordan. The study recommends simplifying formalization procedures, reducing compliance costs for small enterprises, expanding social protection coverage, providing temporary financial incentives for workers and small firms, and linking training, inspection, and employment policies to sectors with a high concentration of informal employment.