What is wrong with Iran’s unemployment data?
As I wrote in another post a few weeks ago, every time a western reporter writes about unemployment and inflation in Iran, he or she seems obligated to say that the actual rates are twice the official rates. Often an “expert” is present to give this made-up claim an air of expertise. (See examples for unemployment here and here, and on inflation here and here.) I have not seen the claim repeated for inflation in 2008 ( I guess President Ahmadinejad took care of that in 2008 by doubling the actual inflation rate!), but for unemployment it is still being reported.
It is easy to dispel the myth that actual inflation has been always twice the official rate. If you take a calculator and punch in the price of anything in 1990 and then increase it every year at twice the rate of official inflation, you would know what I am talking about. But what about official unemployment data? Is there a way to check their veracity? The answer is yes.
Take the latest census. Average unemployment according to the 2006 census is 12.4%, which is pretty high but it is about the average for the Middle East and lower than Spain’s 17.4% now (admittedly Spain is having a tough time with the global recession, but its unemployment has not been below 10% for some time). Now look closer in the census data, as many have, for unemployment rates for men and women by age. What you will see should amaze you, unless you are a young person without a job:
Of the 3 million unemployed persons in 2006, three-quarters (2.3 million) were below age 30! Unemployment rates for young people in their early twenties were above 20 percent for men and 40 percent for women. If you make it past age thirty, you might as well be living in a different country because your risk of unemployment would drop to single digits, around 5 percent.
I know of no other labor market that treats its young as badly as does Iran’s. This is not just a problem for youth, however. The vast majority of unemployed youth are supported by their parents. More than 70 percent of youth in their twenties live with their parents. Naturally, their parents are suffering as much if not more than the young themselves. It is not fun seeing your children hang around the house after they have graduated from college, engaging in odd jobs or waiting for a suitor to call.
Enough of the tragic condition of unemployed youth and their parents, which is not for me to tell others about, having tenure and all. As long as you agree with me about the shape of this curve, we are set to go. Unemployment for youth is twice the national average (for young women more nearly four times), and for older people less than half.
Now think back to the problem I started with: double the official unemployment rate from 12.4% to 24.8%, as experts recommend, and ask yourself how you would draw the same graph? Since you agreed with me (and with the official census) on its shape, you are forced to lift everything up by a factor of two. Your new graph–or the experts’, rather– is looking pretty strange. At over 80% unemployment rate, there are hardly any young women working!
If you are not sure what to do, well, ask the experts!
Tyranny of numbers 
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Thank you for your article about unemplyment and older persons. Check out this original song on You Tube about older people during hard times.
Thanks,
Jim Burns
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Hello,
I am not a labor economist and it has been a long time since I visited the intricacies of the Iranian labor market, so I may be off the mark here.
Suppose we take the probabilities you have provided at face value. This means that Pr(A<30 | UE=1) = 0.75 and Pr(UE=1) = 0.124 where A denotes age and UE = 1 means unemployed. We know from the 2006 census data that Pr(A<30) = 0.62. This means that
1. Pr(A<30 and UE=1) = 0.124 x 0.75 = 0.093
This means that the probability of finding young and unemployed people in any random sample of the Iranian population is about 10%.
2. Pr(UE=1 | A<30) = 0.093/0.62 = 0.15
This means that if you are young there is 15% chance that you are unemployed.
The first point highlights a well-founded suspicion of the official statistics released by President Ahmadinejad's administration as he is known to press for fudged numbers mercilessly. Caveat: This is not hard inference based on random sampling, but some ground for concern.
The second point simply presents a better measure of risk and punishment of the young in the Iranian labor market. We are interested in knowing the probability of being unemployed given that the person is young not vice versa. If this number (15%) is correct then the Iranian youth do not seem to be punished by the labor market more than say an average Joe (12.4%).
I agree that the safest way to talk about unemployment rate is to use official rates. As you said, correctly, the pictures in news are exaggerated. But there are other factors that make me think further when I see an official rate.
Consider a high unemployment rate. In micro level it means that many job seekers are unable to find a job. This low likelihood of job finding, most likely, affects their decisions about staying in market. It also affects other job-seekers decision to participate in job market. A college graduate might stay out of market, say stay at home (mostly among women) or try higher level of education or work on his/her father’s business, for a while. We all have seen such examples.
This effect of unemployment rate on participation rate and finally on unemployment rate of next period does not justify using exaggerated rates, but it, at least partly, explains why people “feel” this way.
You raise a good point about the discouraged workers, and perhaps we should be looking ad the jobless rate. For men it does not make a difference, but for women it does. Women are more likely not to declare themselves in the labor market unless there are real prospects of finding a job. This is why many household in Iran have more than two or three home makers!
Great points and good questions. I wrote a short piece on over educated Iranian women for Brookings, which you may have seen. I have not seen any serious work asking the question of why women outnumber men in universities even though they are less likely to put that education to work.
The “over-credentialing” problem is widespread in the Middle East. They have similar labor and education markets to Iran’s and therefore the same outcomes. Lebanon is quite different and Turkey is somewhat different. I hope to write more on education and work when time permits.
Djavad, is there any data on youth unemployment broken down by income levels and/or educational attainment? I ask because of the phenomenon of female to male ratios in tertiary education, which have been over 1.0 for a few years now in Iran. This is often mentioned in the press without much explanation. I have heard many different theories from Iranians, which include 1. the rising opportunity cost of getting a postsecondary degree or higher for males in their 20s compared to being employed; 2. female enrollment in masters programs as a “hobby” which occupies their time until they can get married; or conversely 3. female enrollment in secondary education as ways to raise their status and postpone marriage at the same time. Obviously the background behind all of this is the massive expansion in all levels of education since the 1980s, including the Azad universities, and the attainment of female-to-male parity in educational enrollment and literacy levels, otherwise we wouldn’t even be discussing this “problem.” How does your work on the labor market in Iran fit in with these trends (this is a nudge for your next post)? And, if I may add one more question, since you’ve done some comparative work for other MENA states, is this problem of “over-credentialing” and low status for vocational work a general phenomenon or is there something unique about the Iranian experience?
I think the social norms have a significant impact on this issue. The Iranian youth don’t feel the social pressure that the average youth in the other countries feel to work. They are pressed to study but not to work early, at least before they get married (I even know several young couples who don’t have jobs and are supported by their parents!).
Take me for example. As an unemployed engineering student, I can find jobs easily but I don’t do that since I prefer to concentrate on studying, learning and developing my skills. I feel that I have enough time to work later in my life but probably I won’t have similar opportunities for studying later since I won’t have time for that (I think). And my parents don’t have much problem supporting me and they don’t press me, at least for now. They mostly expect me to study than to work.
Many of the undergrad students I know have a similar situation. I might not be a representative example of Iran’s youth since most of them are not engineering students. But I think the social norms apply to the majority of us. This is especially true for young women.
And about your take that Iran’s labor market encourages degrees often at the expense of productive skills, I think it’s quite opposite, as the labor market prefers skills and the degreed youth without skills expects to be employed easily with a high salary. I have heard many complains from employers who can’t find their needed skills in the labor market despite the existence of many unemployed people with a related degree. See here for example: http://bos.opatan.com/127/lack-of-hr/
Interesting thought on social norms for work. I think it depends on the kind of work. Iranians only take formal work with benefits seriously. Other work that in other countries can lead to experience (informal work, or even internships) are not in demand because of low social value.
As for the labor market’s role in incentives, I am thinking of the public sector, where most educated people work. I don’t think government encourages productive skills. Can they pay a more productive BA graduate more than MA? Even the formal private sector has trouble doing that. This causes adverse incentives for diploma seeking behavior.
You raise a very good question. Do the young people and their parents share the blame? I am sure there are “problems with young people” as you say, like their training and their expectations. The labor market is to blame for the formation of young people’s skills to the extent that it provides the incentives for learning. I hope to get back to this important issue.
Isn’t the high rates of unemployment among the young somehow related to the baby boom of early 60’s (Shamsi) which has now introduced a large supply of labor that the market can not absorb? Maybe it’s not the tyranny of the labor market, but the demographics!
I like that, the tyranny of demographics! Yes and no. Iran did have a huge youth bulge, which is passing through, but the underlying problem is not the size of the young population. My take on Iran’s labor market is that in encourages degrees often at the expense of productive skills (not for Sharif graduates, I should add, we are talking about the average kid). So, I think the demographics are not making the youth unemployment problem, but do make it worse.
Nice post.
A sideline note:
“I know of no other labor market that treats its young as badly as does Iran’s.”
Maybe the problem is not the labor market, maybe the problem is with the young people, since I don’t know any company who would not prefer to employ a younger more-energetic employee.