Iran’s economic recovery: the view from employment data
In my last post I examined if the quarterly growth in the GDP using data released by the Central Bank of Iran (CBI) that indicated a robust economic recovery during spring 2014. As promised, I will now review the most recent employment figures released by the Statistical Center of Iran (SCI).
The GDP data showed the economy had grown by 4.6%, spring on spring (but not during the quarter). After two years of negative economic growth and the positive shocks of Rouhani’s election and the easing of sanctions, one quarter of positive growth should not have surprised anyone, but skeptics were unconvinced.
Then a week later came the news of unemployment having dipped below 10% last summer (2014), a first in a long time. Clearly, the fall in unemployment adds to the credibility of the GDP numbers, especially since imports data already indicate that strong demand for intermediate industrial goods continued into the summer. Still, the same issues that raise doubts about the for the GDP are relevant for employment — seasonality and source of the improvement.
There is no question that the easing of sanctions had something to do with falling unemployment. Industry, which led the growth of output also led the growth of employment. Compared to spring 2014, industrial employment grew twice as fast as total employment, up by 3.4%, followed by services (up by 2.0%) and agriculture, which was down by 1.3%.
So, the first question is what part of these changes can be attributed with seasonal factors and what part is genuine growth in employment. A problem that makes comparison of employment data over time challenging is variation in the participation rate. Often times, discouraged workers drop out of the labor force and answer “no” to the question have you been actively seeking employment in the previous week or month. Many labor economists therefore prefer to use “the jobless rate” instead of the rate of unemployment.
The jobless rate gives you the same picture as unemployment rate if you assume that all variation in the participation rate during a short period are the result of the variation in the number of discouraged workers. So, I fix the participation rate at 37%, which is about the average over the last few years and measure unemployment as the difference between the size of the labor force thus estimated and the number reported as employed. This exercise returns an unemployment rate of 9.3% for summer 2014, down from 10.4% the preceding quarter and 10.7% in summer 2013. In general, this series tracks the SCI numbers pretty well.
In other words, the unemployment rate is actually down and it is not because of lower participation due to increase in the number of discouraged workers. But the improvement in the economy it indicates may not be part of a cyclical rebound. It may instead be the results of positive exogenous shocks — namely, Rouhani’s election and the temporary abatement of sanctions following the November 2013 agreement with Western powers — the effect of which may not last into next year.
One should keep in mind that unemployment data are better descriptions of change over time than the actual employment conditions at any particular time. The reason is that underemployment is prevalent in Iran and, as many observers never fail to complain, the SCI data consider anyone with at least one hour of work during the week the before interview as employed. This is not a criticism of the SCI because it follows international guidelines set by the International Labor Office. All complaining economists and journalists should should try to get over this and stop complaining.
What seems interesting in the SCI published data is that unemployment alone does not offer a good description of the change in the labor market conditions in Iran. As the figure below shows, at times the labor force participation rate better reflects them. For example, after the shocks of subsidy reform, sanctions, and devaluation, it is the participation rate that, with some delay, goes down, indicating lax demand for labor. The unemployment rate also goes down, but that is most likely because many unemployed workers are not being counted because they have dropped out of the labor force.
Figure. The rates of labor force participation and unemployment for the population 10+
Source: SCI quarterly reports. If you cannot view the figure click here.