The government of President Hassan Rouhani has prided itself on its reduction of the rate of unemployment in Iran and, following recent popular protests, government officials have repeatedly pointed this out.
But according to research conducted by IranWire, in cities where protests took place, the rate of unemployment is higher than elsewhere in the country. In many of these cities, a considerable number of the unemployed are college graduates. Many of those who protested against Iran’s economic conditions believe that claims by Rouhani’s administration and official statistics about a decline in the unemployment rate are either incorrect or, at the very least, have not made a tangible difference.
Ali Arab is an Associate Professor of Statistics at Georgetown University, Washington D.C., and a member of the Board of Directors of Amnesty International USA. IranWire asked him about the claims and counterclaims regarding Iran’s economic conditions.
Following popular protests in more than 100 cities in Iran, government officials and President Rouhani himself have consistently asserted that the rate of unemployment in Iran has fallen. From an economic perspective, can the rate of unemployment be seen as an indicator of improvements in the economy?
Neither in Iran nor anywhere else in the world, not even in developed countries, can the rate of unemployment by itself be a good indicator for analyzing economic conditions.
When the economic conditions of a society are poor, the labor force (or the active population in the labor market) of that society may shrink due to desperation in finding jobs. Labor force refers to all the members of the population who are employed, or unemployed and actively looking for employment. The unemployment rate reflects the number of unemployed people within a certain age group as a percentage of the labor force in the same age group. This is why, when the labor market is not encouraging for the unemployed, it is not the best indicator of the economic conditions of the population.
One indicator that must be taken into account is the rate of economic participation, more commonly known as the labor force participation rate. In a good economy, the labor force participation rate is high and the unemployment rate is low. In Iran, the labor force participation rate, based on the rate of participation in provinces, is low. According to Iran’s Statistical Center, the highest such number is around 40 percent. And when participation is classified by gender, it becomes clear that the labor force participation rate for women is low everywhere, and in a number of provinces it is woeful.
Iran’s Statistical Center reports that by summer 2017, the rate of economic participation in Iran had climbed. The report puts the rate at 41 percent for 2017, while two years earlier, in 2015, the reported rate was 38.2 percent. According to the World Bank, from 2013 to 2016 this indicator followed an ascending trajectory. Based on the science of statistics, can we conclude that the rate of economic participation has improved in recent years?
It should be noted that the World Bank’s statistics are calculated based on people over 15 years of age, while Iran’s Statistical Center’s recent report calculates its statistics based on people over the age of 10. Although it is true that the labor force participation rate has slightly improved over the last three years, it is still at a low level compared to Iran’s historic participation rate levels since it started being reported in the 1960s. This particularly shows the challenges of Iran’s labor market when you consider that the share of young people in the population has significantly increased over the last decade or so, while the participation rate has at best stagnated.
The Iran’s Statistical Center’s summer 2017 report shows that in 2016 the labor force participation rate has increased 0.6 compared to last year, to 40.4 percent. This is a small change and it may even be due to statistical error in sampling. In my view, a labor force participation rate of 40 percent points to a population that has given up hope of finding employment. In a bad economy, hopelessness can decrease the size of the labor force. Iran has also a pseudo-economy that plays a crucial role in the labor market. There are people who work and have an income but based on labor market definitions, their income earning activities might not be considered full-time or desirable jobs.
You mean there are jobholders and an economically active group that are not included in these statistics?
It is possible for an individual to have an income as a street vendor or a middleman but this not employment; it is only an income. Pseudo-economy in Iran is very widespread. When it is said that the labor force participation rate is 40 percent it does not mean that the remaining 60 percent have absolutely no income. They may have income earning activities but they are not labeled as employed by the legal or scientific definitions of employment.
To understand the economic situation in any society we must view the labor force participation rate side by side its unemployment rate. For instance, an example of good economic conditions is the United States in the 1990s, which had a labor force participation rate of around 65 percent with a low unemployment rate. In other words, a high percentage of the society was part of the labor force and a low percentage of the labor force was unemployed. Currently, in Iran, we have the reverse situation.
Also, keep in mind that the average unemployment rate across the country refers to the percentage of unemployed people in the labor force and not to the population as a whole. It is possible that in a population as a whole, a tangible percentage might not be seeking employment, as we can see in a number of cities including Tuyserkan, which was the scene of recent protests and also has a high rate of emigration. Early on after the revolution Tuyserkan had a bigger population but its population is now shrinking. Under such conditions, the unemployment rate might not be the right criteria for judging the economic situation of the population. When it is said that the unemployment rate is 12 percent it does not means that on average out of 100 people, 12 are unemployed. What it really means is that on average out of each 100 people in the labor force (those who are employed or unemployed but actively seeking employment), 12 are unemployed.
Also, this rate is the national average. If we separate the numbers out province by province and city by city, we arrive at a different and higher rates of unemployment for some provinces and cities (including many that were recently sites of unrest).
It has been said about recent protests in certain cities that most of the demonstrators were unemployed educated people. What is unemployment like among educated Iranians?
Data from 2015 show that those with a Bachelor’s degree have a bigger share than others in the unemployed population. The second highest unemployed category includes graduates with Master’s degrees and PhDs, followed by those with high school diplomas, pre-university graduates, and finally, illiterate people. These statistics reveal the shortage of professional jobs in the job market, whereas the situation of jobs with lower pay that require less skill is not as grave.
Since Iran has many universities, the percentage of those with Bachelor’s degrees is higher when compared to similar countries. This goes to show that the problem is not just limited to low labor force participation and that the number of professional jobs for skilled and educated workers is especially low.
The more specialized the job, the more unemployment we have. According to the same data from 2015, more than 21 percent of the workforce with a Bachelor’s degree and 15.5 percent with a Master’s degree and professional PhDs are unemployed. This also heightens the level of frustration because these are the people who have spent time and money to pursue a career but a high percentage of them are unemployed.
Islamic Republic officials, especially in recent years, keep repeating that they have been creating jobs and that they have created tens of thousands of jobs in various sectors. How has this job creation taken shape, and in what areas?
There has been a limited amount of job creation, but they have been quarreling over its geographic allocation. Usually, representatives to the parliament complain about their constituency’s share of the workforce and about job creation. Of course, in some areas, such as in the cities that were the scenes of demonstrations, we have a serious problem in job creation. Nahavand, Tuyserkan and Izeh also have the problem of not being able to attract investments. The city of Izeh has one of the highest rates of suicide in Iran. These statistics show that social ills and unemployment have come together to create an atmosphere of despair.
You said that certain areas lack the ability to attract capital and to create jobs, but members of the parliament and the officials constantly emphasize the growth of tourism. What obstacles do various geographic areas face in attracting investment and in job creation?
The major part of Iran’s economy is state-owned and this makes it an easy arena for political and factional competition. When a member of parliament wants to attract capital to his constituency his success depends on his influence and his authority.
In many geographic areas traditional and native economies like carpet weaving, dyeing and agriculture have been strong, but these industries have been struggling to modernize. The tourism industry, for instance, has been struggling to renew itself after the revolution given the geopolitical conditions of the country. Keep in mind that in many cities and provinces, like Kermanshah, Khuzestan and Kurdistan, the unemployment rate is very high.
Of course, the Iranian economy as a whole has difficulty in attracting investment and this problem is more severe in small towns. For instance, what incentives can Izeh offer for a factory to be built in that city instead of Karaj? The costs and the labor might be cheaper but the cities are not competing to attract investments to become industrial magnets.
In a country where banks pay high interest rates people have no incentives to invest. Add to all of this the stagnant housing market, the poor situation for manufacturing and the sluggish growth rate of gross domestic product (GDP), which has been falling in recent years. Overall, these economic indicators all point to an economy that has a sluggish growth.
Does this mean that the Iranian economy is going to collapse?
This is not a question of economic collapse. You get a better picture of the economy when you look at the unemployment rate alongside other indicators including the labor force participation rate and the GDP.
Of course, these indicators are sometimes misused. For instance, the officials claim that they have brought down the unemployment rate, whereas these changes may be due to shrinkage of the labor force. A reduction in the labor force may result in reducing the unemployment rate. At first glance it might seem that unemployment conditions have improved, whereas the seemingly reduced unemployment rate might be because of migration and the despair of people who were part of the active population but who have now given up looking for employment and are trying to find another way to make an income.
In general, the reduction of the unemployment rate does not necessarily translate into alleviation of unemployment conditions.