President vs Unemployment: what are his chances?

My note for IranOpinion.com

Can the next Iranian administration solve the economic issues facing the country? Its options might be limited. However the public expects the next president to deal with issues such as unemployment and inflation. The fact is that the next administration's actions might pay off in the long run and not in the immediate future. Its options are limited by the economic realities and their efficiency might be reduced in the political process.

Eight presidential hopefuls are permitted to seek the office of president of Islamic Republic of Iran. Listening to them it seems all eight use the same keywords when it comes to the economy: reducing inflation, creating jobs, increasing and absorbing investments and promoting domestic production. However reviewing their comments one does not see any specifics about how they would accomplish these. As one observer put it mildly, “candidates have confused economic slogans with economic planning”. And there's not much time even for planning, for Iran’s economy faces daunting challenges and demands quick action. In a recent meeting of Tehran’s Chamber of Commerce Dr. Masoud Nili told a gathering of businessmen and entrepreneurs that if the current situation continues, in three years Iran’s unemployed population would increase to something between 5 and 8 million. The latest official estimate at the time of writing is 2.9 million. Dr Nili singled out unemployment as the most serious challenge for Iran’s economy.

The question is whether the next president could address the increasing unemployment while keeping inflation in check? Any answer should take the following into account: what powers does the office of president hold and what options are palatable given the political and economic realities.

A first challenge arises from the decentralized nature of economic and fiscal decision making. The executive branch prepares the budget and the development plans; however, they need to be approved by the legislative. The legislators, or Members of Majlis, use this opportunity to seek political patronage and to reward their support base using the process. The outcome will be a policy package of compromises done to gain the necessary political support. The new president faces an uphill battle: he has to implement the required policies without too much compromise in the political process that would dilute those policies.

Addicted to subsidies

Another major challenge is the public opinion. Many Iranians, habituated by decades of central planning, hold the government - and only the government - responsible for energy, public utility, health services and economic infrastructure. If the next government’s solutions for unemployment and inflation affect its ability to provide subsidized services, or reduce the resources available to public services, it will certainly face widespread discontent. The public may not appreciate the tradeoffs required for addressing the economic issues left to the new president by his predecessor. If he tries, on the other hand, to keep the public happy at all costs, his government’s ability to address the economic problems will decline rapidly.

If the next administration wants to solve the problem of unemployment, it needs to eliminate the sources of economic volatility. It definitely has to do this without compromising on programs such as monthly cash subsidies to Iranian households. This means spending money without increasing the money supply. However with the oil revenues declining because of the sanctions and Iran’s limited ability to use these revenues in the global market, the government either needs to adjust the price of energy and eliminate the multi exchange rate system or to borrow money from the Central Bank. The latter will increase the money supply, which will increase the inflation. The former will be resisted because many suspect it causes inflation, even though it will create a more stable economy in which jobs can be created.

The problem is that the process of creating jobs is not a fast one. Dr. Nili estimates that any economic effort to create jobs would take three years to pay off. In these three years Iranians should shoulder increasing prices for gas and imported goods. Public pressure against those policies will mount.

Resource reallocation might be another source of public dissatisfaction when it comes to fighting unemployment. If the next president decides to give higher priority to employment, then it may need to allocate more resources to industries and the development of the private sector. This could mean shifting some of the existing resources from higher education and other public sectors. He will thus have the unhappy task of explaining to Iranians that having more of everything is not an option. Still this could be a great opportunity to implement some lasting reforms by expanding the private sector and improving the efficiency of the public sector.

Of course, many would think that lifting the sanctions would solve Iran’s economic woes overnight. This perception is wrong however. Iran’s economic challenges are no doubt caused in part by sanctions; the government would have more resources to deal with these issues where the sanctions to be lifted; yet lifting the sanctions alone will not be enough.

The next administration is expected to deal with the economic challenges using a limited set of policy tools; it can also make a difference by increasing the efficiency of public sector and improving on accountability and management standards. That will be a tough job, but it is a doable one. Despite significant challenges both due to the bureaucratic process and the public opinion the next government can start an economic reform process which will pay dividends in the long run.

Iran: Women Unemployment, Still High

I am checking the report for last year, Spring 2010 to Winter 2011, the statistics on women are very interesting.

• The unemployment among women still is much higher than unemployment among men: %20.5 versus %11.9 overall, %39.7 for women age 15 to 29 years versus %21.8 for men of the same age group. 
• The increase in unemployment for women is also higher than the increase in unemployment for men. Women age 15 to 29 years experience %8.7 increase in unemployment from the previous year, for men age 15 to 29 years old this has been %2.1. This means a proportionally larger number of women are unemployed. This confirms previous findings (Abbasi and Dadpay among others) that youth and women are the most vulnerable group in Iran's labor market. They usually feel the burden of economic downturns first. 
• Still close to one out of every three women work in agriculture, %28 versus %17.5 for men. Still almost half work in services, %47.6 of women and %48.8 of men.

Question is what should be the focus to combat women unemployment? Employment opportunities equality might be the first place to start. The disproportional unemployment among women might be hinting at a still segregated labor market.

Of course these are only the descriptive analysis and some very basic intuitions. More can be found out through modeling and further analysis.  

Has Iran's Economy Lost One Million Jobs?

Ebrahim Alizadeh in a report for Jahan Sana'at daily in Tehran has written that in the past year one million job has been lost in Iran. His report prompted me to check the original report from Statistical Center of Iran (SCI).  The latest report which covers Iranian calendar year of 1389, from March 2010 to March 2011, includes a summary statistics for Iran:

• Iran labor force for 10 years and older population in this year has been 23,875,023 with a participation rate of %38.3 (men's participation rate at %62.1 and women's participation rate at 14.1%). (Ref. Table 1 of the report).  The participation rate has declined %0.6 since its previous year where it stood at %38.9. 
• In 1388 (March 2009 to March 2010) SCI reported that 21,000,079 were employed in agriculture, service and industrial sectors, in the following year this number is 20,656,621. This means 343,458 jobs lost on a year to year basis. 
• Looking at seasonal data however we see in the winter of 2010 the number of unemployed rises to 3,420,836 with labor force falling to 23,367,266. This means a total employment of  19,946,430. This means a loss of 1,053,646 jobs. In this I believe we have to take into account that winter does reduce activities in agriculture and construction. This could be the effect of the season. However still 343,458 is a rather large number. 

Unemployment has increase also by 1.6 percent from %11.9 in 1388 to %13.5 in 1389. Given that the participation rate is falling I believe that we are witnessing a discouraged workers' effect taking place in Iran. Thus I agree with Jahan Sana'at conclusion that the government claim of success in combating unemployment is actually a misconception. The data shows the supply of labor has been falling and not its demand.

It is First of May!

Walking down the streets of Tehran in 80’s and early 90’s one would have seen the old fading revolutionary slogans: “Long Live 11th of Ordibehensht (First of May) the Workers’ day! Long Live the Workers! Down With Capitalism!” Using the 11th of Ordibehesht from Iranian calendar, some older ones date to early years of revolutions would have been read: “Long Live the First of May! The Day of Proletariat! Dawn with Capitalist Imperialism!”

These were testimonials to the leftist inclinations of early revolutionaries. Except for a few merchants of Bazar and some of the traditionally religion few felt obliged to advocate the ownership rights or a free market. Advocating capitalism was almost a crime and an intellectual suicide. Justice was the word of the day.

In following the message of justice Iran adopted one of the costliest labor codes in the region. It makes it impossible to fire a worker; so many bankrupt firms continue to keep their labor force failing to pay their salaries. Many entrepreneurs prefer to hire illegal workers from Afghanistan and neighboring countries instead of hiring Iranian workers, to avoid dealing with the labor code. Ignoring the necessities of market and profitability of production has become a norm in approaching the labor issues in Iran.

Today the questions of efficiency, productivity and the issue of unpaid employment are all valid and legitimate topics for the discussions on Iranian economy. However many instead of looking into the causes of events, still concern themselves with short-term remedies and the events. Certainly it is tragic when a worker is not paid, and there are reports of factories where workers have not been paid for several months, but many of these firms have been bankrupt for several years now and they need to adjust the number of their employees. The restrictions set by the labor code prevent the entrepreneurs from maneuvers that would save their businesses. No sales and no revenues are translated into no income, but few observe that.

It is the first of May again. May be it is time for Iranian workers to demand freedom of choice, instead of an ambiguous justice and protections that doom the future of their employment and make it an unpaid one.