Economists Explain Decline in 4th Quarter Unemployment Rate

EghtesadOnline: Iran's unemployment rate in the fourth quarter of last Iranian year (ended March 20, 2021) stood at 9.7%, registering a 0.9% decline compared with the corresponding period of the year before, according to the latest data released by the Statistical Center of Iran.

News ID: ۷۸۶۳۸۸

25 April 2021

The decline took place despite the pressure of Covid-19 pandemic and US sanctions on Iran’s economy.

“At first glance, it seems like the decline indicates an improvement in the labor market, but does it really mean an increase in employment and that the labor market condition is getting better?” Sahand Faez and Abbas Khandan, two economists, take a closer look at these stats in articles published in the Persian economic daily Donya-e-Eqtesad and prove the opposite.

Both refer to labor force participation rate and insist on its importance for understanding the real condition of the economy. The labor force participation rate indicates the percentage of all people of working age who are either employed or actively seeking work.

Because it accounts for people who have stopped looking for work, this may make the labor force participation rate a somewhat more reliable figure than the unemployment rate.

The Statistical Center of Iran put Q4 labor force participation rate — the proportion of the population of ages 15 and above that is economically active either employed or looking for a job — at 40.9%, registering a 1.5% decrease year-on-year.

By comparing unemployment with labor force participation, Khandan notes that unemployment statistics do not represent an improvement in the labor market, rather they indicate negative growth in the economically active population.

"In the last Iranian year, due to continued US sanctions and the adverse effects of coronavirus epidemic on various sectors of the economy, the working population decreased. As the situation persisted, more and more people ended their search for job and became [economically] inactive. This is not good news at all, contrary to what was perceived at first glance from the unemployment statistics," he added.

Faez compares the unemployment of youth population from age 15 to 24 with total joblessness, noting that from the fiscal 2016-17 to 2020-21, the unemployment rate of the youth population was nearly three times higher than the total jobless population.

"By studying these three indicators [labor force participation rate, youth unemployment rate, total unemployment rate] together, you can understand that the labor market did not welcome fresh labor force and as a result the population's willingness to participate in the labor market was relatively low," he said.

SCI provides two figures for youth unemployment rate: the proportion of the population between 15 and 24 years and those between 18 and 35 years.  The youth unemployment rate of those between 15 and 24 years stood at 23.6% in Q4, posting a 2.1% decrease while the unemployment rate of those between 18 and 35 years stood at 16.8%, posting a decline of 1% YOY. The share of unemployment of people with higher education from the total unemployed population was 38.8% in Q4, which indicate a decrease of 0.2% year-on-year. The unemployment shares of male and female graduates from the total unemployed population stood at 26.4% and 71%, respectively, while the share of unemployment of people with higher education from the total unemployed population was 42.6% in urban areas and 24.1% in rural areas during the period.

In addition to joblessness among young population, Faez compares unemployment among men and women.

“Although the unemployment rate of men and women registered a decline during the five-year period, the unemployment of women was twice as much as men’s. However, men’s unemployment and total joblessness were more or less equal. While the unemployment rate for men averaged at 9.69% over the years under review, the average unemployment for women was at 18.49%.”

According to the SCI report, a total of 2,477,850 Iranians were unemployed in Q4. Men’s unemployment stood at 8.4% while the rate for women hovered around 16.5%. Over 1.79 million men and 685,934 women of ages 15 and above were jobless in Q4.  Men’s and women’s economic participation rates were put at 68.5% and 13.3% respectively in the same period.

Some 21.44 million men and 4.16 million women of ages 15 and above were economically active in Q4, i.e., they were either employed or looking for a job.

"Although the single-digit unemployment rate reported by SCI may indicate an improvement in labor market conditions, a closer look negates this optimism."

At the end, the two economists explain that the decline in unemployment does not mean that more jobseekers could land a job, it rather indicates that more people that become have economically inactive.

MRC Report Takes Pandemic Effect Into Account

A recent report by Majlis Research Center, the research arm of Iranian Parliament, also sought to probe into recent developments in the labor market by taking into account the pandemic’s effect.

The report, which reviews the market in the second quarter of last fiscal year (June 21-Sept. 21), explains that the decrease in unemployment has coincided with the fall in labor force participation, in line with loss of jobs caused by the coronavirus pandemic.

The economically active population, the sum of employed and unemployed persons, reduced by 1.62 million in the second quarter of the current fiscal year (June 21-Sept. 21), indicating a 3.1% decline in labor force participation rate compared with the corresponding period of last year, the report said.

According to this report, 22.3% of the unemployed and 8.9% of employed persons were added to the population of economically inactive in Q2. Had they joined the population of people looking for a job, the unemployment rate in the period under review would have been 18.5% rather than the official 9.5% announced by SCI.

The MRC report continues: “Of the more than 1.62 million people in the active population that dropped out of the labor market in Q2, 1.01 million were women and 615,651 were men. The second quarter’s economic participation rate fell by 3.1% year-on-year to reach 41.8%. In fact, women have experienced the biggest job losses in Q2. Out of 1.2 million people who lost their jobs in Q2, 460,000 were men and 750,000 were women. Men and women’s participation rates dropped by 2.7% and 3.5% to hit 69.5% and 14.1%, respectively.

The services sector accounted for the biggest share of the unemployed: out of 1.2 million people who lost their jobs in Q2, 817,000 were from the services sector. Out of 22 groups of economic activities, only three groups, namely “financial and insurance activities”, “construction” and “administrative activities and support services”, saw growth in employed population.

The sharpest declines were registered by “accommodation and food services”, “information and communications” and “art, leisure and entertainment.”