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Growth and Job Creation: A Tricky Reconciliation
Growth and Job Creation: A Tricky Reconciliation

Growth and Job Creation: A Tricky Reconciliation

Growth and Job Creation: A Tricky Reconciliation

Net jobs created—generated employments minus the ones lost—reached 500,000 in the last Iranian year (March 2015-16), according to the Statistical Center of Iran, a deputy minister of cooperatives, labor and social welfare said.
"The country is experiencing what is called a 'jobless recovery'. Consequently, even if we experience the projected economic growth of 5% to 6% this year, we do not expect to create jobs as a result of that growth," Mehr News Agency also quoted Isa Mansouri as saying.
Jobless recovery describes a situation where major economies experience growth, while their employment level decreases or remains unchanged.
According to the Iranian official, growth in gross domestic product does not lead to a reduction in unemployment in the short term.
"This has already been tried and tested in other countries. So what we are planning to do is to increase economic growth by creating jobs," he said.
There does appear to be empirical support for the policy pursued by the government.
A Guardian report showed that in the past 35 years to 2015, the world has experienced the fastest economic growth in human history. Yet, according to the Organization for Economic Cooperation and Development, unemployment has gone up.
According to the report, the way the current economic system is set up, a growth in GDP destroys jobs, since the constant drive to increase productivity, which is what economic growth really is, requires manufacturers to steadily reduce input costs.
"At present, given the current market situation in Iran, for every two jobs created, one job is lost. Elsewhere, an unemployment rate of at least 3% prevails even in prosperous times. This is due to the fact that some people quit their jobs in search of other job opportunities and in the process are considered jobless," Mansouri said.
There has always been criticism, says the official, directed at the Statistical Center of Iran for using classical methods, including Okun's law for data processing. These methods, critics say, are not applicable to all economic situations and may be deceptive.
According to Investopedia, Okun's law describes the observed relationship between changes in the unemployment rate and the growth rate of real GDP. Arthur Melvin Okun, who proposed the relationship in 1962, contended that because of ongoing increases in the size of labor force and in the level of productivity, real GDP growth close to the rate of growth of its potential is normally required just to hold the unemployment rate steady. To reduce the unemployment rate, therefore, the economy must grow at a pace above its potential.
More specifically, to achieve a one percentage point decline in the unemployment rate in the course of a year, real GDP must grow approximately two percentage points faster than the rate of growth of potential GDP.
"Yet, Iran did not experience much economic growth last year and still hundreds of thousands of jobs were created," says Mansouri.
Based on data released by SCI, Iran's economy, excluding its oil sector, reached a 0.9% growth over the period.
The unemployment rate for the same period stood at 11%, registering a 0.4% rise compared with the preceding year. This means 2.72 million Iranians were unemployed last year. The data also show 9.3% of men and 19.4% of women of ages 10 and above were jobless last year.
The unemployment rate was at 12.2% for urban areas and 8.1% for rural areas. In other words, joblessness was higher among women compared to men, and among urban residents than rural people.
Youth unemployment rate, i.e. the proportion of the population between the ages of 15 and 29, stood at 23.3% last year, registering a 1.4% growth compared with the year ending March 20, 2015.
"Grey market accounts for the lion's share of the jobs created. Often during periods of recession, there is a hike in the number of jobs created in the informal employment market," Mansouri said.
The informal economy is neither taxed, nor monitored by any form of government. Informal employment most often means poor employment conditions and is associated with increasing poverty.
According to the International Labor Organization, it is hard to generalize about the quality of such jobs.
The Iranian government plans to embark upon creating local jobs and has, in this regard, piloted local employment projects in some provinces.
Mansouri noted that dozens of experts have undergone special training. "These projects, which will create new employment opportunities and also help maintain the existing jobs, will be carried out nationwide this year."

 

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