Domestic Economy

Q1 Jobs Growth at 3.4%

The growth in employments was in line with economic expansion
Q1 Jobs Growth at 3.4%Q1 Jobs Growth at 3.4%
Jobs in the construction sector saw a 6.7% contraction, mainly due to the slowdown of the controversial Mehr Housing Scheme

The number of jobs grew by 3.4% in the first quarter of the current Iranian year (started March 20) compared with last year’s corresponding period, the director general of Accountancy Bureau of the Statistical Center of Iran said.

“In the agriculture sector, jobs grew by 3%. The industry sector, excluding construction; and the services sector saw 3.1 and 6.5% expansion respectively,” Javad Hosseinzadeh was also quoted as saying by IRNA.

Hosseinzadeh added that jobs in the construction sector saw a 6.7% contraction, mainly due to the slowdown of the controversial Mehr Housing Scheme.

In 2007, former president, Mahmoud Ahmadinejad, offered free land and cheap credit to contractors in a bid to provide two million low-income Iranians with housing units. But the national project slowed down due to lack of funds.

The project has been blamed for having added too much liquidity to the market and pushing inflation as high as 40% by the time Hassan Rouhani took office.

“The government has managed to finalize the construction of 800,000 Mehr housing units in the past three years and plans to finish the remaining 2,200 units by February 2017,” said deputy minister of roads and urban development, Ahmad Asghari Mehrabadi, in August.

According to the new data released by SCI, the unemployment rate in the first quarter of the current Iranian year showed a 1.4% increase compared with the corresponding period of last year and a 0.4% rise compared with the previous quarter to reach 12.2%.

The SCI put Q1 labor force participation rate, i.e. the proportion of the economically active population ages 10 years and above, either employed or jobless, at 39.5%. The data also show 10.3% of men and 20.3% of women of ages 10 and above were jobless in spring.  Furthermore, the unemployment rate was 13.7% for urban areas and 8.3% for rural areas. An unemployment rate of 24.9% was recorded for the youth between 15 and 29 years.

The services sector employed 49.4% of the Iranian population, whereas industrial and agricultural sectors provided 31.4% and 19.1% of the population with jobs respectively.

According to Fariba Sadat Bani-Hashemi, an official with SCI, the unemployment rate recorded for graduates in spring was 20%, showing a 1.7% rise compared with the same quarter of last year.

  Jobs Growth & Economic Expansion

Hosseinzadeh explained that the growth in employment was in line with economic expansion during the surveyed period.

According to SCI, Iran’s gross domestic product during the first quarter of the current fiscal year grew 4.4% compared with last year’s corresponding period.

The official said agricultural, industrial (excluding construction) and services sectors grew by 4, 4.2 and 2.9% respectively. The two sectors of construction and mining (excluding oil) experienced contraction by recording -8.8 and -5.6 % in growth.

It is noteworthy that the 8.8% surge in industrial output during the quarter came from growth in the oil industry. The biggest breakthrough for the Iranian economy was the lifting of international sanctions related to its nuclear program in January. Since then, oil output has almost doubled to 2.1 million barrels per day.

According to SCI data, the oil industry grew 57% in the first quarter.

The economy emerged from recession two years ago with a 3% growth. The rebound in economic output followed two years of recession when the economy contracted 5.8% and 1.9% back to back.

The SCI data on Q1 economic growth comes as the Central Bank of Iran’s governor Valiollah Seif recently put the rate at 5.4%.

Both the CBI and SCI are in charge of releasing periodic statistics on macroeconomic indices, which often differ from one another.

According to the concluding statement describing preliminary findings of a recent IMF mission to Iran released earlier this month, Iran’s real GDP is projected to grow by at least 4.5% in 2016-17.

The World Bank forecasts 4.2% and 4.6% growth rates for Iran’s economy for 2016 and 2017 respectively.

The government has set an 8% annual growth target for the sixth five-year development plan (2016-21), mainly betting on growth in the oil sector.

  Allaying Fears of Jobless Recovery

Hosseinzadeh’s comments might allay fears of a “jobless recovery” as it was suggested by deputy minister of cooperatives, labor and social welfare, Isa Mansouri, earlier this year.

“Iran 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 this growth,” Mansouri was quoted as saying by Mehr News Agency.

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.

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.

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.

According to Mansouri, net jobs created—generated employments minus the ones lost—reached 500,000 in the last Iranian year (March 2015-16).

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