Declining Purchasing Power: An Obstacle to Economic Growth?

Introduction: The inward-looking nature of Iran's economy means that its economic growth is dependent on the increase in people's purchasing power and, consequently, an increase in public demand. This, in turn, is conditional upon appropriate wages and salaries. Human progress—albeit limited and flawed, and subject to criticism—has led to a global consensus on the minimum rights of labor. It should not be assumed that the acceptance of even this minimum, which is a necessary condition for global economic and social progress, has come about by chance or whim. Maintaining public purchasing power, especially for the workforce that constitutes the majority of citizens, is essential for economic and social growth. Article 23 of the Universal Declaration of Human Rights emphasizes the preservation of this purchasing power and the fairness of wages "in such a way that the life of the individual and his family is ensured in a manner consistent with human dignity and worth." In Iran, following the expansion of the labor movement in the 1920s, the minimum wage was recognized in the Labor Law ratified in 1946. A few years later, the Labor Law ratified in 1959 reiterated the emphasis on determining the minimum wage for workers. It took a relatively long time—11 years—for this law to become practical, and the minimum wage law was implemented in 1969; finally, in 1976, the national minimum wage was approved. The minimum wage, according to the International Labor Organization (ILO), is defined as "the lowest level of wage that is determined by custom or law, regardless of how it is calculated or the worker's qualifications for the job, and is determined in such a way that it meets the minimum needs of the worker and his family, considering economic and social conditions." The conditions set by the ILO are included in Article 41 of Chapter Three of Iran's Labor Law. According to this article, "the minimum wage, without considering the mental and physical characteristics of workers and the characteristics of the assigned work, must be sufficient to support a household whose average number is declared by official sources." However, the performance of Iran's economy has been such that the above regulations have been ignored in various ways and for different motivations. One of the reasons for the recession that has paralyzed Iran's economy is this very issue. Declining Purchasing Power as a Reality: If we describe the state of Iran's economy over the past decade as stagflation, there is consensus that this economic problem has severely reduced the purchasing power of workers and employees in Iran. To confirm this decline in purchasing power, Hadi Abouei, Secretary-General of the Supreme Council of Labor Associations in Iran, states: "Government statistics usually report household expenditures at 2.3 to 2.5 million tomans per household per month, and if we accept this statistic, there is a deep gap with the income of workers, which ranges from 812,000 tomans to 1.3 million tomans." Simultaneously, Hassan Heftetan, Deputy Minister of Labor Relations at the Ministry of Cooperatives, Labor, and Social Welfare, believes that "workers' wages have lost 67% of their purchasing power since 2005, meaning that 1,000 tomans earned by the workforce has the purchasing power of only 300 tomans from 2005." This official also states: "We do not feel much change in the livelihood of workers; the workforce must save at least 50% of their wages. Currently, the purchasing power of workers is decreasing day by day." One of the significant causes of Iran's economic recession is the decline in public demand in the market for goods and services, which itself has several causes. Structural causes, sanctions, short-term variables, and finally, inappropriate policymaking are the reasons for this decline in public purchasing. In this context, Iran's economy has experienced rising inflation and widespread unemployment simultaneously. Why do people not feel the decrease in inflation? Despite official statistics indicating a decrease in the inflation rate, it is reported that wage earners do not feel this decrease in their daily lives. The reason for this discrepancy is that the average inflation rate—assuming its accuracy—is measured based on an average basket of expenses consisting of 450 types of goods and services. Additionally, this number of goods is examined in about 178 cities and 293 rural areas. Meanwhile, the expense basket of households that live on daily wages, especially low-income groups, consists of a few goods and services, including food, rent, and healthcare. As the average household expenditure decreases, items from the household consumption basket are gradually removed; thus, the lower the income of the family, the fewer items of goods and services remain. Ultimately, the items that remain in the common expense basket of working-class and employee households include the most essential goods and services. The inflation rate of such goods and services is usually higher than the general average of goods and services; therefore, the wage increases in recent years have not been sufficient to cover the rising prices of essential items. The mismatch between the increase in inflation and minimum wages has significant consequences, including a reduction in purchasing power and the expansion of poverty among larger segments of the population. The growth of Iran's economy, as an inward-looking economy, is heavily dependent on the level of public demand; therefore, even assuming an increase in government oil revenues, if these revenues do not manifest as an increase in public purchasing power, it is natural that economic prosperity in Iran will not be sustainable. Of course, the relationship between economic growth and purchasing power is reciprocal, as economic growth also affects purchasing power. However, in the current situation, it is this severe decline in purchasing power that has slowed capital circulation and exacerbated the liquidity crisis. To exit the recession, increasing the real purchasing power of a significant portion of citizens, namely wage earners, is essential. This is not possible without reducing the inflation rate and creating jobs. Although there is evidence suggesting a decrease in the inflation rate, the government has not been successful in job creation.