Why Doesn't the Unemployment Rate Decrease?

Es'hagh Jahangiri, the First Vice President, states: "The most significant challenge currently facing the country is unemployment. In recent years, specifically over the last eight quarters, the number of job seekers has exceeded 1.2 million." This official also identifies the highest employment capacity of the Iranian economy as: "In the best case, the Iranian economy can create 600,000 jobs. However, various estimates suggest that annually between 800,000 to 1 million people enter the labor market, while a significant number become unemployed due to the obsolescence of industries and recession. According to five-year development plans and the twenty-year vision document, the most important condition for alleviating the acute unemployment problem in Iran is achieving a stable growth rate of 8%. However, the average economic growth performance in Iran over the past 30 years has been around 3%. Although the government has targeted an 8% growth rate based on the twenty-year vision and related five-year development plans, international institutions estimate that the average growth rate in the coming years will be between 5% and 6%. For example, the International Monetary Fund, in its latest detailed report on the Iranian economy, notes a 6.6% growth rate this year and predicts an average growth rate of 4.2% over the next five years. According to this report, Iran's unemployment rate is expected to remain around 12.2% over the next five years, showing no significant change from current conditions. Although the growth rate in the coming years is positive, it will not be sufficient to solve issues such as unemployment, poverty, class disparity, and low living standards in Iran. The experience of the past 38 years indicates that the simplest method to increase Iran's exogenous and endogenous economic growth is to emphasize spending oil revenues on construction projects. However, recent international experiences show that the quality of economic growth—specifically, which sectors it comes from and through what methods—is just as important as its quantity. Economic growth at any cost does not necessarily mean sustainable employment and long-term public welfare. The quality of economic growth is the issue. The level of employment in any country is linked like a chain to many economic variables. The positive process of these economic variables is a factor in increasing employment and consequently reducing unemployment. The first variable to mention is economic growth, which manifests itself in the increased capacity of production and service workshops. The growth rate is conditional on massive investment, reducing political, financial, and credit risks, improving the business environment, Iran's presence in international markets, and rent-seeking reduction in the Iranian economy. Economic growth is important for its positive effects, such as reducing unemployment, increasing citizens' living standards, and alleviating poverty. Limited growth of one or two percent, while positive, is not sufficient to solve the unemployment problem according to the assessments of the ruling authorities. Economic growth must reach at least above 8% to create jobs for newcomers to the labor market. Iran's economic growth is limited to specific industries such as oil, automotive, and similar sectors and is not widespread. For example, the construction industry is still in recession, and small and medium enterprises have not yet reached a stage of sustainable growth. In support of this, the Deputy of Small Industries states that small industries account for 50% of exports and 70% of job creation. Increasing employment, especially for traditional youth groups, requires sustained and widespread high economic growth, particularly among small and medium enterprises in new economic sectors in services. Global experience also shows that today, medium and small enterprises have become the engines of job creation through innovation in the international arena. Furthermore, while the quantity of the growth rate is important, the quality of growth is also significant when it comes to employment and economic dynamism. There is a crucial difference between endogenous growth based on innovation and rent-seeking and oil-based economic growth. Job creation in economic sectors that rely on innovation, creativity, and effective presence in international markets requires making the Iranian economy competitive. The competitive capacity of any country is the product of the continuous efficiency of institutions—whether public, private, or governmental—policies, and increasing the productivity of management and organization in a country. Changing this index usually occurs slowly and results from implementing a series of structural measures, particularly rent-seeking reduction. In conclusion, the government in the post-JCPOA era has succeeded in showcasing limited growth by increasing oil exports and export revenues and injecting financial resources from it into parts of Iran's centralized economy. Such growth, while positive, is not widespread and lacks the necessary "quality"; therefore, it still cannot create extensive and sustainable employment. Economic growth in Iran's specific conditions, where widespread unemployment among youth and women exists, is conditional on employing this young and skilled workforce in new and leading sectors of the economy, which can create high added value by entering the global market. Economic growth centered on competitive industries is not the same as growth in traditional industries. Traditional industries are vulnerable to international competition and often cannot generate sustainable growth and job creation. For instance, the quality of exogenous economic growth resulting from injecting oil revenues into construction projects is not the same as competitive economic growth resulting from presence in the software market. In this context, the quality of economic growth from exporting simple goods like dried fruits differs from growth derived from selling consulting services in various industrial or educational fields. Although we have witnessed some positive measures in recent years, such as opening the economy to the world or reducing inflation, this is not enough. Increasing the ultimate efficiency of the Iranian economy depends on larger and more continuous reforms that require a long time and more fundamental changes.