The Convergence of the Sectoral Labor Productivity in Iran (An empirical test of Lewis Structural change)

This paper examines the Lewis theory of structural change in Iran in the period 1974-2005. Where labor productivity growth and the intensive use of labor occurs via reallocation of labor between sectors or spillovers in the production from the manufacturing or service sectors to agriculture resulting to convergence. Assessing whether productivity gap is reducing or increasing, takes us to the notion of convergences. Aggregate productivity growth can occur within sectors or result from sectoral employment reallocation. Their relative importance can be fairly easily assessed by decomposing growth using a shift-share analysis. In this study, first the importance of sectoral reallocations is measured by a shift-share analysis, then convergence in sectoral productivity level is measured by Theil index. The results support the process of convergence in the sectoral labor productivity in Iran on the period under consideration. However, sectoral convergence may take a long time to occur.