The Impact of Energy Price Increase on Employment: A CGE Approach

Energy carrier’s subsidization has placed a significant pressure on government budget in Iran; thus، energy price increase is performed in order to ameliorate this case. One of the main challenges that policymakers need to consider is the impact of energy prices increase on the labor market; especially، when the national unemployment rate is high. This paper utilizes a computable general equilibrium model based on a Micro Consistent Matrix for 2006 in order to evaluate the impact of energy price increase on the Iranian labor market during 2006. The empirical results are based on two scenarios: Baseline and FOB price increase scenarios. They show that the activity level and demand for labor in “crude oil، natural gas، and coal” as well as “other services” sectors will increase in short-run while the energy carriers’ prices increase. However، in long-run، the labor increment will be lower. Furthermore، the model results indicate that in short-run، the activity level and demand for labor in the other sectors will decrease. On the other hand، the policy will result in a larger decrement in the activity level and demand for labor in these sectors in long-run.