Relationship between Product Market Structure and Intensity of Labor Market Flexibility: Case Study of Iranian Manufacturing Industries

Given the importance of labor market in Iranian economy and considering this market is suffering from disequilibrium circumstances, this paper attempts to examine the level of labor rigidity according to the labor market characteristics and product market structure. The theoretical literature of our study is based on the approaches of Aghion et al. (2008) and Fedderke et al. (2000), applied to the 2-digit level ISIC code industries within 1995-2008. The findings imply the dominance of imperfect competition structure in the product market, in a way that induces a significant gap between the price and the final costs in over 50 percent of industries. Moreover, the findings indicate that the highest inflexibility are observed in the labor market industries in the following areas: recycling; products of coke, refined petroleum and nuclear fuel, business office and accounting machines, wood products; products made from straws and canes; publishing, printing and duplication of recorded media.