The Effects of Economic Shocks on Labor Market in Iran

The labor market is one of four major markets in the economy which is important because of its special feature. In the present study long-term effects of various macroeconomic shocks on the unemployment rate during the years 1974-2016 has been investigated using the Structural Vector Error Correction Model (SVECM). On the basis of the estimated equation, real wages have a direct relationship with productivity and employment and an indirect relationship with the unemployment rate. Impulse response analysis showed that among the shocks, productivity and supply shocks have a larger impact on unemployment, so that productivity shocks in the long run reduces the unemployment rate and the positive supply shock leads to a higher unemployment. According to the results of analyzing unemployment prediction error variance, labor supply shock, productivity and labor demand are important factors in long-term unemployment. But the most important factor in unemployment is the supply shocks that this share increases over time.