Employment and its Affecting Factors in Iran's Informal Labor Market (1972-2006)

One of the major concerns experienced by almost every country in the world is the rising trend of hidden and informal economic activities. Following the formation of modern economies, the presence of these informal activities has become a main feature of labor markets. A lack of available employment in the formal sector, plus the restrictions and complicated regulations which exist in this area, has forced individuals to enter the informal labor market instead. Considering the significance and the role that the labor market plays in providing economic equilibrium, understanding this market and its natures and structures is becoming more and more essential. By using Multiple Indicators, Multiple Causes (MIMIC) Model and applying the Partial Least Squares approach, this study tries to estimate the share informal workers have in Iran's labor market. Results indicate that during the 35-year period under consideration (1972-2006) this share has witnessed a number of ups and downs, but the overall trend seems to be in the increasing mode. The biggest share is that of the (1990-2006) period, averaging around 21 percent. Total estimated results indicate that, tax burden, inflation, and minimum wages are the most important determinants of the aforementioned trend, with income distribution and energy consumption being highly affected by this variable