Assessing the effects of devaluation on employment in selected Islamic Countries

Employment was undoubtedly one of the main problems of industrial and non-industrial countries. Governors are always looking for ways to preserve, stabilize and enhance it, besides that, they have been looking for solutions to the obstacles they face. In other words, the main goals of any economic system are to minimize unemployment. Many factors, such as GDP, tax revenue, inflation and commercial openness, affect the employment of countries. By determining their relationship, along with the growth of the economy, employment growth can also be expected. Accordingly, the present study uses data from nine countries and uses the panel data method over the years 2000-2013 to investigate the depreciation of money on the employment of selected Islamic countries. The results confirm that currency devaluation (real exchange rate increase), GDP, tax revenue, inflation rate, and commercial openness have a significant effect on selected employment from selected Islamic countries)Iran, Indonesia, Egypt, Malaysia, Saudi Arabia, Oman, Jordan, Kuwait and UAE).

Some of the most important and critical factors that any economy faces, are the issue of preventing unemployment, preserving and consolidating employment in the various sectors of the economy and providing solutions to the problems of production. So that unemployment reduction is one of the most basic indicators of development of societies. The exchange rate fluctuation can affect the employment of sectors. Because employment in all economic matters is a key and strategic argument and has two segments of supply and demand. The supply side resulting from population changes includes population growth, immigration, and education levels in the community and the demand side affected by the level of activity, the growth of various sectors of the economy, such as agriculture, industry and services (Sydaee et al 2011). The impact of the devaluation of money on employment is likely to be of great importance. Therefore, the effect of these two variables is considered in several Islamic countries. Research hypotheses, main hypothesis: Devaluation (real exchange rate increase) has a significant effect on the employment of selected Islamic countries. Sub-hypothesis: (A) GDP has significant effects on the employment of selected Islamic countries. (B) Income tax on employment of selected Islamic countries has a significant effect. (C) Inflation rate has a significant effect on the employment of selected Islamic countries. (D)Trade openness has a significant effect on the employment of selected Islamic countries. Determining the effects of exchange rate on production by three models of control, absorption and monetary are proposed. The basic assumptions of these approaches are the flexibility of prices, the degree of capacity utilization, and the emphasis on demand. In the controlling approach, if a reduction in the value of the domestic currency would improve the trade balance to domestic currency total production increases in the short and long term. In the absorption model if production capacity and unused resources exist in the economy, production may increase. In the monetary model, there is no effect on production in the short and long term, and production is in full employment .situation.  On the other hand, there are some ideas that indicate the negative effects of devaluation on production. Including Krugman and Taylor (1978), using Keynes's framework, showed that the devaluation of domestic currency had a contraction effect on production and employment. Bahmani Skooie and Mitzea (2003, p. 5) showed, devaluated money increases prices of production factors such as raw materials, capital and labor. Similarly, production costs increase and total supply decreases. Also, with devaluation, there is an increase in money demand, which ultimately leads to an increase in interest rates, this will increase the cost of capital use in such a situation, producers' motivation for production and supply decreases. Examples of studies in this area include the following: Dogan et al. (2018), with the dynamic Panel data method in the period 2006-2015, concluded that the appreciation through the creation of businesses by companies would increase Turkey's employment rate. Zobeiri and Nademi (2016) proved that the Markov Switching method has been used for the years 1974-2014 in a research, in the high unemployment regime, the exchange rate gap is causing severe unemployment in the Iranian economy.

In this study, mixed data and combined data have been used. Combined data method is a method for combining time series data and cross-sectional data.

 Research hypotheses based on panel data of 9 selected Islamic countries (Iran, Indonesia, Egypt, Malaysia, Saudi Arabia, Oman, Jordan, Kuwait and the UAE), during 2000-2013, by the panel data approach were examined. The main hypothesis is that devaluation (rising real exchange rate) has a significant effect on employment in selected Islamic countries. This hypothesis is accepted. The results indicate that in the studied countries, with an increase of 1% in the logarithm of the official exchange rate, employment is reduced by 0.0 26% and with an increase of 1% in the real effective exchange rate logarithm, employment is reduced by 0/036 0%. The rest of the research hypothesis were approved except for the impact of inflation on employment.