The Effect of the Industry Sector's Value-Added on Employment of Iranian Provinces: A SemiParametric Panel Data Approach

Increasing employment and achieving sustainable development is one of the main goals of Iran’s economy. The industry sector plays an important and vital role in creating jobs and growth in production due to its backward and forward linkages with other economic sectors. The aim of the present paper is to examine the impact of the industry value-added on employment in the country during 2005-2016 due to the importance of the study. To analyze the relationship between variables, first, based on the ratio of “industry value-added to GDP”, the provinces of the country divided into two groups with high value-added share and low value-added share. Then in each group, the effect of industry value-added estimated on employment, using the semi-parametric panel data approach by Baltagi and Li. The findings of the parametric section showed that in both groups, increasing the value-added of the industrial sector and capital stock lead to a significant increase in employment, and an increase in real wages leads to a significant decrease in employment. Although in the first group, employment is more affected by value-added than the second group. Increasing the productivity of total factors of production in both groups leads to a decline in employment, but the decrease in employment is significant only in the first group. Following the non-parametric results, the impact of human capital on employment is positively significant; except that in the group where the share of industry value-added is higher than the average level, the effect of human capital on employment is nonlinear and has a decreasing return. In other words, the rate of employment response to human capital at a low level of human capital is greater than the higher level of human capital. In the second group, in which the share of industry value-added is lower than the average level, the relationship between human capital and employment is linear and positive.