Estimation and Analysis of Labor Demand Function in Terms of Education and Employment Forecasting Up to the Year 1400

The highly-educated labor force unemployment rate rapidly overtook the unemployment rate of the less-educated workers for the last two decades. This paper focuses on the factors which affect labor demand  considering the level of education using the data from 1986 to 2017.  Results based on the Multiple-Equation Generalized Method of Moments estimator demonstrate that non-oil GDP, relative wages, capital-labor ratio, and labor costs–capital costs ratio have a significant impact on labor demand in terms of education level. Also, it is demonstrated that the highly-educated labor force can adjust to its desired level at a slower pace than the less educated workforce. Furthermore, it is denoted that non-oil GDP affects labor demand in a positive and significant way with more impact on the workers with higher education. Other findings indicate that in Iran’s labor market, highly-educated labor force and workers without college/university degree are substitutes, hence policies like wage subsidies and employer insurance exemption for employing higher education graduates can stimulate labor demand for a highly-educated workforce in a positive and significant manner. On the other hand, as it is found that labor and capital are substitutes, policies that make labor costlier than capital may result in employment reduction. Finally, the technological progress that arises from increases in capital per capita has a positive and significant effect on the labor force with higher education, but it influences less-educated labor employment negatively and significantly.