The Consequences of Human Resource Redundancy and Salary Reduction Policies on the Inflation Management (1942- 1944)

In September 1941, Iran was occupied by the allied forces. The Iranian government was forced to convey economic resources to the Allies. This appropriation was achieved only through a monetary policy, which resulted in a devaluation of the Iranian Rial against British and Soviet currencies. Subsequently, this led to the rise of notes in circulation and a forced agreement between the Iranian government and the Allies, according to which they had to reimburse the Iranian government for the used facilities only after the end of the war, which in turn, had an increasing effect on the inflation. To solve the issue, the government hired Dr. Arthur Millspaugh on 12 November 1942 as the Administrator General of the Finances with executive authority for reform. One aspect of the reforms undertaken by Millspaugh was concerned with the government’s administrative offices and salaries of the employees, which had suffered the most from the increasing inflation. Based on an analytical method and using archival documents and economic-historical sources, the present study aims to examine the impact of the reformist programs devised by Millspaugh and the government on the livelihood and the conditions of the government employees and the reduction in the rate of inflation, considering that a significant part of those programs was concentrated on the government human resources. The results show that the government and Millspaugh did not agree to the demands for a salary increase on the ground of its increasing effect on inflation. Furthermore, in order to carry out the reforms in the administrative offices, they initiated a redundancy plan, including the replacement of native human resources with American experts with a US Dollar-based salary. This, in turn, led to widespread opposition and strikes, which ended up in the reversal of the reforms, their politicization, and the failure of inflation control.