A Comparative Study of Different Methods in Determining the Employment Generation Potential of Economic Sectors: A Case Study of Iran's Economy

Limited resources and facilities require prioritizing their allocation. For this reason, determining the sectors in which investment stimulates the economy and causes more economic growth has always been the focus of economic planners. Investigating the contribution of different sectors of the economy in job creation is very important for better allocation of limited resources. The priority of investment will be given to a sector that has the highest employment generation capacity and the production level of the entire economy.

In this article, on the one hand, three methods of analyzing the key sectors of the economy in terms of creating employment were compared. On the other hand, by calculating the normalized backward and forward links of different sectors of the economy and using Spearman's rank correlation coefficient, the results of three methods were examined. Finally, the most suitable method to introduce the important sectors of the economy to simultaneously improve production and employment was identified.

By comparing the results of the analyzes of two traditional methods and the hypothetical removal of Meller and Marfan, it can be seen that the other services and professional, scientific and technical activities with an increase of one unit (one billion Rials) of investment have the highest direct and indirect employment generation capacity. In addition, mining activity with an increase of one unit (one billion Rials) of investment has the lowest direct and indirect employment generation capacity.  Also, in both primary tables, the fields of agriculture, forestry and fishing have been ranked fourth in terms of importance in creating employment. Meanwhile, the industrial production sector (construction) has changed from the 13th rank in the traditional method to the 3rd rank in the hypothetical removal method of Meller and Marfan. In Meller and Marfan's hypothetical elimination method, by considering production, the defect of the traditional employment generation method was largely eliminated. In the third method, unlike the first two methods, industrial production activity is the most important sector of the economy. In fact, this sector accounts for about 34% of the total lost indirect job opportunities. Also, according to the revised method, the agricultural sector ranked second among 19 fields of activity and is much more important than the two sectors of other services and professional activities, which were introduced as the most important sectors of the economy (from the point of view of employment creation) according to the first two methods. The calculation of normalized links showed that the industrial production sector (construction) with normalized coefficients of more than 20 had the greatest effect and influence from the production of other sectors. After the industrial production sector, transportation and storage sectors; agriculture, forestry and fishing; and the building have the most links (forward and backward) with other parts, respectively.

Spearman's rank correlation coefficient, between the normalized links of production and the 3 described methods, showed that based on the results of the 2015 Input-Output table of Statistical Center of Iran, only the modified method of hypothetical elimination can correctly determine the important sectors of the economy from the two perspectives of production and employment.