Estimating the supply of and demand for labor force until 2050 in Iran

Iran's economy will become bigger in the coming years and the GDP will increase every year. Therefore, the economy will need more labor force, which is provided through population growth. Now this question is raised, will population growth be enough for Iran's future economic growth?During the last 50 years, the situation of Iran's labor market has been such that the supply has increased over the demand, so unemployment has been one of the chronic problems of Iran. For example, the active population in 2021 was about 25.8 million people, of which 2.3 million were unemployed and 23.5 million were employed, that is, the unemployment rate was 9.2% (Statistical Center of Iran, Results of the 2021 Labor Force Survey Plan), but the population outlook in Iran shows major changes in the coming years. This research shows that in the future, the labor market of Iran will not experience unemployment, rather the possibility of labor force shortage will not be surprising. In this article, the supply of and demand for labor in Iran are estimated until 2050, then the gap between the two is predicted.

To predict the labor supply, first, the population by age has been estimated using the cohort method until 2050. Then we consider two scenarios for the labor force participation rate. First, it is assumed that the labor force participation rate will be constant until the year 2050. Second, it is assumed that the participation rate will increase along the trend of "average years of education of women". With the availability of the participation rate and the working age population (15-64), the active population has been estimated until 2050.The demand for labor is estimated according to the production elasticity of employment. With the assumption of this elasticity and the assumption of economic growth at least level for Iran's economy, labor demand is predicted. The average production elasticity of employment in Iran is about 0.7, which means that with economic growth of 1%, the demand for labor increases by 0.7%. Assuming that this elasticity is constant until 2050 and considering the scenario for economic growth (minimum economic growth), the labor demand is estimated for the next 30 years.

 A realistic scenario that predicts the labor force participation rate in line with the trend of "average years of education for women", the active population is predicted to be 30.35 million in 2050. On the other hand, by using the output elasticity of employment and two scenarios for Iran's economic growth, the demand for the labor force has been predicted until 2050. Assuming an average economic growth, 2.6% per year and an output elasticity, 0.7, the demand for labor in 2050 is predicted to be around 40.26 million people. With a realistic scenario, the results show that there is unemployment in Iran until 2030, although the trend is decreasing. In 2030, unemployment will reach zero, which means labor supply and demand will be equal. From 2030 onwards, the excess demand for the labor force begins with an increasing trend, so that in 2050 the excess demand for the labor force reaches about 10 million people.

In this research, labor supply and demand have been predicted using very conservative and reasonable assumptions. The results show that with a minimum economic growth rate (1% per year) and the maximum increase in the labor force participation rate up to 50% in 2050, there will still be a lack of labor demand. There are three ways to reduce excess demand. The first is to increase productivity. Through improving technology and human capital through education, health, skills, etc., labor productivity can be increased. With the improvement of technology and the use of advanced machines, the use of robots, the mechanization of various economic sectors, and the use of artificial intelligence (IA), the majority of excess demand can be provided.  The second is to use of foreign labor. Many countries use the supply excess of foreign labor from countries that face supply excess to offset their excess demand. The third way is to increase the labor force participation rate of women in Iran.It should be noted that the assumption of other conditions is always met in any forecasting. Among these conditions are sanctions, oil exports, technology, environmental changes, and so forth. For example, if the sanctions are lifted, Iran's economic growth can up to 7 percent annually. Higher economic growth leads to higher demand for labor, and excess demand occurs sooner. Therefore, changing any of the unexpected factors in the future can increase or decrease the forecast of supply and demand.