Analyzing the Asymmetric Effect of Exchange Rate on Employment in Iran with Emphasis on Economic Sectors

Due to the structure of exchange rate regime in Iran and its dependence on oil revenues in recent decades, it is expected that exchange rate changes can be regarded as a consequence of major changes in oil price. In this regard, the exchange rate increases and decreases can influence the level of employment of firms by affecting the amount of their profitability, and of course, this kind of influence can be asymmetric. Based on this, the present study has investigated the non-linear effect of exchange rate on employment in Iran in the framework of a basic model and five sectoral models (agriculture; services; mining; water, electricity and gas; manufacturing and construction sectors). For this purpose, a non-linear autoregressive distributed lag approach and annual data in period 1968-2017 have been used. The results of the basic model show that increases in exchange rate do not have a significant effect on total employment, but decreases in exchange rate have a reverse effect on total employment. Similarly, the model estimation for five sectors shows that increases in exchange rate do not have a significant effect on employment of these sectors. However, the effect of decreases in exchange rate on employment in services, mining, water, electricity, and gas; manufacturing; and construction sectors is reversed. Hence, to sum up, for four sectors including mining, water, electricity and gas, manufacturing and construction (partially), the exchange rate has had an asymmetric effect on employment in Iran economy.