Employment, Skill Upgrading, and International Trade: The Case of Sanctions Against Iran

Abstract

This paper examines the effects of the trade sanctions imposed on Iran in 2010 on employment, demand for skilled labor, and wages by using industrial manufacturing data that cover 10 years before and 5 years after the sanction, 28 provinces, and more than 200 different industries. The results regarding the employment impact of the trade sanctions show that there was remarkable job destruction, most notably in domestically active industries, during the sanction period. The decomposition of the increase in the aggregate demand for skilled labor sheds light on the fact that it comes from labor reallocation within industries, not from across industries. The trade sanctions adversely affected both exporters' and non-exporters' total-factor productivity; however, non-exporters endured a larger negative impact. This induced biased technological change between exporters and non-exporters, which resulted in a market share reallocation towards exporters. As a result, the demand for skilled production workers increased which results in a rise in the real average wage, whereas the demand for non-production workers decreased which results in a fall in the real average wage during the sanction years. This opposite effect is explained by the elasticity of substitution between skilled and unskilled workers.