Economic Research and Perspectives

Economic Research and Perspectives

Service Employment and Income Inequality in Iran

Authors
maryam rishehchi fayyaz 1
Mohammad Ali Falahi 2
Mehdi Feizi 3
1 M.A. Student in Economics, Ferdowsi University of Mashhad, Mashhad, Iran
2 Professor of Economics, Ferdowsi University of Mashhad, Mashhad, Iran
3 Assistant Professor of Economics, Ferdowsi University of Mashhad, Mashhad, Iran
10.22034/24.3.147
Abstract
Introduction

Inequality in income distribution and social class inequality are among the most serious challenges faced by societies. Revolutionary movements often strive to reduce inequality and establish a more just society. The social class inequality and unfair income distribution have adverse social, economic, and cultural impacts on the community. Therefore, one of the governments’ primary and essential tasks is to create equitable opportunities and address social inequalities. Therefore, it is necessary to identify the influential factors and define precise and reliable variables for measuring inequality.

Methodology

In this research, various methods for estimating the Gini coefficient are applied. This thesis will employ panel data models to investigate the effects of variables such as employment rate in the service sector, per capita income, inflation, and government expenditure on the Gini coefficient.

Results and Discussion

The final results of this study demonstrate that: first, per capita income significantly negatively impacts income inequality in the studied provinces during this period. In other words, as the per capita income of provinces increases, the level of income inequality decreases. Second, according to the findings of this research, government expenditure in each province have a positive and meaningful effect on income inequality. As government expenditure increases, income inequality will also rise. Inflation also positively and significantly impacts inequality, as increasing inflation leads to higher income inequality among provinces. Finally, employment in the service sector has a positive and significant effect on income inequality in the Iranian provinces, meaning that as the employment share in the service sector increases, income inequality will also increase.

Conclusion

Income inequality does not solely encompass economic issues, it will also extend to a wide range of social, economic, and even political matters. For this reason, achieving social justice has been one of the most complex and significant responsibilities of governments throughout history. Establishing fairness and equality in society can lead to development goals, economic growth, prosperity, increased security, and overall societal well-being. To attain a reasonable level of income equality, it is imperative first to define a suitable index for measuring the extent of inequality that is precise, measurable, and reliable. Subsequently, it is necessary to identify the key and influential factors contributing to income inequality and, ultimately, take steps to reduce income inequality."

The main objective of this research is to investigate the impact of employment in the service sector on income inequality in the provinces of Iran during the years 2011-2019. As the results have shown, throughout the study period, employment in the service sector has affected income inequality in the Iran's provinces. However, contrary to the results in most developed countries, employment in the service sector has worsened income inequality in provinces. There are multiple reasons for the results obtained. As explained in the theoretical background, a major contributing factor in developing countries like Iran is the prevalence of low-paying service jobs that attract many individuals. Many service jobs within this category do not require specialized skills or infrastructure, making them appealing to individuals seeking employment. Employing more individuals from this group in service jobs does not decrease income inequality. It may exacerbate income inequality within society.

In all economies, service sector complements other sectors and facilitates the conduct of different activities, greatly influencing the quality of outcome. If educational, health, and recreational services are not available in society, the workforce will not be efficient, and desirable productivity will not be achieved, thus affecting the economy negatively. In addition, in production sector, service institutions have the highest efficiency in adding value to goods. Service institutions can be divided into three main categories: (1) primary institutions, including research and development institutions. (2) secondarty institutions that operate in activities such as engineering, legal, and consultancy services. (3) Final institutions that play a role in activities such as packaging, sales, and advertising. Another advantage of the service sector is related to education. The more educated the workforce, the higher the productivity level will be.

The concepts mentioned above are just a few of the job advantages in service sector. Nevertheless, in most developing countries, including Iran, more attention is paid to the industrial sector. This is despite World Bank data showing that about 70-80 percent of employment in advanced countries is in service sector, and special attention is paid to that. Most fundamental discussions also revolve around employment opportunities there. Despite all the advantages and experiences of different countries, Iran has not been able to use the existing capacities in this sector effectively. Many policymakers still view the service sector as low-level jobs, brokerage, and intermediaries, which has prevented serious attention to this sector, even though the service sector includes profitable jobs and contributes significantly to the growth and development of the country. Employment in this sector can also help employment in the industrial and agricultural sectors achieve higher productivity levels.
Keywords
Income inequality
Gini coefficient
Service Employment
Unfair Distribution
Iranʼs provinces

Subjects

Akhoi, A. (2007) "Inequality of income distribution and an analysis of causes, consequences and policies". Tehran, Publications of the Institute of Business Studies and Research. (In Persian).
Ali Asgharpour Mozirji, H. Momeni, F, & Banoui, A .A. (2013). Changing Service Sectors in a Development Process: Comparison of Distributive and Productive Services. Economic Policy, 6(11), 92-122. . (In Persian).
Amini A. (2002). Analyzing Effective Factors on Economic Sectors’ Labor Demand and Employment Projections in the 3rd Development Plan. JPBUD. 7(2), 53-86. (In Persian).
Baltagi, B. (2005); Econometric analysis of panel data, Third Edition, McGraw-Hill, US.
Baltagi, B. H. (2008). Econometric analysis of panel data (Vol. 4). Chichester: John wiley & sons, United Kingdom.
Biranvand, M. (2014). An interprovincial study of the effect of inflation and unemployment on income distribution in Iran. Master's thesis, Faculty of Administrative and Economic Sciences, Ferdowsi University of Mashhad. . (In Persian).
Chu, Ke-young. Davoodi, Hamid and Gupta, Sanjeev, (2000), “Income Distribution and Tax and Government Social Spending Policies in Developing Countries”. World Institute for Develeopment Economics Research (WIDER). Working Papers No: 214, pp. 2-30.
Cowell, F. A. (2015). Income Distribution and Inequality. In the Elgar Companion to Social Economics, Second Edition. Edward Elgar Publishing.
Dehghanian Fard, Z. (2011). The distributional effects of government health expenditures, an inter-provincial study 1379-1388. Master's thesis, Faculty of Administrative Sciences and Economics, University of Isfahan. (In Persian).
Eusufzai, Z. (1997). The Kuznets Hypothesis: An Indirect Test. Economics Letters, 54(1): 81-85.
Foellmi, Reto, Zweimuller, Josef, )2008(. Structural change, Engel's consumption cycles,and Kaldor's facts of economic growth. J. Monet. Econ (55): 1317–1328.
Goldfarb, Robert S. and Thomas C. Leonard.(2005). Inequality of What among Whom?., Research in The History of Economic Thought and Methodology, (23):75-118
Gustafsso , B. and Johansson, M. (1997). In search for a smoking gun: What makes income inequality vary over time in different countries?. LIS working paper, No. 172.
Hakimian, M. (1999). Examining the role of the service sector in Iran's economy. Manager of Shaz Tehran. (6):33-61. (In Persian).
Heydari, H. Hassanzadeh, A. (2015). The relationship between income inequality and economic growth in Iran. Social Welfare, 16(63), 89-125. (In Persian).
Hillbom, E., and Bolt, J. (2015). Changing Income Inequality and Structural Transformation: The Case of Botswana 1921-2010. World Institute for Development Economic Research (UNU-WIDER). Doi:10.35188/UNU-WIDER/2015/913-8
Lawrence, James A. (2013). Earnings Inequality in U.S. Metropolitan Regions: the Role of the Financial Services and Information Technology Industries. Master of Public Affairs. University of Texas at Austin.
Litchfield, J. A. (1999). Inequality: Methods and Tools. Text for World Bank’s Web Site on Inequality, Poverty and Socio-Economic Performance.
Liu, Y. (2017). The impact of income distribution on structural transformation: The role of extensive margin. Economic Modelling, (64):357-364.
Mehic, A. (2018). Industrial employment and income inequality: Evidence from Panel data. Structural Change and Economic Dynamics, Elsevier,. 45(C) :84-93.
Mohammadi Shrest, V (2019). The effect of sector growth on income inequality in the provinces of Iran. Master's thesis, Faculty of Economics, Allameh Tabatabai University. . (In Persian).
Nelson, J.I, Lorence, J.(1985). “Employment in service activities and inequality in metropolitan areas”. Arban affairs quarterly,21(1):106-125.
Nolan, B. (2009). Income inequality and public policy. Economic and social review, 40(4), 489-502.
Piketty, T. (2004). Capital in the twenty-first century. Cambridge, MA, London.
Quydel, S. Azizi, Kh. (2008). Identifying factors affecting the share of employment in the service sector and its sub-sectors studied in Iran. Journal of Humanities and Social Sciences "Economic Sciences". 8(28):18-36. (In Persian).
Shakri, A. Maliki, A. (2017). Evolution in the idea of income distribution in the 20th century, moving from functional distribution to the distribution of a certain amount of income. Economic research paper. 9 (35): 57-88. (In Persian).
Tayebnia, A. (1995) "Monetary explanation of inflation: Iran's experience." Journal of Economic Research, 49(31): 43-74. (In Persian).
Thalassinos, E., Ugurlu, E., & Muratoglu, Y. (2012). Income inequality and inflation in the EU. European Research Studies Journal, 15(1): 127-140.
Ulu, M. I. (2018). The Effect of Government Social Spending on Income Inequality in OECD: A Panel Data Analysis. Uluslararası Ekonomi Siyaset İnsan Ve Toplum Bilimleri Dergisi, 1(3):184-202.
Yousefzadeh, F. (2015). Investigating the effect of industrial employment on income inequality in the provinces of Iran during the years 2018-2019, Master's thesis, Faculty of Administrative and Economic Sciences, Ferdowsi University of Mashhad. . (In Persian).
Zhang, X., Shenggen, F., Spoor, M., Heerink, N., and Qu, F. (2007). Fiscal Decentralization, Nonfarm Development, and Spatial Inequality in Rural China. Dragons with Clay Feet, 71-81.
Economic Research and Perspectives
Volume 24, Issue 3
Autumn 2024
Pages 147-168