Reversal of Fortunes: The Rise and Fall of Lifetime Earnings of Iranian Men

Abstract

The Islamic Revolution of 1979, the eight-year war with Iraq (1980-88), and the collapse of oil prices in 1986 dealt huge blows to Iran's economy. In this paper we use a pseudo panel constructed from annual multiple surveys during 1984-2004 to analyze changes in cohort earnings and consumption through these tumultuous times. Using well-known techniques, we decompose the changes in median cohort earnings of men into cohort, age, and year effects. Our results show that cohorts born before 1950, who were well into their careers at the time of the revolution, enjoyed a steady increase in lifetime earnings. However, those born after the mid-1960s who started their careers during the revolution and the war with Iraq experienced losses relative to previous cohorts.

In contrast to earnings, per capita expenditures do not indicate a declining cohort trend for younger cohorts. When we restrict the year effects to cyclical variation only, the cohort effects show a rising trend. We interpret the difference in the fortunes of the younger cohorts that we observe in earnings compared to expenditures to mean that transfers between generations and from the government have compensated for the loss of individual earnings among the younger cohorts.

Keywords: Iran, cohort effects, age effects, life cycle earnings, decomposition

JEL Classification: O15, E21, E24, C23, N15, N35