The level of employment is a significant indicator of a country’s economy since it affects factors like dependency rate and the Gross Domestic Product (GDP). Consequently, the labor pattern can be applied in identifying patterns that can lead to making appropriate financial decisions especially in devising policies. Some universal factors have contributed to disruption of the labor market. The influence of such factors can be different among countries, depending on the level of development and the approach to counter such (Degl’Innocenti et al. 37). The strength of the labor market is particularly an issue since it can lead to variances in the gap between the high income earners and the low income earners. Furthermore, a country in which there is no stability, there are other subsequent social impacts. Rise in crime rate is one of the results, whereby the low income earners or the unemployed engage in malicious activities as a way of sustaining themselves. In addition, there is an impact in cases such as depression. A strong labor market is characterized by a strong demand from the consumers since they have sufficient disposable income, which then implies higher revenues for organizations. Therefore, the essay seeks to answer the question; what are the differences in the effect of international economic crisis on the labor market in the developing and developed countries? USA is hereby considered as the developed country, and Iran as the developing country. The recent 2008 economic crisis, which is one of the worst crises, is hereby analyzed. In addition, it is then established whether the intervening measures that the two countries implemented after realizing the crisis were effective enough, and suggestions are provided about how best the countries can approach any subsequent crisis. While the crisis led to a universal adverse effect in the labor market, Iran was worse affected than the USA due to the unsupportive structures and policies in the former.
The 2008 period is selected since it exhibits various features that make it intriguing how the countries reacted. The crisis started due to a decline in the value of houses. It was at first desirable since it meant that the people could easily afford quality housing. Banks would fund even up to 100% of the total house prices. However, it was later realized that most of the loans could not be serviced. Economists felt that the Community Reinvestment Act had led to the banks having to invest in subprime properties, which the Federal Reserve denied to being the cause (Reid and Elizabeth 163). Banks stopped borrowing from each other in 2007 as a way of maintaining their own liquidity. The effect of the crisis was first felt in the USA, then later in Iran since the country’s currency was pegged to the dollar. While countries like Russia had reserves in the Sovereign Wealth Funds as a way of cautioning them against trade imbalances and weakening of their currencies, Iran did not have enough reserves, which led to higher inflation in the country. The crisis’ effects was different in its magnitude and the period taken to manage it in the two countries. There could have been better ways of managing it, for example minimizing the negative implications it had on the labor market.
The effect of an economic crisis varies in countries, depending on their preparedness and the counteracting measures that they devise. It can be expected that the developed markets cannot have their labor market by far owing to several factors. For instance, the countries have a large GDP, which means that they can dedicate some funds towards managing the market (Degl’Innocenti et al. 38). They also have the advantage of having an expansive economy, and do not necessarily rely on just a few sectors to develop. On the other hand, the developing countries can be assumed to be less affected given that, international crises are mostly moved by the developed countries. The effect of the economic crisis was not as initially effective on the Iran labor market as much as it was to the USA labor market. Iran was quite detached from the global economy. Iran kept on recording a rise in the interest rate even up to late August, while the USA had already been adversely affected. However once the Lehman Brothers collapsed, the effect was immediately felt in Iran, due to the banks influence on the value of the dollar, which caused the instability of the Iranian currency.
The economic crisis led to retrenchment of workers, which then led to a worse devastated market. Organizations in both countries lost substantial revenues given that consumers were cautious while spending (Tayebi et al. 604-5). They felt the case could worsen, and to safeguard themselves, they reserved most of their income, and only spent on basic needs. It then led to luxurious items experiencing low demand. The companies reacted by reducing their workforce, which then implied that the dependency rate in the countries became higher. Both Iran and the USA realized displacement of labor. In addition to the decrease in demand of experienced employees, some roles and duties became redundant, reflecting the same on some professionals. For instance, marketers in the real estate sector lost their jobs since they could not get customers to purchase the property. They had to get alternative means of getting an income, which led them to shifting to other related jobs. In addition, the countries experienced underemployment since the demand of labor was lower than the supply; hence, people could settle for jobs that were below their skill level. The people were overqualified for the positions they assumed in organizations; generally, the labor market became weak.
Changes in the labor market in the USA was more pronounced in companies that relied on external capital. Some of the corporations did not have sufficient reserved capital to operate, which meant that they had to utilize creditors to cater for the deficit (Hoffmann and Thomas 99). However, the creditors and suppliers were skeptical to provide the capital and supplies. The suppliers had to produce the materials with insufficient capital due to the crisis; thus, they had to provide the materials on cash basis, or allow a shorter payment period. Financial institutions, who were the main creditors had significant amount of unpaid loans; hence, they did not have lending capabilities. Notably, the resulting financial crisis originated from the real estate bubble burst as the financial institutions heavily invested and did not realize the expected returns on investment. As a result, financial instability and over-reliance on external capital was a threat to an already unstable supply chain that was also highly dependent on financial institutions.
Iran’s approach to the crisis did not address the youth, who were the main stakeholders in the growth of the economy. The youth made the larger percentage of the working class; however, the recession led to less integration of workers into the system (Haghighi et al. 374). The Iranian government was less concerned regarding the unemployment levels, which affected household income generation. The conditions in Iran, and the larger part of Asia, led to difficulties in transition of the youth from school to the workplace. The unemployment mostly affected the educated youths, who were more concerned about getting white collar jobs and the waiting period led to idleness and reduced productivity. The lack of new workmanship, despite the growing population, was disastrous to the labor market as the people did not have dispensable income. The most valuable asset in Iran at the time, the youthful workforce, was not considered as important in helping to overcome the crisis, further exacerbating the economic downturn.
The empowered people in Iran had a smoother transition during the recession compared to the less privileged. The high class individuals had various advantages that positioned them appropriately to counter the effects of the crisis. Notably, they could access better education abroad, training facilities, business and employment opportunities, which helped them to overcome the financial crisis. For instance, they could afford the basic commodities and could also concentrate on building on their wealth as they were exposed to diverse economic opportunities (Haghighi et al. 376). Subsequently, access to various opportunities divided the society between the poor and the rich, thus transitioning was only partial. Indeed, wealth was a crucial factor in overcoming the financial crisis that affected the world economies as it provided the rich with diverse opportunities and resources.
The difficulty in transition was occasioned by the quality of education offered in Iran. While the curricula was expected to advance the students’ knowledge, it did not substantially contribute to the skills they would need during employment (Farjadi et al. 251). As a result, the organizations had to train the people for their first jobs, which increased operation costs despite facing significant effects of the crisis. Organizations used other means to obtain skilled employees, such as poaching experienced individuals from competing firms. Nonetheless, it was still an expensive choice since employees had to be assured of better benefits than in their current organizations. As a result, experienced professionals were in high demand, a phenomenon that was common in the USA, but in a lower intensity. Notably, the professionals were not replaceable, and so their statuses were not as affected as those in the junior positions that required less experience; therefore, the gap between them became larger.
The approach towards social factors relating to the labor market was inadequate in Iran. Initially, the country capitalized on providing incentives for larger families as it advocated for more children, which increased dependency levels. Another policy relating to the family structure was the tightening of the conditions instituted to monitor temporary marriages. Observably, discrimination against women was of great influence on the structure of the workforce during the crisis period in Iran (Toossi and Teresa 3). Iranians were hesitant to include women in their workforce, believing that they needed men’s provision and to work in the house, irrespective of the ladies’ skill level (Burkova). Ultimately, the rate of unemployment among women was significantly high and those in the workforce were mostly underemployed. The crisis made it worse since there was reduced or no income once the men, the providers, in a household were retrenched. On the contrary, in the USA households had several income earners as men and women were equally employed, hence cautioning families against loss of income once either of the members were laid off. In addition, most households had reserved income that they could use during the crisis. Therefore, Iran had a poor approach towards the crisis due to various social factors.
Conclusion and Recommendations
The 2008 recession can be stated as leading to a broken labor market. Notably, there was a cyclic relationship between the labor and the crisis since lack of disposable income meant that the people could not make purchases, leading to loss of revenue for companies. The reduced revenue would then lead to insufficient cash flow to retain and recruit employees, resulting in retrenchments and wage reduction, an ultimately people’s living conditions. However, despite the crisis starting in the USA, the country was quicker to counter it compared to countries like Iran. The recession affected Iran since the country’s currency was attached to the USA dollar; hence, a drop in the value of the dollar led to a reduction in the country’s oil exports. The country’s labor market was generally overwhelmed given that organizations had lower revenues due to decreased sales. The organizations considered reducing their workforce or the employees’ remuneration as a way of managing losses. The two countries experienced underemployment; however, the structure of the labor market in Iran made the situation worse than in the USA. Notably, the Iranian education system was not supportive to the productivity in the organizations, while there were already some pronounced classes as people at the top of the caste were less affected by the crisis. In addition, the Iranian market was dominated by the men, which implied lack of gender diversity in the workforce. The recession could have been better controlled if societal issues were non-existent.
One of the recommendations that purposes to counter the transition from school to the workplace is by revising the curricula so that it can reflect actual labor practices. When students gain some theoretical knowledge that is not applied in the workplace organizations have to train people into their first jobs, which was costly (Farjadi et al. 250-51). The issue can be resolved by creating programs that students can use to orient themselves regarding the actual work environment. In addition, the education system can consider extensive internship programs, whereby the students can have exposure to the nature of the workplace. The program can then be one way of assessing knowledge acquisition and application. On the other hand, organizations can be facilitated with various resources so that they can assimilate students. For instance, they can be provided with incentives for giving scholars opportunities to be involved in diverse organizational activities and to gain experience. Additionally, the government can contribute to the training of new employees by offering a tax reduction for organizations that have internship programs. Indeed, the Iranian education system needs an improvement and government backing that fosters collaboration between schools and corporations.
Another recommendation for Iran and other developing countries is to diversify the economies as a way of safeguarding the labor markets. Iran’s economy was mainly based on oil exports during the crisis, and the decrease in the value of the dollar led to reduced GDP for the country, leading to adverse effects on the job market. The U.S. was quick to counter the effects of the crisis on the market due to its diverse economy through numerous industries, such as farming, manufacturing, technology, and mining, which complemented each other. Some sectors, such as agriculture, provided essential goods that regardless of a crisis were required for human sustainability. Therefore, the primary sectors sustained the labor market as they continued to employ numerous people, while industries, such as manufacturing, retrenched more employees. Once the developing countries embrace such diversity, then they are less likely to be much affected.
Another suggestion for Iran is that it should change its perception of women in employment. The country can start engaging women in income generating activities as one of the ways increasing the level of income in a household as it would result in a reduced dependency rate (Toossi and Teresa 17). In addition, employing women can be influential regarding risk factor approaches to economy as they can offer their input into the development agenda of organizations and the country at large. The structure of the labor market can improve since there will be a variety of skills at the disposal of the employers and enhanced competitiveness. Competition will lead to further skill improvement through education and other means, which would lead in increased organizational performance. The inclusion of women in the economy is an imperative aspect that supports various sectors of the economy as they uniquely contribute to economic performance through education, employment, and general improvement of the quality of life.
Burkova, Rozalina. “It’s a Men’s Club”: Discrimination Against Women in Iran’s Job Market. (2017). https://www.hrw.org/report/2017/05/25/its-mens-club/discrimination-against-women-irans-job-market Accessed June 3, 2020
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