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Reversal of fortunes: a cohort analysis of lifetime earnings in Iran

Marenglen Marku and Djavad Salehi-Isfahani ()

Working Papers from Virginia Polytechnic Institute and State University, Department of Economics

Abstract: The Islamic Revolution of 1979, the eight-year war (1980-88) with Iraq, 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 understand how individuals and families have fared through these tumultus times. Using a well-known technique developed in \citeN{deaton:85} and \citeN{deaton:94}, we are able to track earnings and consumption of cohorts born as early as the 1930s to as late as 1970. Our results show that cohorts born before 1950, who were well into their careers at the time of the Revolution, enjoyed steady increase in lifetime earnings, whereas those born after the mid 1960s, who started their careers during the Revolution and the war with Iraq (the ``Revolution generation" for short), experienced losses relative to previous cohorts. Their loss would have been even worse had their schooling not increased relative to earlier cohorts. We present a (counterfactual) decomposition that controls for cohort education and shows a steeper loss of lifetime earnings. Interestingly, decompositions of per capita household income and expenditures, using the age of the household head to define cohorts, tell a different story, one of continuously rising cohort effects. We discuss the role of several factors in explaining the divergence in cohort effects between individual earnings and household level variables: the selection effect caused by the ability of the more well to do to form their own households, income and consumption smoothing between generations within the same family, and public transfers. We conclude by proposing that loss of lifetime earnings by the Revolution generation explains the widespread economic dissatisfaction in Iran which persists despite robust economic growth in recent years.

Keywords: Iran; life-time earnings; cohorts (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-his
Date: 2006
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