Employment in Iran is affected by three major structural forces: widespread economic sanctions, human development trends, and chronic instability of the exchange rate regime. In this study using the framework of the vector autoregression (VAR) model and the vector error correction model (VECM) for the period 1369-1403, the long-run relationships and short-run dynamics of employment are analyzed. Key findings show that in the long run, multilateral sanctions have had the strongest negative effect on labor demand. In contrast, the Human Development Index (HDI) not only shows a strong and persistent positive effect, but its role as a shock absorber against external shocks is more pronounced. The results indicate that the import exchange rate has a negative relationship with employment in the long run. In contrast, the export exchange rate also has a negative effect, but the size of this effect appears smaller and with a longer lag. In the short run, upward shocks to the import exchange rate have immediate and significant contractionary effects on employment, reflecting the high sensitivity of Iran’s manufacturing sector to import costs.

Keywords: Employment, economic sanctions, human development index (HDI), effective exchange rate, imports, exports, VECM model, Iranian economy

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