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

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  • Marenglen Marku
  • Djavad Salehi-Isfahani

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.

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Bibliographic Info

Paper provided by Virginia Polytechnic Institute and State University, Department of Economics in its series Working Papers with number e06-1.

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Length: 34 pages
Date of creation: 2006
Date of revision:
Handle: RePEc:vpi:wpaper:e06-1

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Keywords: Iran; life-time earnings; cohorts;

This paper has been announced in the following NEP Reports:

References

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  1. Angus Deaton & Christina Paxson, 1999. "Growth, demographic structure, and national saving in Taiwan," Working Papers 224, Princeton University, Woodrow Wilson School of Public and International Affairs, Research Program in Development Studies..
  2. Attanasio, Orazio & Davis, Steven J, 1996. "Relative Wage Movements and the Distribution of Consumption," Journal of Political Economy, University of Chicago Press, vol. 104(6), pages 1227-62, December.
  3. Shorrocks, A F, 1975. "The Age-Wealth Relationship: A Cross-Section and Cohort Analysis," The Review of Economics and Statistics, MIT Press, vol. 57(2), pages 155-63, May.
  4. Richard Blundell & Ian Preston, 1998. "Consumption Inequality And Income Uncertainty," The Quarterly Journal of Economics, MIT Press, vol. 113(2), pages 603-640, May.
  5. Deaton, Angus & Paxson, Christina, 1994. "Intertemporal Choice and Inequality," Journal of Political Economy, University of Chicago Press, vol. 102(3), pages 437-67, June.
  6. J.B. Burbidge & L. Magee & A.L. Robb, . "Cohort, Year and Age Effects in Canadian Wage Data," Canadian International Labour Network Working Papers 13, McMaster University.
  7. McKenzie, David J., 2006. "Precautionary saving and consumption growth in Taiwan," China Economic Review, Elsevier, vol. 17(1), pages 84-101.
  8. Paul Beaudry & David Green, 1997. "Cohort Patterns in Canadian Earnings: Assessing the Role of Skill Premia in Inequality Trends," NBER Working Papers 6132, National Bureau of Economic Research, Inc.
  9. Deaton, Angus, 1985. "Panel data from time series of cross-sections," Journal of Econometrics, Elsevier, vol. 30(1-2), pages 109-126.
  10. Behrman, Jere R & Birdsall, Nancy M, 1988. "The Reward for Good Timing: Cohort Effects and Earnings Functions for Brazilian Males," The Review of Economics and Statistics, MIT Press, vol. 70(1), pages 129-35, February.
  11. Clifford Clogg, 1982. "Cohort Analysis of Recent Trends in Labor Force Participation," Demography, Springer, vol. 19(4), pages 459-479, November.
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