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

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  • Djavad Salehi-Isfahani
  • Marenglen Marku

Abstract

The Islamic Revolution of 1979, the 8-year war with Iraq (1980-88), and the collapse of oil prices in 1986 dealt huge blows to Iran's economy. In this article, we use a pseudopanel 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.

Suggested Citation

  • Djavad Salehi-Isfahani & Marenglen Marku, 2011. "Reversal of Fortunes: The Rise and Fall of Lifetime Earnings of Iranian Men," Economic Development and Cultural Change, University of Chicago Press, vol. 59(4), pages 877-906.
  • Handle: RePEc:ucp:ecdecc:doi:10.1086/649896
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    References listed on IDEAS

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    1. Kosei Fukuda, 2006. "Age-period-cohort decomposition of aggregate data: an application to US and Japanese household saving rates," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 21(7), pages 981-998.
    2. Paul Beaudry & David A. Green, 2000. "Cohort patterns in Canadian earnings: assessing the role of skill premia in inequality trends," Canadian Journal of Economics, Canadian Economics Association, vol. 33(4), pages 907-936, November.
    3. Philip Cagan, 1965. "The Effect of Pension Plans on Aggregate Saving: Evidence from a Sample Survey," NBER Books, National Bureau of Economic Research, Inc, number caga65-2, April.
    4. Browning, Martin & Deaton, Angus & Irish, Margaret, 1985. "A Profitable Approach to Labor Supply and Commodity Demands over the Life-Cycle," Econometrica, Econometric Society, vol. 53(3), pages 503-543, May.
    5. Marenglen Marku & Djavad Salehi-Isfahani, 2006. "Reversal of fortunes: a cohort analysis of lifetime earnings in Iran," Working Papers e06-1, Virginia Polytechnic Institute and State University, Department of Economics.
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