Business cycles and policy making in social insurance systems the case of Iran (1962-2004)

Social security is not apart from other aspects of growth and development. It is a phenomenon completely coherent to economic growth, social justice, human dignity and national prosperity. Generally national social security systems in most countries consist of insurance, protection and relief policies. Socio-historical studies reveals that by promoting economic growth and development of middle class, in addition to strengthening civil institutions, the protective function of system would be reduced and adversely the insurance function will be increased. In principle there is a direct linkage between social security policies and economic growth via improving production capability. Some believe that economic growth will not be achieved properly without extending social security. Such interdependency requires a stable coordination between social security policies and macroeconomic policies so that development of social welfare results in more productive activities and eventually economic efficiency and productivity. The success and sustainability of a social security fund in long term is highly rely on suitable policy and decision making, and in this regard the macro-economic is one of the most affecting environmental factors or variables on the performance and decision making processes in social security fund. Thus, to adopt proper policies and to be sensitive to external environment of the organization, it is so important to understand the economic boom and slump or in other word the economic cycles. This paper attempts to measure business cycles of Iran during 1962-2004, by using the Hodrick- Prescott filter. Moreover the relationship between these cycles and some variables of Social Security Organization of Iran – the largest and oldest social insurance organization for workers in private sector- will be analyzed. Results indicate that stagflation situation in Iran’s economy and adjusting minimum wages according to the inflation have caused mismatching between macroeconomic policies and social insurance policies. This situation has led to increase of social insurance burden - the ratio of premium revenues to production of industry and service sectors- and accordingly increase of premium evasion.