Crisis in HR: Management and the Iranian Labor Market
Iran may be on the cusp of a landmark nuclear deal. For the country's workforce, new employment opportunities and a revitalized labor market may be just over the horizon. Foreign companies seeking to enter Iran will likely poach some of the best talent to run country operations. With this increased competition, how will Iran's corporate sector hold on to their best and brightest?
US-led sanctions and economic mismanagement have depressed the wider Iranian economic and the labor market in particular. Iran’s population is still young compared with European countries, and it is young people who have been disproportionately affected in their employment prospects and earnings.
Economists in Iran and abroad have identified a condition sometimes called “waithood.” Between 1984 and 2007, the unemployment rate for young men rose from 13.7% to 19.2%—economic growth could not keep up with population growth. Among women unemployment rose from 19.9 percent to 37.9 percent, reflecting how the economic slowdown in Iran has disproportionately affected women, who rely on job creation in the service industry. The World Bank estimates that the current unemployment hovers around 20%, though official sources claim a rate closer to 10%. Overall, those under the age of thirty represent nearly 70% of the long term unemployed in Iran.
Additionally, unemployment figures hide another concern for young Iranians. Even those young people who do find employment often have to contend with job insecurity or part time work. Labor laws were written in decades past and lean towards older workers, thus making layoffs and terminations very costly for firms.
Many companies avoid these costs by offering temporary contracts to younger workers that are not subject to these laws. In effect, many young people employed in Iran can’t plan for their economic futures for much more than a year at a time. Consistently being bounced around companies and sectors, Iranian youth aren’t able to easily kick start a career and as a result they find themselves waiting for new opportunities to emerge.
But this is not to say that Iranian youth have been passive in the face of these pressures. In an attempt to breakout of “waithood”, Iranian youth have sought to increase their levels of educational attainment. A typical response to diminished employment prospects, greater levels of educational attainment not only provides the individual additional time to seek out suitable opportunities, but is also meant to improve employability.
In 2010, the number of Iranian youth sitting the post-graduate national exam was twice the number who had done so just five years earlier. However, this increase is so great that the number of students seeking graduate degrees will soon equal those seeking undergraduate degrees. With an increasing supply of highly educated workers, there is a glut in the labor market, meaning that even a graduate degree might not be enough to break out of waithood. This dynamic helps explain to important phenomenon seen on the part of young Iranians: a growing propensity to seek education and employment abroad, and a rise in entrepreneurial pursuits, exemplified in the much vaunted Iranian online business community.
But emigration and start-ups will never be available to enough young Iranians, who need outlets to not only secure their own futures, but also to contribute to the Iranian economy through their productivity and acumen.
As such, the deficiencies in the Iranian labor market offer an immense opportunity for foreign firms seeking to enter the country. Unlike most emerging economies, Iran has a highly skilled workforce, and foreign firms can expect to find capable managers in Iran itself—improving the likelihood that firms will find the right formula for success in a shorter period of time.
For Iranian companies, increased competition in the labor market, especially from foreign firms, will result in difficult circumstances. Employees with key skills are going to be a highly sought after commodity and the prospect headhunters poaching a company’s top marketing person is a very real possibility.
Naturally, Iranian firms are going to have to take the bull by the horns in order to keep their workers committed. But this will require more favorable contract terms and higher salaries. It is unclear if some Iranian managers will be able to stomach the higher expenditure on salaries.
It is hard to measure the extent of Iranian unpreparedness, but by way of comparison a 2013 report in Entrepreneur magazine found that more than 50% of American employers polled had no formal strategy if there was a sudden walkout or loss of key staff. The figure in Iran is likely as high.
Anecdotally, conversations with Iranian CEOs reveal a worrying bias on the part of Iranian managers. They may recognize that their companies have significant problems when it comes to staff retention. Some senior managers attribute retention problems to the "fickle career attitudes" and "transient lifestyles" of Iran’s youth. Managers tend to reward those employees who seem “responsible.” In other words, promotion in professional life goes hand in hand with particular lifestyle choices like marriage and having children. Ironically, one of the key social consequences of waithood is that Iranians are getting married at older ages and many are opting to have one child or none. Without rewarding jobs, young people lack the financial means to move out of their family homes and achieve financial and social independence.
Yet it isn’t just salaries that account for employee satisfaction. Research conducted in Canada shows that salary increases only offers short-term gains on staff retention. Instead, Iranian managers need to provide a fully optimized working environment, where work is rewarding, the opportunities for advancement are clear, and the company provides important benefits like medical insurance, ample holidays, and retirement contributions.
Some in the local private sector do have good employee practices, offering similar contracts to those in the West, however it appears in some instances even they struggle to hold on to some of their vital employees.
Certainly, Iranian managers are unlikely to pamper employees with new contracts. And foreign firms will not enter the Iranian market offering the same salaries or benefits as offered in western economies. After all, lower labor costs will remain one of the main attractions of the Iranian market, especially in services and high-tech manufacturing where Iran’s skilled labor pool can match or surpass international standards.
Nonetheless, in a post-sanctions environment, a new set of circumstances will come to define Iran’s labor market. Senior executives at Iranian firms ought to make their preparations. Retaining the best talent is critical to Iranian firms taking on the role of vital partners in the domestic marketplace along with being able to compete effectively against foreign firms that will be entering at break neck speed.
In the middle of this reorganization of the labor market, young Iranian workers stand to gain so much, as a revitalized economy offers the promise of realized dreams for both personal and career progress.
Photo Credit: Washington Post