Poor Employees & Unemployed Poor!
Distribution of income shows the ratio between the poor and the rich
in a society and that how much this ratio is acceptable and whether
it needs to be improved or not.
According to Dr. Massoud Nili, economic advisor to the IRI president, the
poor in Iran are divided into three categories. First, the poor employees
who constitute the highest population and their pay should be raised;
Second, the unemployed poor for whom jobs must be created through increased
economic growth; and ultimately, the invalid and the disabled who can be
assisted through government support and by raising the power of welfare
Different Definitions of Poverty
As you know, we take poverty as an indicator and considering that part of
the society faces difficulty in meeting its needs, this is an approximate
definition of poverty. Once we may define poverty as absolute poverty, once
we may define it as relative poverty. When we define ‘absolute’ poverty,
that is to say part of the society faces difficulty in meeting its basic
For example, how much is the livelihood of a household living in a medium
size city or in a big city or in a village. Those whose income is less than
this amount, are people who live under absolute poverty. Relative poverty is
completely different from absolute poverty.
In this index, independent of whether we are talking about Switzerland or a
very backward country, we consider the level of the people’s income in the
society and speak about the 25% low-income group who are always experiencing
relative poverty. Those who are considered to be below the relative poverty
line in Switzerland may be richer than the wealthiest people living in
Afghanistan and live in a better environment than them. But in their own
society they may be ranked among the poor. In fact, relative poverty always
exists, but absolute poverty can be eliminated and no more exist in any
country at all.
Another classification is that we recognize a kind of poverty as income
poverty, and consider another type multi-dimensional poverty. Income poverty
means how much a person earns and how much his income would generate the
standard of living in return for the goods and services he needs.
Multidimensional poverty is made up of several factors that constitute poor
people’s experience of deprivation – such as poor health, lack of education,
inadequate living standard, and lack of income.
We might say that a country is not in a favorable situation in terms of
income poverty, but enjoy favorable conditions in terms of multidimensional
Another classification is that considering these points, especially with the
income poverty base, what groups are poor, who are poorer? Are the youth
poorer or the retired? Are the employed poorer or the jobless?
A family that has the smallest expense in one month or one year is the
poorest and a family with the highest expenses is the most affluent
household. Then we divide these into equal populations. Therefore, 10% of
the population with the lowest level of education is the first decile, then
comes the second decile and goes on till the 10th decile. Now we analyze in
terms of welfare to see what are features of the poor in society and what
are the characteristics of the rich. The first point we get from this study
is that the vast majority of Iran’s poor come from the working class. In
Iran, there are about three million unemployed people.
As soon as you have put aside the gap between the two ends of
income distribution, Iran would become one of the most equitable
countries in the world.
When we distribute this number (three million) among the various deciles, we
come across 4% for the first decile; for the second decile it is 3% and this
goes to 2% and 1% in the higher income deciles. Here about 35% to 38% of our
first decile who constitute the low-income population of the community are
from the employed. This is an instructive observation for us that if most of
our poor are among the employed, then we must primarily improve their level
of income. Of course, those who are unemployed should find jobs. But in
terms of the population, most of our poor come from employed. Some eight
million people (38%) in the country have jobs but they do not enjoy good
So the question immediately raised is whether we can categorize poverty in
the country according to the characteristics of the poor? The answer is yes
we can do it. Well, what’s this category? We say that we have three types of
poverty in the country: one is the poverty of the employed, namely those who
are employed but poor; second, the unemployed who are poor; and third the
poverty of those who cannot work due to physical and mental failures. As for
the first group, this could happen for two reasons: either the work
environment is not fair, or the job generates low income. Its own income is
low. In industry, we have big, medium, small and micro enterprises. An
enterprise having 10 to 49 employees (that is under 50) is small enterprise;
one with 50 to 150 people -- and according to some definitions up to 200
employees – is medium-sized enterprise. Enterprises with over 200 employees
are big enterprises. Enterprises employing fewer than 10 people are called
micro enterprises. Our problem is that 65% to 70% of all employment in the
industry sector is in micro enterprises. The least employment occurs in
large enterprises. Now, in terms of revenue, about 70% of the income
generated in our industry is in large enterprises. So the income from the
micro sector is very little which is divided into a very large figure as the
number of employees. We conclude that income is generated in one part of the
economic activity, but employment is elsewhere. So increasing employment
does not necessarily lead to an increase in income.
The fact that one is employed does not mean that he does not suffer from
In fact because of this gap between the part where income is generated and
the part where job is created, many of our employees live in poverty, and
the gap between the incomes of our employees is too big. The solution is to
turn the micro enterprise into a small enterprise in a process of growth;
turn the small enterprise into a medium enterprise; and turn a medium
enterprise into a large enterprise. But why this does not happen in our
economy? The reason is that the big enterprises in our economy were not
micro enterprises to grow up gradually. They were created big from the very
start. The result is that there is no connection between enterprises of
different sizes, which results in the flow of income from large firms to
small, medium and micro enterprises…
This major group, the large one, means that employees must increase their
income level in the economy with higher economic growth, so they also have
more income. So there is no dispute between growth and social justice.
Income Ratio in Iran
Distribution of income shows the ratio between the poor and the rich in a
society and that how much this ratio is acceptable and whether it needs to
be improved or not. Distribution of income in the Iranian economy has a
rather specific shape. If we arrange the first to the tenth deciles from the
lowest to the highest, this division can also be more detailed.
For example, let’s get a percentile; there, instead of every batch of eight
million there will be a batch or percentile of 800 thousand. In fact,
800,000 people with the lowest income will be the first percentile and this
will continue up to the hundredth percentile. Now, if we find out the
difference in the level of enjoyment of each percentile with its neighbors
and if we continue the trend to the first percentile, which is actually the
lowest income, we will reach a very interesting U form. This means that the
difference in income level and welfare level of the very poor part of the
society and the very rich part of the society is very high, and the middle
part which covers about 62 to 65 million people in the country, have a very
low level of difference in income.
Therefore, we observe inequality in the income distribution spectrum between
the very rich and the very poor. That’s why, when we divide these two sides,
if we regard deciles the ratio will approximately stand 14 to 1. That means
the tenth decile is 14 times more than the first decile of income owner. The
ratio of 14 to 1, for our country, in comparison to other countries, is not
acceptable. For example, if you compare the United States with Europe, the
result is that the US is more unequal. That is, Europe actually has a
stronger social policy while there is more inequality in the United States.
This ratio of 14 to 1 is closer to the US than Europe. That is, despite the
fact that we have placed so much emphasis on social justice, this gap is
As soon as you have put aside the gap between the two ends of income
distribution, Iran would become one of the most equitable countries in the
world. This shows that the issue of inequality in Iran has a special shape.
In the past two or three years, you’ve heard a lot about the issue of cash
subsidies; questions such as why the government decided to hand out
subsidies to all the people; let’s pay subsidies to some and eliminate
others from the list.
These levels of income in the middle deciles are so close with one another
which if you remove the cash subsidy of 455,000 rials from this group and
give it to the next group which is now poorer, it would become richer. That
is, the deciles change seats which could result in major social disruptions
and so on.
One solution for our tax system is to move towards redistributive taxes
rather than income tax. It should get taxes from the high-income class and
pay it to the low-income class.