Examining the impact of oil shocks on unemployment dynamics in Iran

Document Type : Original Article

Authors

1 Department of Economics, Faculty of Economics and Accounting, Razi University, Kermanshah, Iran.

2 Razi University

Abstract

Unemployment has consistently exhibited double-digit rates as one of the major economic challenges in Iran over recent decades, and the heavy dependence of the country's economy on oil revenues has highlighted the role of oil price fluctuations and uncertainty in the dynamics of this variable. The present study aimed to investigate the impact of uncertainty in the price of Iranian light crude oil on the dynamics of the unemployment rate during the period from 1380 to 1402 (2001–2023) using quarterly data. First, oil price uncertainty was estimated using the Exponential Generalized Autoregressive Conditional Heteroskedasticity model to capture asymmetric effects of positive and negative oil price shocks and the persistence of volatility. Subsequently, the resulting uncertainty series was incorporated as the threshold variable in the Logistic Smooth Transition Regression model to identify the nonlinear behavior of unemployment dynamics across different regimes of oil price volatility. Results from the Augmented Dickey-Fuller stationarity tests indicated that the series became stationary after first differencing. Estimation of the model revealed asymmetry in volatility, with positive shocks having a greater impact than negative shocks. The Teräsvirta test confirmed the presence of nonlinear behavior. The final estimation of the Logistic Smooth Transition Regression model showed that the oil price uncertainty threshold is located at 104.5037, beyond which the behavioral regime of unemployment dynamics changes. In the high-volatility regime, the sensitivity of unemployment dynamics to its past lags significantly increases, while the speed of transition between the two regimes is low and gradual. Therefore, rising oil price uncertainty through nonlinear mechanisms leads to intensified and more persistent unemployment in the Iranian economy. The findings underscore the necessity of economic diversification policies, establishment of an oil revenue stabilization fund, and structural labor market reforms to reduce employment vulnerability to oil shocks.

Keywords

Main Subjects

Public Sector Economics Studies

Articles in Press, Accepted Manuscript
Available Online from 15 February 2026

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History

  • Receive Date: 05 December 2025
  • Revise Date: 14 February 2026
  • Accept Date: 15 February 2026

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