Estimating Labor Demand Function in the Economic Geography of the Lorestan Province

Despite of its economic potential, Lorestan province has a disadvantageous condition in terms of labor demand. So that the unemployment rate in this province is much higher than the average unemployment rate in the country (Iran). Hence, this study was conducted to identify parameters which affect the labor demand in the Lorestan province. To do so, time-series data during the period 1984–2010 were collected and its related labor demand function was estimated through econometric methods. The results indicated that the labor demand in the Lorestan province has substitution relationship with the provincial Gross Domestic Production (GDP) and the price index, and has complement relationship with the nominal wages of labor force. Labor demand with respect to production, in both short-run and long-run was found inelastic. Labor demand was also found to be inelastic with regard to the price of the products, in the both short-run and long-run. It could be also concluded that labor with respect to the nominal wage is inelastic in the long-run.