Economic indicators consider poverty as a “reduction in quality of life” or “deprivation”, meaning a decrease in access to material resources. Measuring the decline in income compared to the poverty line (poverty line index) or the decrease in purchasing power are major methods for calculating the level of poverty. In sociological studies, the social effects of poverty are usually seen as deepening inequality, discrimination, increasing crime, social deprivation, and instability in families. Therefore, an economic analysis only measures the decrease in quality of life, and sociologists believe that from now on, their job is to evaluate the social consequences of this decrease in quality of life and deprivation.

In this article, I show that it is still possible to use more indicators and calculations to assess poverty. In other words, from the time a working family faces an annual decrease in real wages until this decrease has social effects such as destabilizing the family, this family goes through a dramatic and tumultuous situation and many issues arise that are all measurable, but have been overlooked by economists and sociologists.

To start, we must consider real wages, not nominal wages. The minimum monthly wage without any benefits in 1403 (2024-2025) has been announced as 7,166,000 tomans, which is a 35% increase compared to the previous year’s amount of 5,308,000 tomans. However, this is a nominal wage and if we consider the three common formulas for calculating real wages with a 43.6% inflation rate, we will reach the following numbers (2):

First formula:

دستمزد – (دستمزد * نرخ تورم) = درآمد واقعی

Wages – (wages * inflation rate) = real income.

Real salary: 4,041,727 Iranian rials.

Second formula.

The formula for calculating real income is: Wages / (1 + Inflation Rate) = real income.

Real salary: 4,990,378 Tomans.

Formula three.

(1 – نرخ تورم) * دستمزد = درآمد واقعی.

Real salary: 3,848,240 Tomans.

Even if we consider the second formula, the real wages of workers have decreased by 6%. This decrease is not limited to this year and for years, the working class in Iran has been struggling with these continuous reductions.

But even if wages were to increase by the same amount as inflation and reach 0%, another hidden issue remains: wages are calculated each year based on the inflation of the previous year, meaning that workers are always behind in terms of inflation. Inflation is constantly increasing, but wages only increase at the end of the year. Therefore, workers are buying essential items with daily inflation, while their wages are adjusted to the inflation of the previous year (if at all). Therefore, it is necessary to consider the real monthly wages.

Housing costs are primarily in the form of monthly rent and make up a significant portion of workers’ expenses. Only in 1401 (2022-2023) did housing rent experience a staggering 60% increase. Although housing costs are usually taken into account when calculating the Consumer Price Index (CPI) and therefore inflation, the actual cost of rent is higher for renters. Many renters are unable to afford the rent and end up paying a large portion of it as “interest” to the landlord. However, the conversion of this “interest” rate into rent (for example, one million rials for a monthly rent of fifty thousand tomans) is fixed and less than inflation and the devaluation of the rial, causing additional losses for the renter. Therefore, it is necessary to calculate this difference with an index. The assets and savings of renters remain in rials and their real value decreases, while landlords see an increase in the value of their property due to inflation.

Additionally, having a large amount of money in advance helps landlords to impose higher rents on tenants. Tenants have no other choice but to accept eviction and annual rent increases, and if they choose the first option, they will also be responsible for moving expenses and fees related to real estate agents.

Apart from this, high inflation leads people to hold their assets in foreign currencies or in the non-productive housing sector, resulting in a lower volume of capital entering commercial and investment cycles. This false boom in the housing sector increases housing prices and, as a result, rents beyond the rate of inflation.

Therefore, in general, separate indicators are needed in calculating the cost of housing rent. Without these calculations, it is not possible to assess the poverty situation in Iranian working and renting households.

As I mentioned before, poverty usually results in a decrease in quality of life, but this decrease in quality of life also means an increase in expenses. For example, a decrease in housing quality means living in the outskirts of cities and an increase in transportation costs. A decrease in food quality means a decrease in health and an increase in medical expenses. Inability of workers to cover expenses forces them to borrow money, resulting in increased expenses in the form of interest payments. This list can go on. None of these “increased expenses” are taken into account in the indicators of economists and sociologists.

In practice, the working class not only continues to survive through reducing consumption, but also by increasing breadwinners. As I have shown, reducing consumption or reducing quality of life leads to increased expenses. Secondly, consumption can only be reduced to a certain extent. The working class in Iran has been in this situation for years, where they have fallen below the minimum level of quality of life. What happens is that even in old age, the children of the family continue to be dependent on the breadwinners of their parents’ household. Therefore, the new generation of the working class does not have the necessary economic means to form an independent family, and parents without their economic support are not able to survive. We are witnessing working class families where all adult members continue to work without any child being able to become independent. Despite the maximum contribution of family members, this family can only survive and has absolutely no ability to save. Most of their savings are spent on basic household expenses, which is also constantly

***

In this article, I have tried to show that poverty is a more complex phenomenon than can be measured by a decrease in quality of life and deprivation. In the case of the working class in Iran, income or household expenses do not reflect the poverty of these families; because their poverty is actually reflected in the struggle to provide for their household (i.e. the perpetual inability of their children to become independent) and not just in reducing their consumption. In summary, a wide range of new and measurable indicators are needed that are not currently visible in existing economic and sociological studies.

Notes:

1- Table of Salaries and Wages 1403/ Minimum Salaries and Benefits of Employment Administration.

Identification of Law

December 22nd, 2023.

2- For further study on real and nominal wages, refer to:

Tuila, Alicia, real income, inflation, and real wage formula.

Wikipedia.

June 27, 2022.

3- Iran Statistics Center Report: 60% Increase in House Rent in the Past Year.

Iran International website.

October 4th, 2023.