# **4.2 Identification Assumptions.**

The key identifying assumption for this estimation method is that the composition of the sample is not changed between periods. In particular, if workers in affected industries move to other industries, the effect of sanctions will be overestimated. In addition to several robustness checks (section 6), for observed characteristics, I check labor and household compositions (section S1. in the supplementary online appendix provides more details). First, I check the impact of the sanctions on labor composition in terms of both quantity (employment rate, employment share, job separation rate, and job tenure) and quality (measured by years of schooling and job experience) of labor across industries. Figure S1 shows a stable employment rate over time in the treated and control industries despite fluctuations in the total employment rate. Also, as Table S1 and Figure S2 show, the sanctions had no significant effects on job separation rates and job tenure. Yet, treated and control industries might have lost different types of workers. For example, if highly educated workers moved from the oil and gas industry to other industries and low educated workers moved to the oil and gas industry, a reduction in children’s education might be observed in oil and gas industry as a result of this movement, not the sanctions. Thus, I also examine the effects of sanctions on years of schooling and skill index (the aggregate of years of schooling and work experience based on a principal component analysis) of employees and unemployed individuals who used to work in each industry, and find no significant effect (Table S1).

These pieces of evidence indicate that workers in the oil and energy industries took significant pay decreases, but they neither were laid off nor quit their job.<sup>38</sup> Rahmati and Chobdaran (2020) show that the high labor mobility cost led to the little labor movement across industries in Iran. Based on their estimation labor mobility cost is between 3-11 times of per capita income in 2011. The cost is even higher for educated workers.<sup>39</sup> There are at least three possible reasons why workers did not move. First, during the years of sanctions, the unemployment rate was high and increasing, and the duration of unemployment after losing a job was one year on average. Under these conditions, workers are less likely to quit. In fact, the Iranian labor markets were sticky even before the sanctions. Second, different skills needed among industries is another obstacle for labor movement; for example, oil engineers and technicians have little chance of obtaining employment in other industries. Third, although the real wage rate of the treated industries had been decreasing over the years of sanctions, the level was higher compared to many other industries. For example, the wage rate of accountants had been higher in the oil and gas industry during the sanctions years. Thus, the workers who had the experience or qualifications to work in other industries, would not switch to another industry.

I also check the effect of sanction on the households composition. The result of a balancing test in Table **??** shows the sanctions had no significant effect on children and households’ characteristics including children’s gender, children’s age, family size, head’s education, and parent’s employment status. Although the sanctions did not affect the family size (the number of observed people in the household), if older children are more likely to live with their parents after the sanctions, this would bias the estimates. Thus, I also conduct an analysis of cohort size. As

> 38According to Iranian labor law, termination of the employment contract is allowed only under the following instances: death/total disability of the employee, retirement of the employee, expiration of the duration of the employment contract conclusion of work in task specific contracts, workplace closures, and the resignation of the employee (Source: Ministry of Labor and Social Welfare).

> 39The labor mobility cost is 2.76 and 3.71 times the annual wage in the developed and developing countries, respectively (Artuc et al. (2015)). Labor mobility costs include moving cost, firing-hiring costs, sector-specific skills, etc.

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