The purpose of this article is studying the effect of financial development on industrial employment. First of all, financial development indices in banking sector was defined and calculated for Iran in the period of 1358-1388. Then, principal component analysis (PCA) was presented as a statistical method for making compound index. In the next step, computed compound index was introduced to labor demand function as a new variable. So, we had four explanatory variables consisting of value added in industry sector, real minimum wage, capital stock in industry sector and financial development in labor demand function. For estimating the function, structural time series model was used which considered an underlying trend for labor demand. The result shows that all estimated parameters are significant in the probability level of 5%, and the research hypothesis based on significance and affirmative effect of financial development on industrial employment, was not rejected.
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