The Decentralization of Minimum Wage Setting in Russia Economies

Abstract

In this paper, we study the minimum wage reform in Russia, which aimed to decentralize the fixing of the minimum wage and to increase the involvement of social partners in this process. The old system of the minimum wage setting was based on a single nation-wide minimum wage, which was differentiated across regions and occupations via a cumbersome framework of coefficients. The new system is a mixture of a government-legislated minimum wage at the federal level and collective agreements at regional levels. We show that the system of minimum wage setting has become more flexible. The reform succeeded in raising the real value of the minimum wage and increasing earnings of low paid workers without causing considerable negative effects in terms of employment. However, the reform did not lead to greater regional variation of minimum wages. It introduced some new imbalances: an unintended consequence of the reform was the emergence of separate regional wage sub-minima for private and public sector workers in many regions. The major challenge in coming years is to strengthen the institutions of collective bargaining, introduce evidence-based evaluation and boost the capacities of government and non-government monitoring agencies

Keywords: minimum wage, wage policy, Russia, decentralization

JEL Classification: J31, J38, D33