Workers' Heterogeneity and Risk Aversion: A Segmentation Model of the Russian Labour Market

CEFIR Working Paper No. 7

59 Pages Posted: 21 Feb 2001

See all articles by Irena Grosfeld

Irena Grosfeld

Paris School of Economics

Claudia Senik

National Center for Scientific Research - Department and Laboratory of Applied and Theoretical Economics (DELTA); Universite Paris IV Sorbonne; IZA Institute of Labor Economics

Thierry Verdier

Paris School of Economics (PSE); Delta - Ecole Normale Superieure (ENS); Centre for Economic Policy Research (CEPR)

Stanislav Kolenikov

University of North Carolina at Chapel Hill - Department of Statistics

Elena Paltseva

Stockholm Institute of Transition Economics (SITE); New Economic School (NES)

Date Written: October 2000

Abstract

This paper proposes an explanation of the puzzling coexistence of elements of both inertia and dynamism in the Russian labor market. In an environment of high uncertainty, risk averse and heterogeneous workers face a trade-off between wages and insurance against risk. The firm proposes a contract that includes a low monetary wage and the access to social services. Workers choose to accept the contract or to leave the firm. Their choice gives rise to ex post segmentation: the most productive workers leave the firm and concentrate in the most productive firms; the less adaptive workers remain in their initial firm where they accept lower wages as a price for security. In this framework, wage arrears can be viewed as an element of the implicit contract between firms and less productive workers. We test the relevance of this model using a panel data set containing 9,233 Russian firms for 1993 to 1998 as well as a sub-sample for which we have information on firms' wage arrears.

Key words: labour market, segmentation, uncertainty, implicit contracts, social assets, wage arrears, transition, Russia.

JEL Classification: C23, D82, J00, L20, P52

Suggested Citation

Grosfeld, Irena and Senik, Claudia and Verdier, Thierry and Kolenikov, Stanislav and Paltseva, Elena, Workers' Heterogeneity and Risk Aversion: A Segmentation Model of the Russian Labour Market (October 2000). CEFIR Working Paper No. 7. Available at SSRN: https://ssrn.com/abstract=260994 or http://dx.doi.org/10.2139/ssrn.260994

Irena Grosfeld

Paris School of Economics ( email )

48 Boulevard Jourdan
Paris, 75014
France

Claudia Senik (Contact Author)

National Center for Scientific Research - Department and Laboratory of Applied and Theoretical Economics (DELTA) ( email )

ENS, 48, bd Jourdan
75014 Paris
France
+33 1 4313 6312 (Phone)

Universite Paris IV Sorbonne

Department of Economics
75230 Paris Cedex 05
France
01 43 13 63 12 (Phone)

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Thierry Verdier

Paris School of Economics (PSE) ( email )

48 Boulevard Jourdan
Paris, 75014
France

Delta - Ecole Normale Superieure (ENS) ( email )

48, Boulevard Jourdan
75014 Paris
France
+33 1 4313 6308 (Phone)
+33 1 4313 6310 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Stanislav Kolenikov

University of North Carolina at Chapel Hill - Department of Statistics ( email )

102 Ridge Road
Chapel Hill, NC NC 27514
United States

Elena Paltseva

Stockholm Institute of Transition Economics (SITE) ( email )

P.O. Box 6501
S-113 83 Stockholm, 11383
Sweden

New Economic School (NES) ( email )

100A Novaya Street
Moscow, Skolkovo 143026
Russia

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