Riding the Transition Roller-Coaster: Flexibility and the Inter-Industry Wage Structure in Russia

Abstract

This paper examines the changes in the inter-industry wage structure experienced by Russia since 1993, as part of its transition from a plan-based economy to a more "market oriented" structure. Using two Russian household panel data sets, the RLMS and the RUSSET, we find that since the transformation process began, the dispersion of inter-industry wage structure has increased. Moreover, Russia exhibits large movements in wage premia, as industries respond to massively changing demand conditions. The issue of wage arrears (unpaid wages or outstanding pay), which affects half of all employees, plays an important role in the determination of wages. Studies, which do not account for wage arrears, overestimate the overall inter-industry wage dispersion. Despite movements towards a privatized market economy, we still find government ownership and Soviet network effects play an important role in determining the wage structure.

Keywords: Inter-Industry Wage Differentials, Transition Economies, Wage Arrears, Networking

JEL Classification: J24, J31, P23