The Behavior of Russian Firms in 1992: Evidence from a Survey

52 Pages Posted: 20 Apr 2016

See all articles by Shang-Jin Wei

Shang-Jin Wei

Columbia Business School - Finance and Economics; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR); International Monetary Fund (IMF); Tsinghua University - School of Economics & Management

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Date Written: August 31, 1993

Abstract

The authors surveyed 41 firms in and around Moscow in the last two weeks of November 1992 to get an empirical handle on how firms are responding to the changing economic environment. They found the following conclusions. There were large negative (supply and demand) shocks to output for a significant number of firms and branches. Profitability was remarkably buoyant in real terms. There was clear evidence that firms with market power rapidly adjusted producer prices, trying to maintain or increase their markup. There was no evidence of a strategic change in pricing rules. Most firms experienced relative stability in earnings and in the distribution of revenues. There was no substantial evidence of decapitalization - at least through greater borrowing or predatory wage settlements. The upward shift in interfirm arrears was smaller than aggregate numbers might have led one to expect. Inertia in the wage system should not be ignored. Real wages were cut back sharply by the great price shock of January 1992, but real statistical wages then climbed back toward early 1991 levels. Benefits firms provided account for large shares of labor income and 40 to 45 percent of firms' costs. Firms may have tried to squeeze benefits particulary in housing, but allocations to the Social Fund have generally stayed constant. Employment adjustments were limited, despite the downward pressure on output and the lack of growth in firms surveyed. Net employment separations were relatively restricted. Firms continued to hire at significant rates in 1992, in part because of fixed factors technology, in part because of the reluctance of firms to discard workers. Consequently, firms have shed few workers - mostly ancillary and clerical staff, usually women; some firms chose to place workers on minimum wages, reducing labor costs significantly. The result is that unemployment benefits are provided de facto within the firms rather than through labor offices. In short the status of the so-called production worker, the core of the Russian industrial firm, remains untouched. Clearly there was a large "employment overhang" at the end of 1993. The next stage of the transition will be difficult.

Keywords: Small Scale Enterprise, Microfinance, Markets and Market Access, Private Participation in Infrastructure, Environmental Economics & Policies

Suggested Citation

Wei, Shang-Jin, The Behavior of Russian Firms in 1992: Evidence from a Survey (August 31, 1993). World Bank Policy Research Working Paper No. 1166, Available at SSRN: https://ssrn.com/abstract=632482

Shang-Jin Wei (Contact Author)

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