Unemployment and labor market dynamics in Russia

The past 15 months have seen the beginning of structural change in Russia but a failure of the economy to stabilize. The balance sheet, conclude the authors suggests that a return to centralized control remain almost impossible, but the dencentralization that has occurred contain many undesirable features. In framing their analysis, the authors draw on aggregate data and firm-level data from the first-round results of a 1992 survey covering 41 firms in the Moscow region. The survey results suggest that the greater autonomy of firms has facilitated the exploitation of market power while failing to dampen the demand for easy credit from the budget or banking system. For the most part, demand has been satisfied, enabling firms to meet current wage claims and, to a lesser degree, sustain output levels. Buoyant nominal profits can be traced either to pricing behavior derived from market power or to transfers or subsidies channeled through the fiscal monetary system. This in turn has artificially sustained the revenue side of the government accounts. Official employment was no more than 1 percent of the labor force by the end of 1992, but evidence on the importance of marginal unemployment indicates that the underlying pass-through into open unemployment will be great. By the third quarter of 1992, this"augmented"unemployment rate approached 4 percent of the labor force. Even so, the authors observe non-trivial outflows from unemployment to jobs and in some regions to jobs in the private or collective sector. In Russia, outflows to state sector jobs dominate. Survey evidence shows considerable turnover in the state sector and resilient hiring. Much of the churning in labor markets seems to be through voluntary separations and job transitions. Net changes to employment have been limited, and have involved mostly ancillary or clerical staff. The authors discern a core or membership rule dominating Russian firms'decisions which it would be dangerous to assume will be maintained. They interpret it as a holding strategy in a complex game the firms have been playing with government. Lack of a credible reform program has weakened any impulse toward large-scale restructuring of firms. Wages have been more volatile and have regional dispersion, but the authors predict no large consistent shift in relative wages. Rather the wage path has probably been governed by current streams and additional transfers, and then set consistent with the stable employment rule. The path of wages over 1992 is clearly associated with changes in Russia's monetary and fiscal stance and allied institutional features.