Wage Flexibility in Russia: Empirical Evidence from Microdata Analysis

Abstract

The paper discusses the real wage elasticity to unemployment and GDP in Russia. An approach based on panel microdata about earnings of individuals has been applied. This methodology helps to avoid a number of difficulties that are created when aggregated analytical data on the average wage dynamics are used. The study has indicated some conclusions. Firstly, a review of estimations from other countries based on the same methodology is provided. The results confirm the conclusion about higher wage elasticity to unemployment in Russia than in many developed countries. However, the real wage elasticity to GDP in Russia is comparable with the same elasticity in other countries. Secondly, the use of microdata facilitates the evaluation of real wage flexibility for particular groups of workers and for different types of jobs: in other words, the heterogeneity of wage flexibility. As shown by calculations, wage flexibility is higher for young men living in the city and working in the private or informal sector of the economy. Moreover, it was found that wage flexibility of workers who have changed jobs during the year is higher than that of those who have remained with the same employer. Thus, interfirm mobility contributes to high wage flexibility in Russia: during economic growth employees, on average, newly start better paid jobs, whereas during crises they switch to low-paid jobs.