Labor Market Dynamics in Russia

Following the dissolution of the Soviet Union in December 1991, Russia experienced a series of economic shocks, resulting in large decreases in output but limited change in employment. Using information contained in a nationally representative longitudinal survey of Russian citizens, this research analyzes the labor market behavior of individuals from 1992 to 1996 during the transition to a market economy. Under Markovian assumptions, the pattern of transitions between labor market states is identified. Results indicate that the state sector has declined, but that the emerging private sector has played a limited role in alleviating growing unemployment. The probability of losing a job increased 75 percent from 1992 to 1996 while the re-employment probability declined by 24 percent, leading to an increase in long-term unemployment. Multinomial logit estimates demonstrate that workers with a personal ownership stake in their firm, the prevalence of which has more than tripled since 1992, are significantly less likely to lose their job or change to a new one. Men are more likely to make a transition to non-state employment, while women are more apt not only to move into the state sector, but also to remain in a state sector job. The relative instability of the private sector and self-employment, which are predominated by men and younger persons, is evident from higher flows into unemployment from these sectors. In contrast to the state sector, hiring in the private sector is primarily from the pool of employed individuals. The growing wage arrears crisis has not influenced labor market transitions, but the incidence of forced leaves is strongly and positively associated with dropping out of the labor force and changing jobs. Education has become a factor in exiting unemployment to a job. While there was no distinction by level of education in 1992-93, by 1995-96 individuals with higher, special secondary, or ordinary secondary education are more likely to find employment than those with primary education or less. University or graduate degrees carry the greatest weight, increasing the re-employment probability by 27.5 percentage points. Higher and secondary education provided protection against job loss initially, but by 1996 only higher education provides a distinct advantage in maintaining employment. This result is suggestive of a divergence between education and skills acquired in the Soviet era and those demanded by the jobs of an emerging market economy.