Dynamism and Inertia on the Russian Labour Market: A Model of Segmentation

Abstract

This paper proposes an explanation of the puzzling coexistence of elements of inertia and dynamism on the Russian labour market using a segmentation model. Risk averse workers are differentiated according to their productivity. They face a trade-off between wages and access to social services provided by the firm. The most productive workers leave their initial firm, contract on the spot labour market, and concentrate in the best performing firms. The model provides a possible interpretation of wage arrears which can be viewed as an element of an implicit contract between firms and less productive workers. We test some of the predictions of the model using a panel dataset containing 13,410 firms, for 1993 - 1997.