Market and Institutional Determinants of Wage Differentiation in Russia

Abstract

Using a range of official and survey data, the author evaluates the relative success of two approaches - competitive labor market theory and industrial relations theory/institutional economics - in explaining wage determination in Russia. Following a review of the analysis of wage determination by an influential team of World Bank economists, the author shows that increased wage inequality in Russia is dominated by inequality within occupational categories within local labor markets. Such inequality, he suggests, is primarily associated with inter-firm differences in wage levels, rather than barriers to labor mobility or differences in human capital. Such a pattern of differentiation entirely accords with the analyses of those institutional economists and industrial relations theorists who stress the role of the wage in regulating and motivating the labor force above its role in securing labor market equilibrium. The paper concludes by outlining the institutional framework of wage determination that underlies the observed results.