Wage Inequality in Russian Economic Transition (1991–2008): Stylized Facts and Explanations

This paper examines the evolution of overall wage inequality in Russia from the early 1990s to the present. We first document the stylized facts and show that inequality in labor earnings increased dramatically early in the transition period and then, albeit more moderately, after the 1998 financial crisis. The trend reversed in the early 2000s wage dispersion has been declining thereafter. Changes in wage inequality were largely driven by the lower end of the wage distribution. The paper reviews and provides a critical discussion of research on wage inequality and wage differentials in Russia and suggests areas where empirical research may provide new insight into the character and causes of recent changes in wage inequality. A common view is that the rise of returns to schooling to market levels and the reallocation of workers from the public sector to the private sector accounts for the bulk of increased wage inequality during transition. However, our analysis demonstrates that these factors explain a relatively small proportion of changes in the wage distribution. We find that wage differences across and within regions and industries do a better job of capturing the dynamics of wage inequality over last two decades. These patterns can be potentially explained by expanding the existing research to other areas including the effects of shocks, organizational changes, minimum wages, rent-sharing, incentive pay structures, wage bargaining regimes.