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Attaching Workers through In-Kind Payments: Theory and Evidence from Russia

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  • Guido Friebel
  • Sergei Guriev

Abstract

External shocks may cause a decline in the productivity of fixed capital in certain regions of an economy. Exogenous obstacles to migration make it hard for workers in those regions to reallocate to more prosperous regions. In addition, firms may devise "attachment" strategies to keep workers from moving out of a local labor market. When workers are compensated in kind, they find it difficult to raise the cash needed for migration. This endogenous obstacle to migration has not yet been considered in the literature. The article shows that the feasibility of attachment depends on the inherited structure of local labor markets: attachment can exist in equilibrium only if the labor market is sufficiently concentrated. Attachment is beneficial for both employers and employees but hurts the unemployed and the self-employed. An analysis of matched household-firm data from the Russian Federation corroborates the theory. Copyright 2005, Oxford University Press.

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Bibliographic Info

Article provided by World Bank Group in its journal The World Bank Economic Review.

Volume (Year): 19 (2005)
Issue (Month): 2 ()
Pages: 175-202

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Handle: RePEc:oup:wbecrv:v:19:y:2005:i:2:p:175-202

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Cited by:
  1. Simon COMMANDER & Natalia ISACHENKOVA & Yulia RODIONOVA, 2013. "Informal employment dynamics in Ukraine: An analytical model of informality in transition economies," International Labour Review, International Labour Organization, vol. 152(3-4), pages 445-467, December.
  2. Guido Friebel & Helena Schweiger, 2012. "Management quality, firm performance and market pressure in Russia," Working Papers 144, European Bank for Reconstruction and Development, Office of the Chief Economist.
  3. Kseniya Abanokova & Michael Lokshin, 2013. "Changes in household composition as a shock-mitigating strategy," HSE Working papers WP BRP 38/EC/2013, National Research University Higher School of Economics.
  4. Juurikkala, Tuuli & Lazareva, Olga, 2006. "Non-wage benefits, costs of turnover, and labor attachment: Evidence from Russian firms," BOFIT Discussion Papers 4/2006, Bank of Finland, Institute for Economies in Transition.
  5. World Bank, 2011. "Russia : Reshaping Economic Geography," World Bank Other Operational Studies 13052, The World Bank.
  6. Danzer, Alexander M. & Danzer, Natalia, 2011. "The Long-Term Effects of the Chernobyl Catastrophe on Subjective Well-Being and Mental Health," IZA Discussion Papers 5906, Institute for the Study of Labor (IZA).
  7. Guriev, Sergei & Rachinsky, Andrei, 2006. "The Evolution of Personal Wealth in the Former Soviet Union and Central and Eastern Europe," Working Paper Series RP2006/120, World Institute for Development Economic Research (UNU-WIDER).

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