Should I Stay or Can I Go? Worker Attachment in Russia
Reallocation of workers from obsolete sectors to more pro…table ones is among the most important challenges for many former centrally planned economies on their road towards a market economy. Due to the Stalinist mode of industrialization, this problem has an important regional dimension: geographical mobility is required to reallocate labor from regions dominated by industries in decline to more prosperous areas. In Russia, however, labour market segmentation does not appear to decline. In this paper we argue that the very existence of inherited monopsonistic or oligopsonistic local labour market structure can obstruct workers’ ability to migrate. We analyze a model in which …rms have an incentive to ‘attach’ their workers, that is to restrict their ability to migrate decreasing workers’ outside option and increasing rents. While the rationale for attachment is straightforward, the key to the feasibility of attachment lies in the existence of cash constraints. We argue that the widespread use of in-kind wages and wage arrears in Russia may be explained as an attachment strategy of …rms: paying wages in nonmonetary forms makes it hard for workers to raise the cash needed for quitting the region. There are two main results of the model. First, attachment can only exist, if there are not too many …rms on the local labour market. Second, attachment involves a risk of worker exploitation, i.e., the attached workers are not compensated for their forgone option to migrate. Data of the Russian Longitudinal Monitoring Survey (RLMS) support our theory. Controlling for personal and regional characteristics, workers’ propensity to leave a region decreases with the degree of concentration of the local labour market.
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