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Wage Policies of a Russian Firm and the Financial Crisis of 1998: Evidence from Personnel Data - 1997 to 2002

  • Thomas Dohmen
  • Hartmut Lehmann
  • Mark E. Schaffer

We use a rich personnel data set from a Russian firm for the years 1997 to 2002 to analyze how the financial crisis in 1998 and the resulting change in external labor market conditions affect the wages and the welfare of workers inside a firm. We provide evidence that large shocks to external conditions affect the firm's personnel policies, and show that the burden of the shock is not evenly spread across the workforce. The firm takes advantage of a high-inflationary environment and of a fall in workers' outside options after the financial crisis and cuts real wages. Earnings are curbed most for those who earned the highest rents, resulting in a strong compression of real wages. The fact that real wages and real compensation levels never recovered to pre-crisis levels even though the firm's financial situation was better in 2002 than before the crisis and the differential treatment of employee groups within the firm can be taken as evidence that market forces strongly influence the wage policies of our firm.

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File URL: http://www.diw.de/documents/publikationen/73/diw_01.c.81768.de/diw_escirru0004.pdf
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Paper provided by DIW Berlin, German Institute for Economic Research in its series ESCIRRU Working Papers with number 4.

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Length: 64 p.
Date of creation: 2008
Date of revision:
Handle: RePEc:diw:diwesc:diwesc4
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  1. Bauer, Thomas K. & Bonin, Holger & Goette, Lorenz & Sunde, Uwe, 2007. "Real and nominal wage rigidities and the rate of inflation: Evidence from West German micro data," Munich Reprints in Economics 20121, University of Munich, Department of Economics.
  2. David Card & Dean Hyslop, 1997. "Does Inflation "Grease the Wheels of the Labor Market"?," NBER Chapters, in: Reducing Inflation: Motivation and Strategy, pages 71-122 National Bureau of Economic Research, Inc.
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  4. Lehmann, Hartmut & Wadsworth, Jonathan & Acquisti, Alessandro, 1999. "Grime and Punishment: Insecurity and Wage Arrears in the Russian Federation," IZA Discussion Papers 65, Institute for the Study of Labor (IZA).
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  8. John S. Earle & Klara Z. Sabirianova, 2002. "How Late to Pay? Understanding Wage Arrears in Russia," Upjohn Working Papers and Journal Articles 02-77, W.E. Upjohn Institute for Employment Research.
  9. Hartmut Lehmann & Jonathan Wadsworth & Alessandro Acquisti, 1999. "Grime and Punishment: Job Insecurity and Wage Arrears in the Russian Federation," CERT Discussion Papers 9907, Centre for Economic Reform and Transformation, Heriot Watt University.
  10. Ernst Fehr & Lorenz Goette, . "Robustness and Real Consequences of Nominal Wage Rigidity," IEW - Working Papers 044, Institute for Empirical Research in Economics - University of Zurich.
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  13. Gibbons, Robert & Waldman, Michael, 1999. "Careers in organizations: Theory and evidence," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 36, pages 2373-2437 Elsevier.
  14. Abbigail J. Chiodo & Michael T. Owyang, 2002. "A case study of a currency crisis: the Russian default of 1998," Review, Federal Reserve Bank of St. Louis, issue Nov, pages 7-18.
  15. Hamermesh, Daniel S. & Pfann, Gerard Antonie, 1996. "Adjustment Costs in Factor Demand," CEPR Discussion Papers 1371, C.E.P.R. Discussion Papers.
  16. Joseph G. Altonji & Paul J. Devereux, 1999. "The Extent and Consequences of Downward Nominal Wage Rigidity," NBER Working Papers 7236, National Bureau of Economic Research, Inc.
  17. Tito Boeri & Katherine Terrell, 2002. "Institutional Determinants of Labor Reallocation in Transition," Journal of Economic Perspectives, American Economic Association, vol. 16(1), pages 51-76, Winter.
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  19. Baker, George & Gibbs, Michael & Holmstrom, Bengt, 1994. "The Wage Policy of a Firm," The Quarterly Journal of Economics, MIT Press, vol. 109(4), pages 921-55, November.
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