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Labor Supply, Informal Economy and Russian Transition

  • Maxim Bouev

The literature on economics of transition has suggested a number of scenarios to explain unemployment and labour reallocation in Eastern Europe. However, it has recently been argued that these so-called Optimal Speed of Transition (OST) studies do not account for many stylized facts concerning transitional labour markets (such as a drop in participation rates, job-to-job shifts of workers, development of an informal labour market, etc.). The transformation in Russia has witnessed an increase in moonlighting opportunities for workers and a rapid growth of the informal sector. To allow for this fact, which has a strong structural and qualitative effect on Russian transition, I attempt to incorporate secondary job holding in the OST framework. I first consider a time-allocation model in the spirit of Gronau (1977), which takes account of institutional peculiarities of the Russian state sector allowing workers to moonlight in the informal market. I introduce the motivational factor describing a heterogeneous worker's propensity to informal activity. The time-allocation model leads into an OST-type dynamic model with on-the-job search, labour shifts underground and state sector hirings. Numerical simulations of the model help look at Russian transition from a new angle and explain several stylized facts.

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Paper provided by William Davidson Institute at the University of Michigan in its series William Davidson Institute Working Papers Series with number 408.

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Date of creation: 01 Oct 2001
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Handle: RePEc:wdi:papers:2000-408
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  1. Benhabib, Jess & Rogerson, Richard & Wright, Randall, 1991. "Homework in Macroeconomics: Household Production and Aggregate Fluctuations," Journal of Political Economy, University of Chicago Press, vol. 99(6), pages 1166-87, December.
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  7. Castanheira, Micael & Roland, Gerard, 2000. "The Optimal Speed of Transition: A General Equilibrium Analysis," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 41(1), pages 219-39, February.
  8. Mark Schaffer & Gerard Turley, 2000. "Effective versus Statutory Taxation: Measuring Effective Tax Administration in Transition Economies," CERT Discussion Papers 0008, Centre for Economic Reform and Transformation, Heriot Watt University.
  9. Simon Johnson & Daniel Kaufman & Andrei Shleifer, 1997. "The Unofficial Economy in Transition," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 28(2), pages 159-240.
  10. Bouev Maxim & Matveenko Vladimir & Vostroknutova Ekaterina, 1998. "Transformational Decline and Preconditions of Growth in Russia," EERC Working Paper Series 98-03e, EERC Research Network, Russia and CIS.
  11. Krishnan, Pramila, 1990. "The Economics of Moonlighting: A Double Self-Selection Model," The Review of Economics and Statistics, MIT Press, vol. 72(2), pages 361-67, May.
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  13. Friedman, Eric & Johnson, Simon & Kaufmann, Daniel & Zoido-Lobaton, Pablo, 2000. "Dodging the grabbing hand: the determinants of unofficial activity in 69 countries," Journal of Public Economics, Elsevier, vol. 76(3), pages 459-493, June.
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  15. Linz, Susan J, 1995. "Do Job Rights Govern Employment Patterns in Transition Economies?," American Economic Review, American Economic Association, vol. 85(2), pages 425-31, May.
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  17. Chadha, Bankim & Coricelli, Fabrizio, 1997. "Fiscal constraints and the speed of transition," Journal of Development Economics, Elsevier, vol. 52(1), pages 221-249, February.
  18. Stepan Jurajda & Katherine Terrell, 2000. "Optimal Speed of Transition: Micro Evidence from the Czech Republic," William Davidson Institute Working Papers Series 355, William Davidson Institute at the University of Michigan.
  19. Alessandra Guariglia & Byung-Yeon Kim, 1999. "Unemployment Risk, Precautionary Savings, and Moonlighting in Russia," William Davidson Institute Working Papers Series 232, William Davidson Institute at the University of Michigan.
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  21. Ruggerone, Luigi, 1996. "Unemployment and Inflationary Finance Dynamics at the Early Stages of Transition," Economic Journal, Royal Economic Society, vol. 106(435), pages 483-94, March.
  22. Lacroix, G. & Fortin, B., 1991. "Utility-Based Estimation of Labor Supply Functions in the Regular and Irregular Sectors," Cahiers de recherche 9020, Université Laval - Département d'économique.
  23. Zuzana Brixiova, 1997. "On the Speed of Transition in Central and Eastern Europe; Doeson-The-Job Search Matter?," IMF Working Papers 97/102, International Monetary Fund.
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