Competition and Firm Performance: Lessons from Russia

D24, D4, J42, L1, L33, P23, P31The "big-bang" liberalization of the inefficient Russian economy in 1992 provides a fruitful setting for analyzing the impact of several dimensions of market competition and other factors on enterprise efficiency. We analyze 1992-1998 panel data on 14,961 enterprises covering 75 percent of industrial employment, emphasizing the varied sources, geographic scope, intensity, time path, and survival effects of competitive pressures. We find large, positive effects on TFP from competition in domestic product and local labor markets, and from imports and better transportation infrastructure, although the first effect appears only gradually. Non-state firms outperform state enterprises, even after correction for selection bias.http://deepblue.lib.umich.edu/bitstream/2027.42/39680/3/wp296.pd

Ownership and Wages: Estimating Public-Private and Foreign-Domestic Differentials using LEED from Hungary, 1986-2003

Studies of public-private and foreign-domestic wage differentials face difficulties distinguishing ownership effects from correlated characteristics of workers and firms. This paper estimates these ownership differentials using linked employer-employee data (LEED) from Hungary containing 1.35mln worker-year observations for 21,238 firms from 1986 to 2003. We find that ownership type is highly correlated with characteristics of both workers (education, experience, gender, and occupation) and firms (size, industry, and productivity), suggesting ownership type is systematically selected along these dimensions. The large unconditional wage gaps (0.24 for public-private and 0.40 for foreign-domestic) in the data are little affected by conditioning on worker characteristics, but controlling for industry reduces the public and foreign premia (to 0.16 and 0.34, respectively), and controlling for employment size further reduces them (to 0.07 and 0.28). We also exploit the presence of 3,700 switches of ownership type in the data to estimate firm fixed-effects and random trend models, accounting for unobserved firm characteristics affecting the average level and trend growth of wages. These controls have little effect on the conditional public-private gap, but they reduce the estimated foreign premium (to 0.07). The results imply that the substantial unconditional wage differentials are mostly, but not entirely, a function of differences in worker and firm characteristics, and that linked panel data are necessary to take these correlated factors into account.

Ownership and Wages: Estimating Public-Private and Foreign-Domestic Differentials with LEED from Hungary, 1986–2003

Studies of public-private and foreign-domestic wage differentials face difficulties distinguishing ownership effects from correlated characteristics of workers and firms. This paper estimates these ownership differentials using linked employer-employee data (LEED) from Hungary containing 1.35mln worker-year observations for 21,238 firms from 1986 to 2003. We find that ownership type is highly correlated with characteristics of both workers (education, experience, gender, and occupation) and firms (size, industry, and productivity), suggesting ownership type is systematically selected along these dimensions. The large unconditional wage gaps (0.24 for public-private and 0.40 for foreign-domestic) in the data are little affected by conditioning on worker characteristics, but controlling for industry reduces the public and foreign premia (to 0.16 and 0.34, respectively), and controlling for employment size further reduces them (to 0.07 and 0.28). We also exploit the presence of 3,700 switches of ownership type in the data to estimate firm fixed-effects and random trend models, accounting for unobserved firm characteristics affecting the average level and trend growth of wages. These controls have little effect on the conditional public-private gap, but they reduce the estimated foreign premium (to 0.07). The results imply that the substantial unconditional wage differentials are mostly, but not entirely, a function of differences in worker and firm characteristics, and that linked panel data are necessary to take these correlated factors into account.privatization, employment, wages, ownership, Hungary, firms

Competition and Firm Performance: Lessons from Russia

The "big-bang" liberalization of the inefficient Russian economy in 1992 provides a fruitful setting for analyzing the impact of several dimensions of market competition and other factors on enterprise efficiency. We analyze 1992-1998 panel data on 14,961 enterprises covering 75 percent of industrial employment, emphasizing the varied sources, geographic scope, intensity, time path, and survival effects of competitive pressures. We find large, positive effects on TFP from competition in domestic product and local labor markets, and from imports and better transportation infrastructure, although the first effect appears only gradually. Non-state firms outperform state enterprises, even after correction for selection bias.competition, firm exit, foreign trade, monopsony, privatization, Russia, and total factor productivity

Job Reallocation and Productivity Growth in the Ukrainian Transition

We analyze the pace and patterns of job reallocation in Ukraine using 1992-2000 panel data on nearly the surviving universe of manufacturing firms inherited from the Soviet Union. Employment growth displays substantial increase in heterogeneity during this transition period, with a corresponding rise in excess job reallocation. Unlike data for Soviet Russia in the 1980s, Ukrainian job reallocation in the 1990s was clearly productivity-enhancing, both within and across industries. The paper also estimates the effects of firm and market characteristics on the magnitude of reallocation and on the extent to which it has contributed to aggregate productivity growth.reallocation, post-Soviet, Ukraine, Russia, Earle, Upjohn Institute, Brown

Understanding the Contributions of Reallocation to Productivity Growth: Lessons from a Comparative Firm-Level Analysis

We analyze comprehensive manufacturing firm data to measure the contribution of interfirm employment reallocation to aggregate productivity growth during the socialist and reform periods in six transition economies. Modifying a standard decomposition technique to better reflect the role of firm entry, we find that reallocation rates and productivity contributions are very low under socialism. After reforms, they rise dramatically, and productivity contributions greatly exceed those observed in market economies. Early in transition, faster reform is associated with larger contributions from reallocation, but later, and on average over the whole transition, this relationship is reversed. Though reallocation rates are larger in faster reforming economies, higher productivity dispersion in slower reformers creates much higher productivity gains for a given volume of reallocation. The results imply that reallocation should be viewed as necessary regular maintenance for a well-functioning economy, and particularly large productivity contributions tend to reflect previous neglect more than current virtue.productivity, reallocation, industry dynamics, creative destruction, reform, transition, Georgia, Hungary, Lithuania, Romania, Russia, Ukraine

The microeconomics of creating productive jobs : a synthesis of firm-level studies in transition economies

The challenge for labor market policy in the transition economies has been to redress the sharp drops in employment and rises in unemployment in a way that fosters the creation of productive jobs. The authors first document the magnitude and productivity of job and worker reallocation. Then they investigate the effects of privatization, product and labor market liberalization, and obstacles to growth inthe new private sector on reallocation and its productivity in Hungary, Romania, Russia, and Ukraine. The authors find that market reform has resulted in a large increase in the pace of job reallocation, particularly that occurring between sectors and through firm turnover. Unlike under central planning, the job reallocation during the transition has contributed significantly to aggregate productivity growth. Privatization has not only stimulated intrasectoral job reallocation, but the reallocation is more productive than that among remaining state firms. The effect of privatization on firm productivity varies considerably across countries and is not always positive. The productivity gains from privatization have generally not come at the expense of workers but are rather associated with increased wages and employment.Labor Markets,Small Scale Enterprise,Microfinance,Economic Theory&Research,Privatization

Economic Reforms and Productivity-Enhancing Reallocation in the Post-Soviet Transition

How do economic reforms affect resource reallocation processes and their contributions to productivity growth? This paper studies the consequences of enterprise privatization and liberalization of product markets, labor markets, and imports in the former Soviet Republics of Russia and Ukraine. Analyzing interfirm reallocation of output, labor, capital, and an input index with annual industrial census data from 1985 to 2001, we find that Soviet Russia displayed low reallocation rates that bore little relationship to relative labor and multifactor productivity across firms. Since reforms began, resource flows have increased in both countries, and their contributions to aggregate productivity growth have become substantial through increased flows from less productive to more productive continuing firms and through higher exits of less productive entities - i.e., through creative destruction. Among the policy factors that may explain firm-level variation, privatization is estimated to have positive effects on productivity-enhancing reallocation, but there is less evidence of such effects from domestic product market competition, labor market competition, or import penetration.interfirm, reallocation, post-Soviet, Ukraine, Russia, Earle, Upjohn Institute, Brown

The Reallocation of Workers and Jobs in Russian Industry: New Evidence on Measures and Determinants

Gross job and worker flows in Russian industry are studied using panel data from a recent survey of 530 firms selected through national probability sampling. The data permit an examination of several important measurement issues – including the timing and definition of employment, the roles of split-ups and mergers, and the relative magnitudes of rehiring and new hiring and of quits and layoffs – and they contain a rich set of firm characteristics that may affect job and worker turnover. The results imply that job destruction and worker separation rates in industrial firms rose in the early 1990s, as did job flows as a fraction of worker flows and layoffs as a fraction of separations. By contrast, job creation and worker hiring rates were flat until 1999, the former low and the latter surprisingly high. Heterogeneity in individual firm behavior increased throughout. New firms and old enterprises that have been reorganized display much larger flows compared with unreorganized enterprises. Unions appear to reduce worker flows, but the structure of neither product nor labor markets shows a significant impact. Private ownership has ambiguous effects: insider ownership, particularly by managers, is associated with higher worker flows and excess job reallocation, while outsider ownership, particularly by blockholders, is associated with lower flow rates. A measure of adjustment costs constructed from the worktime necessary to hire and train a new employee is strongly related to variables usually associated with adjustment costs, including worker wage, education, firm size, capital intensity, and labor productivity, but only weakly to job and worker turnover. Little evidence is found that firms’ employment adjustments have become more sensitive to adjustment costs during the transition, but worker and manager ownership are associated with more sensitivity than are other types of ownership.job creation, job destruction, labor turnover, layoffs, transition, Russia