Returns to Schooling in Russia and Ukraine: A Semiparametric Approach to Cross-Country Comparative Analysis

n Russia and Ukraine (1985-2002). There has been an increase in returns to schooling in both countries but the increase is much bigger in Russia than in Ukraine. The intriguing question is why returns to schooling in Russia and Ukraine diverged so much over the transition period while the skill composition of employment did not. Our approach in analyzing the sources of cross-country differences in returns to schooling is to compare the Mincerian earnings functions between the two countries and then to employ decomposition techniques. Using semiparametric methods, we construct counterfactual wage distributions for university and secondary school graduates for Ukraine using the distributions of Russian characteristics, returns to characteristics, and unobservables. This allows us to decompose differences in returns to schooling between the two countries due to differences in the labor market returns (price effect), differences in unobservables (residual effect), and differences in the labor force composition (composition effect). We conclude that of these three effects the price effect makes a major contribution to the observed differences in the returns to schooling.http://deepblue.lib.umich.edu/bitstream/2027.42/40105/3/wp719.pd

Compensating Differentials in Emerging Labor and Housing Markets: Estimates of Quality of Life in Russian Cities

The existence of compensating differentials in Russian labor and housing markets is examined using data from the Russian Longitudinal Monitoring Survey (RLMS) augmented by city and regional-specific characteristics from other sources. While Russia is undergoing transition to a market economy, we find ample evidence that compensating differentials for location-specific amenities exist in the labor and housing markets. Our estimated wage and housing value equations suggest that workers are compensated for differences in climate, environmental conditions, ethnic conflicts, crime rates, and health conditions, after controlling for worker characteristics, occupation, industry, and economic conditions, and various housing characteristics. Moreover, we find evidence that these compensating differentials exist even after controlling for the regional pay differences (“regional coefficients”) used by the Russian government to compensate workers for living in regions that are designated as less desirable. We rank 953 Russian cities by quality of life as measured by a group of eleven amenities. Sizable variation in the estimated quality of life across cities exists. The highest ranked cities tend to be in relatively warm areas and areas in the western, European part of the country. In addition, our quality of life index is positively correlated with net migration into a region, suggesting workers are attracted to amenity-rich locations. Overall, we find that sufficient market equilibrium exists and a model of compensating differentials with controls for disequilibrium yields useful information about values of location-specific amenities and quality of life in this large transition economy.http://deepblue.lib.umich.edu/bitstream/2027.42/40006/2/wp620.pd

Distance to the Efficiency Frontier and FDI Spillovers

We establish that domestically owned firms in two alternative models of emerging market economies, the Czech Republic and Russia, have not been converging to the technological frontier set by foreign owned firms. In both countries, the distance of domestic firms to the frontier grew (in all parts of the distribution) from 1992-1994 to 1995-1997 and did not change from 1995-1997 to 1998-2000. However, the distance to the frontier is orders of magnitude greater in Russia than in the Czech Republic throughout 1992-2000. We also find in both countries that domestic firms in industries with a greater share of foreign firms are falling behind more than domestic firms in industries with a smaller foreign presence. However, in the Czech Republic this “negative spillover” effect is diminished over time, whereas in Russia it continues to cause domestic firms to fall further behind. On the other hand, we find in both countries that foreign firms experience positive spillovers from other foreign firms operating in the same product market. This evidence on the dynamics of efficiency is consistent with the view that economies (firms) need to be more technologically advanced and open to competition in order to be able to gain from foreign presence.http://deepblue.lib.umich.edu/bitstream/2027.42/40107/3/wp721.pd

Returns to Schooling in Russia and Ukraine: A Semiparametric Approach to Cross-Country Comparative Analysis

n Russia and Ukraine (1985-2002). There has been an increase in returns to schooling in both countries but the increase is much bigger in Russia than in Ukraine. The intriguing question is why returns to schooling in Russia and Ukraine diverged so much over the transition period while the skill composition of employment did not. Our approach in analyzing the sources of cross-country differences in returns to schooling is to compare the Mincerian earnings functions between the two countries and then to employ decomposition techniques. Using semiparametric methods, we construct counterfactual wage distributions for university and secondary school graduates for Ukraine using the distributions of Russian characteristics, returns to characteristics, and unobservables. This allows us to decompose differences in returns to schooling between the two countries due to differences in the labor market returns (price effect), differences in unobservables (residual effect), and differences in the labor force composition (composition effect). We conclude that of these three effects the price effect makes a major contribution to the observed differences in the returns to schooling.returns to schooling, earnings function, semiparametric approach, decomposition, counterfactual, cross-country analysis, retrospective data, transition, Russia, Ukraine

Complementarity and Custom in Contract Violation

We analyze a model of wage delay in which strategic complementarity arises because each employer's costs of violating its contracts decrease with the arrears in its labor market. The model is estimated on panel data for workers and firms in Russia, facilitating identification through fixed effects for employees, employers, and local labor markets, and instrumental variables based on policy interventions. The estimated reaction function displays strongly positive neighborhood effects, and the estimated feedback loops – worker quits, effort, strikes, and legal penalties – imply that costs of wage delays are attenuated by neighborhood arrears. We also study a nonlinear case with two stable equilibria: a punctual payment and a late payment equilibrium. The estimates imply that the theoretical conditions for multiple equilibria under symmetric labor market competition are satisfied in our data.Earle, Sabirinova, contract violation, wage arrears, social custom, strategic complementarity, neighborhood effect, social interactions, multiple equilibria, network externality, transition, Russia"

Returns to Skills and the Speed of Reforms: Evidence from Central and Eastern Europe, China, and Russia

We explore the pace of increase in returns to schooling during the transition from planning to market over time across a number of Central and Eastern European countries, Russia, and China. We use metadata from 33 studies of 10 transition economies covering a period from 1975 through 2002. Our empirical model is an attempt to account for cross-section and over-time variation in rates of return as a function of the timing, speed, and volatility of reform processes as well as estimation methods used and sample characteristics. Our principal aim is to investigate the relative strength of two hypotheses: (1) the speed of economic transformation from planning to market represent the relaxation of legal, regulatory, and institutional constraints on wage-setting behavior, leading directly to adjustment returns to schooling to market rates; 2) the rapid increase in returns to schooling during the early reform period reflects the ability of highly-educated individuals to respond to changing opportunities in a disequilibrium situation. We find that both the speed of reforms and the degree of economic disequilibrium as reflected in macroeconomic volatility help to explain cross-country differences in the time paths of the returns to schooling. We report the systematic effects of sample characteristics, estimation methods, and model specifications on estimated returns to schooling.http://deepblue.lib.umich.edu/bitstream/2027.42/40089/3/wp703.pd

CONTRACT VIOLATIONS, NEIGHBORHOOD EFFECTS, AND WAGE ARREARS IN RUSSIA

We present a model of neighborhood effects in wage payment delays. Positive feedback arises because each employer’s arrears affect the late payment costs faced by other firms in the same local labor market, resulting in a strategic complementarity in the practice. The model is estimated on panel data for workers and firms in Russia, facilitating identification through the use of a rich set of covariates and fixed effects for employees, employers, and local labor markets. We also exploit a policy intervention affecting public sector workers that provides an instrumental variable to estimate the endogenous reaction in the non-public sector. Consistently across specifications, the estimated reaction function displays strongly positive neighborhood effects, and the estimates of four feedback loops – operating through worker quits, effort, strikes, and legal penalties – imply that costs of delays are attenuated by neighborhood arrears. We also study a nonlinear case exhibiting two stable equilibria: a “punctual payment equilibrium” and a “late payment equilibrium.” The estimates imply that the theoretical conditions for multiple equilibria under symmetric local labor market competition are satisfied in our data.wage arrears, contract violation, neighborhood effect, social interactions, multiple equilibria, network externality, strategic complementarity, transition, Russia.

Inequality and Volatility Moderation in Russia: Evidence from Micro-Level Panel Data on Consumption and Income

We construct key household and individual economic variables using a panel micro data set from the Russia Longitudinal Monitoring Survey (RLMS) for 1994-2005. We analyze cross-sectional income and consumption inequality and find that inequality decreased during the 2000-2005 economic recovery. The decrease appears to be driven by falling volatility of transitory income shocks. The response of consumption to permanent and transitory income shocks becomes weaker later in the sample, consistent with greater self-insurance against permanent shocks and greater smoothing of transitory shocks. Comparisons of RLMS data with official macroeconomic statistics reveal that national accounts may underestimate the extent of unofficial economic activity, and that the official consumer price index may overstate inflation and be prone to quality bias.transition, inequality, income, consumption, Russia

Distance to the Efficiency Frontier and FDI Spillovers

We establish that domestically owned firms in two alternative models of emerging market economies, the Czech Republic and Russia, have not been converging to the technological frontier set by foreign owned firms. In both countries, the distance of domestic firms to the frontier grew (in all parts of the distribution) from 1992-1994 to 1995-1997 and did not change from 1995-1997 to 1998-2000. However, the distance to the frontier is orders of magnitude greater in Russia than in the Czech Republic throughout 1992-2000. We also find in both countries that domestic firms in industries with a greater share of foreign firms are falling behind more than domestic firms in industries with a smaller foreign presence. However, in the Czech Republic this “negative spillover” effect is diminished over time, whereas in Russia it continues to cause domestic firms to fall further behind. On the other hand, we find in both countries that foreign firms experience positive spillovers from other foreign firms operating in the same product market. This evidence on the dynamics of efficiency is consistent with the view that economies (firms) need to be more technologically advanced and open to competition in order to be able to gain from foreign presence.foreign direct investment, productivity, convergence, frontier, knowledge spillovers, Czech Republic, Russia.