Modeling the Mechanisms of Russian Labour Market

Abstract

We investigate the relationship between the key labour market indicators: productivity, real wages, and unemployment rate. The analysis is based on quarterly data for the period Q1 1995 to Q3 2013. The period free of crises (early 1999 to mid-2008) is additionally considered to check the crisis effects. We estimate vector error correction model (VECM). Cointegration was found among the main labour market variables. The model coefficient signs fully corresponded to the economic logic, and their magnitudes were almost identical for both time spans. No significant asymmetry to positive and negative deviations from the long-term trend was revealed at the Russian labour market. The model has allowed to measure contribution of different channels to the wage growth. We find that productivity growth and decline in unemployment had similar impact on the wage change over the period under consideration. Our results explain thus the observed unusual trend of marked increase of the wage share in GDP. Contrary to standard beliefs, cross-country comparisons show neither an increased reaction of wages nor a weak reaction of employment to productivity or output shocks.