Employment and Distribution Effects of the Minimum Wage
This chapter deals with age and educational dimensions of the labour supply in Russia, and looks into two time periods covering 15 years in retrospect and the next 15 years in prospect. For our analysis we exploit the micro-census (2015) data and all labour force surveys (LFS) waves covering the retrospect. Using demographic projections we can forecast employment structure up to 2030. These two dimensions are directly associated with such challenges as aging and over-education of the labour force. If in the recent past age and education contributed to the economic growth, in the next 15 years their effect is likely to be less beneficial if not negative. This will pose a challenge to the prospective economic development through a number of channels. Russia is not unique here but seems to be more exposed than many others to both due to its demographic and educational developments.
In this paper I study and compare the earnings distributions for formal and informal workers using the data from the RLMS HSE survey for 2000-2010. I find that during the whole period earnings inequality was significantly higher in the informal sector than in the formal sector. Informality has statistically significant impact on the distribution of earnings, but its contribution is much smaller than the effects of other variable such as gender, education, region, and settlement type. Earnings inequality dramatically decreased in both sectors over the 2000-2010 period. In the formal sector the changes in the earning distribution were mainly generated by the changes in the distribution of hourly earnings. In the informal sector the reduction of inequality went through two channels: differences in both hourly rates and hours of work were declining. This reflects several underlying forces: a declining share of workers without permanent job and low barriers between the sectors (as inequality decreased by similar amount in both sectors). In fact, one third of the overall decline in the variance of logs over the 2000-2010 period is due to workers without permanent employment.
The paper documents changes in the structure of earnings and earnings inequality in Russia for the period 1994–2003 using the RLMS data. The period covers few years of the transformational recession (1994–1998), the financial crisis in 1998 and the first years of economic recovery (2000–2003). A regression-based decomposition reveals that within-group inequality plays the largest, yet diminishing, role. Among the explanatory variables, the largest proportion of earnings dispersion (75%–80% of the explained level of inequality) is explained by the geographical variables and job characteristics. The decomposition results suggest that the rise in inequality after the financial crisis of 1998 is likely to be a result of the differences in the adjustment speeds across regions and industries. Employer ownership is only marginally important; however, its effect has been steadily increasing for women due to the increase in the public-private sector wage gap. Contrary to the initial expectations, the wage inequality in the public sector was different from that in the private sector: both were of a similar level and followed similar patterns of changes.
The book is based primarily on contributions made to the Asian-European Labour Forum (AELF) set up by the Friedrich-Ebert-Stiftung (FES) in 2009. The Forum convenes some 30 researchers from various Asian and European labour research institutes, labour training institutes and think tanks related to trade unions. The research questions initiated at the first Forum meeting concerned the search for policies to reduce inequality and provide equitable living and working conditions within a common need for sustainable economic and social growth. To that end, the activity of the AELF focused on elaborating national experience with minimum wage setting and trends in income inequality. In addition, the potential of trade unions and the scope of collective bargaining at national level were assessed and evaluated as were the economic policy stances of the respective governments.
AELF meetings took place in Düsseldorf (2009), Ha Long – Vietnam (2010), Oslo (2011), Seoul (2012) and Amsterdam (2013), co-organised with the FES and hosted by respectively the WSI within the Hans-Böckler-Stiftung; the Institute for Workers and Trade Unions (VGCL); the FAFO Institute for Labour and Social Research; the Research Centers of the Korean trade union confederations, FKTU and KCTU; and the Amsterdam Institute for Advanced labour Studies (AIAS) - University of Amsterdam. At the Amsterdam 2013 meeting it was agreed that the written contributions to the Forum should be edited and, together with comparative chapters on Asia and Europe, should be offered for publication and a wider audience. In keeping with the discussions at Forum meetings, the book offers a critical perspective on wage-setting institutions, collective bargaining and economic development. It focusses in particular, on the role and effectiveness of (statutory) minimum wages in the context of national trends in inequality, economic development, and social security systems. The book contains 16 country chapters comprising: eight Asian countries, namely: China, Vietnam, (South) Korea, Japan, Pakistan, India, Indonesia and Thailand, and eight European countries or country groupings, namely: France, Italy, Germany, the Netherlands, the Nordic countries, Central and Eastern Europe, the United Kingdom, and the Russian Federation. These country chapters, all written by AELF participants except for an additional contribution on China, reflect their contributions at the various meetings of the Forum but all have been updated to include the latest data available.
Chapters 1 and 10, on Asia and Europe, compare and contrast national experiences in order to highlight the overall lessons that can be drawn in a number of crucial policy areas. To this end, the authors have gone beyond a simple assessment of the impact minimum wages may have made on the prevalence of low pay at country level. Discussion and inputs to various meetings of the Forum also focused on minimum wage setting and inequality trends as well as on the relevance of a redistributive wages policy for worldwide as well as national economic recovery. This enabled the authors to explore demand- or wage-led economic recovery as an alternative to the export-led strategies currently pursued by countries such as China, Japan and Korea in Asia and notably Germany and the Netherlands in Europe. To provide important context they have also drawn upon the trends in trade union activity and collective bargaining coverage that are presented in the individual country chapters.
In light of the slow pace of recovery from the recession induced by the financial crash of 2008-09 that has characterized much of the European Union it is timely to reconsider macroeconomic policy options. The fact that fears of deflation have latterly surfaced in Europe and that the previous soaring growth rates of China and India amongst others, have also significantly weakened whilst Japan has gone into recession, all suggest that the dominant macroeconomic growth policies, whether export led or debt fuelled, are failing to support a sustainable economic recovery. At the same time, as shown in the comparative and country chapters, short-term ‘austerity’ policies have, if anything, added to rising inequality and contributed a further twist to the downward spiral of falling consumer demand. Against this context, the need for a redistribution and rebalancing of income and wage share becomes compelling not just in Europe but also in the fast growing economies elsewhere.
As with any international comparative study, it is important to acknowledge differences in levels of economic and social development, institutions of governance, culture and history. That said, the subject matter of the book, namely the enduring problems of low pay, rising inequality and inadequate economic and social policy responses, do seem to be common across all of the countries represented. Similarly, the weakening of trade union influence and the declining coverage of collective bargaining are characteristic of the last couple of decades in virtually all the countries surveyed. It is hard to avoid the conclusion that irrespective of country, the ‘workers’ voice’ has been systematically choked off and the scope for collective action increasingly constrained in the pursuit of neo-liberal economic policy. As the book shows, the results of this confluence are neither supportable from a social point of view- the failure to arrest rising inequality, nor, from an economic view point -- the very slow recovery from the 2008-09 crisis and current fears of deflation being ample testimony here.
It follows that whilst the authors acknowledge the relevance of policies limiting the surge in top incomes such as those recently emphasized by Thomas Piketty and others, the emphasis in the book is on the equally urgent need for more comprehensive demand-led macroeconomic policies. Specifically from a labour perspective, to overcome the economic crisis and reduce inequality in both Asia and Europe, such policies should be grounded on free collective bargaining and, if feasible, well-designed minimum wage-setting systems, and supported by the expansion and strengthening of social protection.
The chapter offers critical perspective on wage-setting institutions, collective bargaining and economic development. It focusses in particular, on the role and effectiveness of (statutory) minimum wages in the context of national trends in inequality, economic development, and social security systems.