Do wages grow with experience? Deciphering the Russian puzzle

Journal of Comparative Economics. 2023. Vol. 51. No. 2. P. 545–563.

Eugenia Chernina, Gimpelson V.

In all available cross-sectional data, the trajectory of the observed wage–experience profile of
Russian workers is flat, peaks early, and declines sharply afterwards. This shape looks puzzling
since it differs starkly from that observed in both developed and developing countries. We show
that a proper interpretation of the wage–experience profile is hindered by the age-period-cohort
problem, when the effects of time, cohort, and experience on the wage growth are mixed. Our
study uses survey data from Russia covering the years 2000–2019. Relying on human capital
theory, we disentangle the experience, period and cohort effects. With certain assumptions
concerning human capital depreciation due to aging, our results show that Russian wages do grow
monotonically with experience. However, this growth after mid-career is offset by the cohort
effect that proceeds in the opposite direction, thus reflecting massive obsolescence of the human
capital of workers from older cohorts. Meanwhile, the time effect mirrors the general GDP path as
well as all booms and busts over the period.

Keywords: Russia, wages, experience, human capital, wage-experience profile

Publication based on the results of: Crisis Adjustment in the Labor Market: Structural Changes and Institutional Mechanisms (2023)