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Interaction of Internal and External Labor Markets

Priority areas of development: economics
2014
The project has been carried out as part of the HSE Program of Fundamental Studies.

Goal of the project: Determination of  impact of Russian companies  human resources (HR) policy on the labour market from the perspectives of  companies and group of employees heterogeneity.

Methodology: Implementing a microeconomic analysis of Russian companies HR policy in consideration of labour demand and labour supply on four main topics:

  1. Employment protection, labour market flexibility, and job creation.
  2. Job mobility and return on mobility.
  3. On-the-job training and return on human capital.
  4. Position and mobility of the particular groups of employees on Russian labour market (young workers, industrial workers, and senior managers).

Empirical analysis was based on up-to-date econometric models including OLS regressions, probit and logit models (probit, biprobit, mprobit), simultaneous equations models (2sls, reg3), panel regressions with fixed and random effects, difference in differences models.

In addition, Duncan index and Hutchinson index were used to estimate segregation. Blinder-Oaxaca decomposition technique was implemented to evaluate migrant-native workers wage gap. Analysis of job and income mobility was based on matrix of transition, Shorrocks index, and Fields- Ok index.

Empirical base of the research includes:

  1. World Bank Enterprise Surveys (WBES, 2005-2011), approximately 50000 companies from 93 countries.
  2. Original enterprise survey on interaction of internal and external labor markets (2009-2014). The survey is representative for Russia, 1000-2000 companies annually.
  3. Russia Longitudinal Monitoring Survey - Higher School of Economics (RLMS-HSE)[1] (2002-2012) and Russian State Statistic Service data.
  4. Original database of 355 largest Russian companies (by annual revenue), based on Spark-Interfax database, Bureau Van Dijk Ruslana database, corporate web-sites, companies annual reports.

Results of the research.

The analysis of factors that have influence on employment protection legislation (EPL)  costs for employers displays the higher employment protection costs for large enterprises in private domestic ownership and firms which are more covered by enforcement of regulations. The obtained results show that the costs are positively associated with the country’s level of economic development and the relative minimum wage rate, and negatively with the rigidity of working hours, difficulty of firing and socialist legal system.

Further liberalization of EPL can decrease costs for employers but weaken protection of several groups of workers i.e ones that have non-standard employment contracts. In addition, applying of the non-standard employment contracts by enterprises has not only positive, but also negative consequences on Russian labour market. On the one hand, it increases employees’ mobility and make labour market more flexible and dynamic. On the other hand, it decreases permanent jobs creation and cuts creative job destruction-creation process. Russian companies apply non-standard employment contracts like “shock absorber” mechanism for employment protection.

At the same time, flexibility of Russian labour market coexists with low job creation. Therefore workers with non-standard employment contracts have low opportunities to get permanent employment contract. Flexibility of Russian labour market also reveals itself in a growing number of foreign workers with temporal employment contracts. This process leads to segregation and wage differences between native and foreign workers. According to the findings, the occupation segregation on the Russian labor market is quite low compare with the European countrie’s labor markets. The individual socio-economic characteristics play more crucial role in the difference in the wages between foreign in native workers than occupational distribution.

The authors also find that grows of the labor mobility leads to decreasing of the job satisfaction among workers during several time periods. The job satisfaction in 2002-2006 years constantly increased for stable and mobile workers, compared with  2008-2010 years when  mobile workers began to lag behind stable workers.

On the job training can be good alternative for external hiring for companies. However companies become less inclined to invest in employee’s trainings in a situation of high labor mobility in Russia. The obtained results show that the level of investment in additional training in Russia is much lower than in developed countries.

Human capital investments are important for both companies and employees, especially at early career stages. Meanwhile age negatively correlates with the labor mobility considering wage, and the large part of  Russian graduate students (65%) prefers to combine education with work.  The choice of combination study process with work is determined not only by heterogeneity in student’s individual characteristics (abilities), but also by demands from the companies  for the employees with work experience.

Study shows that Russian companies adopt a different policy for blue and white collars. Then, as a consequence of this corporate policy, Russian blue collars are included to the circumference of Russian labor market. This group of workers have a lower level of education, lack of additional skills, poor health, and with higher probability they have a bad habits such as smoking, alcoholism. They also influence the fear of job losses, low job satisfaction and mistrust to it its chefs.

In contrast, the analysis of the white collars labor market shows worse financial results of firms increase the probability of CEO dismissal. That can be treated as an evidence of good corporate governance that punish poor performed CEOs. Contrariwise, many state controlled companies that prefer to promote internal CEOs don’t show signs of good corporate governance.

Level of implementation, recommendations on implementation or outcomes of the implementation of the results

The results of this project were published in journals and collected articles (11 articles and 6 discussion papers), were discussed on the seminars and conferences in Russia and abroad, were used as educational materials.

Findings of this study are important for policy developing in the framework of employment and industrial policy by Russian federal and regional authorities.  

Results can be considered by the Ministry of labour and social protection (Mintrud) for improving the adopted policy on the issues of “Population employment” and “Labor relations policy”. Particularly for designing state policy in term of supporting less protected young workers and senior citizens during the crisis, improving labour relations regulation for certain groups of native workers and  migrants. In addition, these results can be examined by the Ministry of Industry and Trade (Minpromtorg) and  the Ministry of Economic Development (Ministry of Economics) for monitoring, analysing, and developing new socio-economic policy program in order to  create stimulus for industry development, growth of entrepreneurship, productivity increase. The results of the study that dedicated to young workers mobility, school-to-work transition, student’s employment can be used by the Ministry of Education and Science for developing youth policy and higher education development .


[1] The RLMS-HSE is conducted by the National Research University Higher School of Economics and ZAO “Demoscope” together with Carolina Population Center, University of North Carolina at Chapel Hill, and the Institute of Sociology RAS (more at http://www.hse.ru/en/rlms/).

Publications:


Travkin Pavel. The Returns to Training in Russia: A Difference-in-Differences Analysis / NRU Higher School of Economics. Series WP BRP "Economics/EC". 2014. No. 56.
Травкин П. В. Вовлеченность сотрудников в программы дополнительного профессионального обучения в России // Вестник Воронежского государственного университета. Серия: Экономика и управление. 2014. № 2. С. 33-41.
Smirnykh L. I. Fixed-term contracts, flexibility and employment adjustment: empirical evidence from Russian establishment data, in: Системное моделирование социально-экономических процессов: труды 37-ой Международной научной школы-семинара, г. Сочи, 30 сентября - 5 октября 2014 г. / Под общ. ред.: В. Г. Гребенников, И. Н. Щепина. Воронеж : Воронежский государственный педагогический университет, 2014.
Смирных Л. И. Срочные трудовые договоры, создание рабочих мест и занятость: результаты исследования российских предприятий // В кн.: Современный менеджмент: проблемы, гипотезы, исследования. Вып.7 [Электронный ресурс]: Сборник научных трудов / Сост.: Е. В. Филипская; науч. ред.: И. О. Волкова. Вып. 7. М. : Издательский дом НИУ ВШЭ, 2016. С. 224-233.
Смирных Л. И. Срочные трудовые договоры: движение вперёд или бег на месте? // Вестник Воронежского государственного университета. Серия: Экономика и управление. 2014. № 4. С. 25-33.
Smirnykh L. I. Agency Work in Russia: To Be or Not to Be? / Пер. с рус. // Problems of Economic Transition. 2014. Vol. 57. No. 2. P. 56-79.