Essays on labour markets in Russia and Eastern Europe
This thesis is concerned with various aspects of transitional labour reallocation either between different labour market states, or between less and more efficient enterprises, or between formal and informal sectors. The possibility of irregular employment opportunities receives special attention in this work. The substantive material is arranged in three independent essays. The first, empirical study portrays the most important trends in labour reallocation in Russia, and presents analyses of two types. First, transition probabilities are studied, and some determinants of worker flows are identified using a multinomial logit modelling. Second, a survival analysis of the non-employed is conducted to reveal possible causes of growing stagnancy of unemployment and inactivity. The findings are contrasted with the stylised theory of labour reallocation in transition (Aghion and Blanchard, 1994). The directions in which theoretical modifications should be attempted in future research are suggested. The second and the third essays draw upon some of these suggestions and are aimed at making a contribution on the theoretical front. The second essay puts forward a development of the seminal model of transition from planned to market economy by Aghion and Blanchard (1994). We introduce an informal sector to show that its presence can generate the dynamics qualitatively different from the types considered in the previous literature on the topic. It is argued that convergence to qualitatively different steady states can help explain varying transitional experiences of East European countries and the former Soviet Union republics. Attention is drawn to policy implications of the model, in particular to the creation of conditions favourable for the development of the new private sector as opposed to informal private initiative. Finally, the third essay takes the issue of coexistence of formal and informal sectors in transition further to see if such duality is possible in the long run, and to discuss the role of the government in creating preconditions for it. The study draws on the standard framework of Pissarides (2000) of search in the labour market. It demonstrates that a long-run equilibrium with both formal and informal economies is possible under very mild assumptions. It is also shown that labour market imperfections can create a situation when reduction in informality may be detrimental to economic welfare. Although the foci of the essays differ, the issues raised therein are closely knit so that many threads can be drawn together. In the concluding chapter we discuss the main areas to which this thesis contributes, summarise the main findings, and make some suggestions for future research.