The Wage and Non-wage Costs of Displacement: Evidence from Russia

This paper is the first to analyze the costs of job loss in Russia, using unique new data
from the Russian Longitudinal Monitoring Survey over the years 2003-2008, including a
special supplement on displacement that was initiated by us. We employ fixed effects
regression models and propensity score matching techniques in order to establish the
causal effect of displacement for displaced individuals. The paper is innovative insofar as
we investigate fringe and in-kind benefits and the propensity to have an informal
employment relationship as well as a permanent contract as relevant labor market
outcomes upon displacement. We also analyze monthly earnings, hourly wages,
employment and hours worked, which are traditionally investigated in the literature.
Compared to the control group of non-displaced workers (i.e. stayers and quitters),
displaced individuals face a significant income loss following displacement, which is
mainly due to the reduction in employment and hours worked. This effect is robust to the
definition of displacement. The losses seem to be more pronounced and are especially
large for older workers with labor market experience and human capital acquired in
Soviet times and for workers with primary and secondary education. Workers displaced
from state firms experience particularly large relative losses in the short run, while such
losses for workers laid off from private firms are more persistent. Turning to the
additional non-conventional labor market outcomes, there is a loss in terms of the number
of fringe and in-kind benefits for reemployed individuals but not in terms of their value.
There is also some evidence of an increased probability of working in informal jobs if
displaced. These results point towards the importance of both firm-specific human capital
and of obsolete skills obtained under the centrally planned economy as well as to a wider
occurrence of job insecurity among displaced workers.