AbstractLike firms in established market economies, many Russian firms provide non‐wage benefits to their workers, such as housing, medical care or day care. This article explains the provision of benefits as a strategic choice for firms in the presence of labour and service market imperfections. Analysing unique survey data for 404 industrial establishments from 40 Russian regions, the authors provide strong evidence that non‐wage benefits are used by firms to attach workers and thereby reduce the costs of labour turnover in the face of tight labour markets. It is also shown that this attachment strategy works due to imperfections in the regional markets for social services.
In the planned economy firms were made responsible for providing their workers with social services, such as housing, day care and medical care. In the transforming Russia of the 1990s, social assets were to be transferred from industrial enterprises to the public sector. A law on divestment was put into force but it provided mostly general principles. Thus, for a period of several years, property rights over a major part of social assets, most notably housing, were not properly defined as the transfer decisions were largely left for the local level players to make. Strikingly, the time when assets were divested varied considerably across firms. In this paper we take a political economy approach and utilize recent survey data from 404 medium and large industrial enterprises in 40 Russian regions to study the effects different forms of bargaining between the firm and the municipality may have on the timing decisions. In particular, we apply survival data analysis to explore the determinants of the divestiture timing. Our results show that the firms which divested assets later receive more benefits from the local authorities, especially in places where there are more benefits to extract (i.e. the local budget is richer). Further, we find evidence that the firms which transferred assets later performed relatively worse in 2002 in terms of profitability, productivity and investments. Finally, the data shows that poorly defined property rights have an adverse effect on the incentives to invest in social assets, and hence on the quality of public service provision.
The division of tax revenues between the federal, regional and local layers of government of the Russian Federation has undergone continuous reform and thus received a lot of attention both in the public discussion and in the related research on fiscal federalism. Another important unsettled issue of property rights in the country is the absence of market for land and its implications to the tax structure. A third and often overlooked phenomenon is the participation of industrial firms in infrastructure and social service provision. Despite a massive transfer of social assets to the public sector, firms still participate in these activities to some extent, in many cases receiving benefits from the government for doing this. In earlier research, the fact that the industrial firms might still produce public goods has not received much attention. In this paper, we analyse the issue of public good production by looking at the implications of the non-existence of property rights over land and the absence of land markets through an optimal local public finance model. We first introduce the possibility that the industrial firms in a certain locality may take part in public goods provision. Second, we prove that when the land distribution is given, it may be beneficial to levy a turnover tax on the firms and redistribute (part) of the housing stock to the public sector.
The paper presents the idea and results of a joint Finnish-Russian project on economic monitoring of Northwest Russia financed by the Finnish Ministry for Foreign Affairs. The regions monitored include the Murmansk region, the Karelian Republic, the Leningrad region, St.Petersburg, the Kaliningrad and the Novgorod regions. First, in the paper, the aims and operation of the monitoring project are presented. The aim is to provide regular, comprehensive and comparable information on production and demand indicators, on foreign relations, and on public sector and social developments in the regions. The bi-annual publication is the first of its kind at this detailed level. The statistical, analytical and qualitative insights are targeted at a wide international audience. Second, the development trends in the monitored regions are reviewed. It is demonstrated that the regions are gradually and slowly recovering from the economic shock caused by the breakdown of the socialist system. Also, the regions have gone through a painful and thorough restructuring, with drastic drops in production and the share of the service sector increasing. Regional differences in restructuring are pointed out. St Petersburg and the surrounding Leningrad region have become a center of food production, with the help of strong domestic demand and relatively high foreign investment flows. The development in other industries such as electronics is promising as well. Karelia and Murmansk, in turn, have been vulnerable to the world market development of their main export products, which has reflected to the general economic development of the regions. Kaliningrad region's special status shows in the importance of foreign trade and investment. Third, the paper raises the issue of uneven regional development. Northwest Russia is characterized by a rather clear North-South divide, with the Southernmost regions winning the Northern ones by virtually all indicators. In addition to economic growth and development, this difference is seen in, for example, unemployment levels and demographic trends. The paper concludes with discussing the need for qualitative research topics to highlight the actual social processes underlying the socio-economic restructuring in Northwest Russia. Also, comprehensive micro-level quantitative analysis would greatly add to the understanding of the economic processes, as to date it has mostly based on macro-level indicators.
