Working Paper: CEPR ID: DP6845
Authors: Thomas J. Dohmen; Hartmut Lehmann; Mark E. Schaffer
Abstract: We use a rich personnel data set from a Russian firm for the years 1997 to 2002 to analyze how the financial crisis in 1998 and the resulting change in external labour market conditions affect the wages and the welfare of workers inside a firm. We provide evidence that large shocks to external conditions affect the firm?s personnel policies, and show that the burden of the shock is not evenly spread across the workforce. The firm takes advantage of a high-inflationary environment and of a fall in workers? outside options after the financial crisis and cuts real wages. Earnings are curbed most for those who earned the highest rents, resulting in a strong compression of real wages. The fact that real wages and real compensation levels never recovered to pre-crisis levels even though the firm?s financial situation was better in 2002 than before the crisis and the differential treatment of employee groups within the firm can be taken as evidence that market forces strongly influence the wage policies of our firm.
Keywords: firm-level wage setting; internal labour markets; personnel data; Russia
JEL Codes: J23; J31; P23
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| financial crisis (G01) | external conditions (E66) |
| external conditions (E66) | wage policies (J38) |
| financial crisis (G01) | wage policies (J38) |
| external conditions (E66) | wage cuts (J38) |
| wage cuts (J38) | differential impact on employee groups (J79) |
| market conditions (P42) | recruitment policy (J68) |
| market forces (P42) | wage policies (J38) |