Abstract
The efficiency of the labor market critically depends on the design of its institutions, including employment protection legislation. However, since formal laws can be observed to varying degrees, the actual enforcement regime shapes incentives and constraints. Most of the studies exploring the effects of employment protection on labor market performance implicitly assume that compliance is near to complete. However, if enforcement varies widely across regions/cities or segments of firms, then this variation may cause variation in performance. This paper, looking at Russia, explores whether cross-regional and inter-temporal variation in enforcement of employment protection laws is significant and is translated into regional labor market outcomes. The paper utilizes a unique data set based on State Labor Inspectorate data and Supreme Court statistics.
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Notes
A famous Russian writer (1826–1889). He also served as a vice-governor in one of the provinces of the Russian Empire.
Why this gap emerges is an intriguing issue for study, but remains largely outside the scope of this paper. Bad laws? Bad enforcement agencies? Bad culture? A mix of everything?
Another good choice for such a study is Brazil. Almeida and Carneiro (2005) explored how enforcement of labor regulation affected firm performance across Brazilian states and conclude that in areas with stricter law enforcement, firms employ a smaller amount of informal labor. But reductions in a firm's access to unregulated labor were not costless, since stricter enforcement decreased average wages, productivity, and investment. In the follow-up papers, they showed that stricter enforcement tended to increase the proportions of formal employment and to reduce income inequality at the cost of higher unemployment and lower formal wage premium. It also constrains firm size, suppressing job creation (Almeida and Carneiro, 2007, 2009).
Eamets and Masso (2004) suggest that weak enforcement is typical for all countries in transition including the Baltics, which are already in the EU.
Other areas of law enforcement in Russia have also got little scrutiny. The only study we are aware of is one of Lambert-Mogiliansky et al. (2007). They explore judicial bias in enforcement of bankruptcy regulations across Russian regions and show that such bias tends to be politically motivated, and is important in shaping performance of firms under re-organization.
So-called large and medium-sized firms comprise a special group that is more closely monitored by the regulatory and tax authorities. They are also obliged to fill out monthly statistical reports. The strict definition of these firms is quite complex but, roughly speaking, these are those employing 50+ workers.
Since these variables are routinely measured using the LFS data and correspond well to standard ILO definitions, we do not go into additional details here. (For robustness of employment and unemployment measurement in Russia, see Brown et al., 2006.)
The survey was conducted in late 2006 to early 2007.
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Acknowledgements
The paper was written as a part of the project ‘Economic and Social Consequences of Industrial Restructuring in Russia and Ukraine’ (ESCIRRU) funded by the European Commission. Financial support from the HSE Research Program is also acknowledged. The authors are very grateful to David Brown, Hartmut Lehmann, John Earle, Michael Lokshin, Stefano Scarpetta, Fabian Slonimzcyk, Nina Vishnevskaya for comments and suggestions made at various stages of the study. Special thanks go to anonymous referees whose critical comments were very helpful. Only the authors themselves are responsible for the conclusions presented and for any mistakes.
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Gimpelson, V., Kapelyushnikov, R. & Lukyanova, A. Employment Protection Legislation in Russia: Regional Enforcement and Labor Market Outcomes. Comp Econ Stud 52, 611–636 (2010). https://doi.org/10.1057/ces.2010.19
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DOI: https://doi.org/10.1057/ces.2010.19