Marshall and labor demand in Russia: Going back to basics

Using a unique data set of medium and large enterprises (MLEs), which covers four Russian regions and the three sectors of manufacturing and mining, construction, and trade and distribution, we estimate fixed-effects specifications of static labor demand equations for the year 1997. The most important conclusion that can be drawn is that, even though labor demand is relatively inelastic in international perspective, six years into transition Russian MLEs are responsive to wage changes in their employment decisions. A second interesting finding shows that there are distinct differences in the behavior of state-owned enterprises, which exhibit a weaker wage employment trade-off than do privatized and partially privatized firms. Looking at the entire sample and various subsamples, we also try to relate the estimated wage elasticities to the empirical evidence on three of Marshall's rules of derived demand. Our results show that investigating empirically these rules seems a promising avenue for establishing some of the driving forces behind labor demand in Russia. J. Comp. Econ., March 2002, 30(1), pp. 134-159. Leuven Institute for Central and East European Studies (LICOS), Center for Transition Economics, Catholic University of Leuven, Belgium; Center for Economic Policy Research, London, United Kingdom; and Institute for the Study of Labor (IZA), Bonn, Germany; and Heriot-Watt University, Edinburgh, United Kingdom; Institute for the Study of Labor (IZA), Bonn, Germany; and William Davidson Institute, Ann Arbor, Michigan. © 2002 Elsevier Science (USA).