Staunton, July 20 – In most developed countries, the pay of workers rises with time as they acquire more experience; but according to a new study by two HSE scholars, the situation in Russia is different: there, pay declines at the end of the working lives of individuals, and “the level of pay just before pension age turns out to be no higher” at the end than when they began.
In an article in the latest issue of the Journal of Comparative Economics, Yevgeniya Chernina and Vladimir Gimpelson describe this as “the Russian puzzle” and discuss why the situation in Russia is so different (sciencedirect.com/science/article/abs/pii/S0147596723000057; discussed in Russian at iq.hse.ru/news/847424929.html).
Their explanation and the evidence they provide gives real substance to what many have assumed without the kind of proof that is usually required. The two authors say that three factors affect wages: experience, the age cohort from which one emerges, and changes over time in the economy.
In most developed economy, experience trumps the other two because the economy changes relatively slowly and consequently initial training, something captured by the cohorts of workers, has much less of an impact. But in transitional economies, those trained in the old ways find themselves falling behind those trained after the initial changes are made.
In the Russian Federation, those trained before 1991 are now at the end of their working lives. They acquired skills and habits that allowed them to succeed in the old system but not the new one. And so they are falling behind younger workers trained later. As a result, their contribution to output has declined relatively and their wages as well.
Chernina and Gimpelson conclude that under Russian conditions, the cohort effect reduces the effect of experience after workers reach the middle of their working careers. This is reflected in what they describe as “the massive aging of the human capital of workers of the older cohorts” relative to those in younger age groups.
The two say that their work is the first study to analyze the impact of experience, periodization and cohorts on wages in the Russian Federation and conclude that “the correct interpretation of the salary-experience profile lies in the age-period-cohort problem” when the three factors are mixed together.
Their work lays the foundation for addressing larger questions about attitudes among the pre-pensioner population and about tensions between age groups in the work force, tensions that may be very different than those in other countries.