Centralization and regionalization of minimum wages: Evidence from Russia

Abstract

The paper investigates recent developments in the minimum wage policy in Russia. We focus on the effects of two interventions: (1) the decision of the Russian Constitutional Court of December 7, 2017 to exclude mandatory regional compensation payments and Northern allowances from the minimum wage; (2) the decision to equate the national minimum wage with the subsistence level through two hikes in early 2018. Our empirical analysis is based on the data for 2016Q1—2022Q1, covering the period before and after the interventions. The decision of the Constitutional Court introduced an additional tier of minimum wage setting. Formerly, minimum wages were regionalized in a decentralizedway via tripartite collective bargaining at the regional level. Since 2018, this approach has been supplemented with the centralized regionalization via mandatory regional coefficients. The decision to equate the minimum wage with the subsistence level also contributed to the increase in centralization as it reduced the room the social partners to set regional minima above the federal level. As a result, the regionalization via regional tripartite agreements has basically ceased to exist, although before 2018 it showed a decent ability to adapt to local conditions. Policy developments in 2017—2018 reduced the interregional variation in the bindingness and purchasingpower of minimum wages. However, it might have happened at the expense of economically weak regions. In poor regions, the ratio of the minimum wage to the average wage has exceeded 50%, which exacerbates the risks of disemployment and welfare losses in those regions.