Employment elasticity in Russia's regional labor markets

Employment elasticity is considered to be one of the main indicators of labor market flexibility. This indicator has been relatively low in Russia, which makes the difference between the Russian labor market and the rest of transi tion economies in Central and Eastern Europe. The reason for writing this article was the significant difference in economic development of Russian regions and the assumption that this could affect functioning of the regional labor markets. The theoretical basis for the research is provided by the equilibrium framework of local labor markets proposed by Rosen and Roback (1979, 1982) and supplemented by Moretti (2010, 2011), which explains why local labor markets are more flexible compared to the national one. Taking into account the fact that information on functioning of labor markets in Russian cities is not always available and that Russia's economy is organized more like a regional economy rather than a local one, we applied the equilibrium framework to the data for Russian regions. We tested two hypotheses: dynamics of employment in the regions depends on the level of development of the regional economy and its structure; employment elasticity measured with respect to the gross regional product (GRP) is higher in Russian regions than the national average, in other words, regional labor markets are more flexible. The study comprised two stages. At the first stage we used the method of discriminant analysis (grouping method) based on median values of indicators; at the second stage we constructed and assessed an econometric model measuring the impact of particular factors on employment in the regions. The authors used data from Rosstat, the econometric analysis was conducted on the basis of regional panel data for the period from 2006 to 2012. The results allowed us to accept the abovementioned hypotheses. It was also found that changes in the structure of regional employment influence dynamics of employment in the regions more than changes in GRP and wages.