Labor Market Uncertainty and Private Sector Labor Supply in Russia

Commissioned as the William Davidson Institute Working Paper 359.

The development of a vibrant private sector has been one of the key failures of the transitional period in Russia.

This paper develops a theoretical and empirical model of individual labor supply behavior under uncertainty, and estimates this model using data from the Russian Longitudinal Monitoring Survey for the years 1994 - 1996 & 1998.

As hypothesized, a decrease in private sector earnings variability is estimated to increase the likelihood of private sector employment for individuals with constrained consumption smoothing ability. Evidence of ex-ante intra-household risk sharing is also found with individuals reducing their exposure to uncertainty by diversifying the portfolio of jobs held by their household.