Russia’s Peculiar Labor Market and the Fear of Social Explosion

Abstract

This chapter examines how and why Russia adapted to capitalism and deindustrialization through a labor market that avoided mass unemployment, relying instead on extremely flexible wages, and why that system has persisted through subsequent cycles of boom and bust. There are several explanations for the rise of what became known as Russia's labor market model: the legacy of socialist paternalism and the mentality of the working unit as a “labor collective”; the incentives privatization created for managers and new owners; the motivations of regional leaders as they sought to survive the crisis; and above all, the fear of many of a possible social explosion as Russia suffered through an economic decline worse than the Great Depression. While an explosion was avoided, Russia did experience a substantial strike wave, stemming in large part from a crisis of wage arrears. Deindustrialization did indeed take place but without mass unemployment or the closure of most large industrial enterprises. Almost as surprising was the persistence of Russia's model of labor market adjustment into the 2000s. This coincided with a more statist economic approach of the new Russian government.