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Identifying Regional Mechanisms of Wage Formation in Russia within Search and Matching Model Framework

Author: Valery A. Chereshnev, academician of the Russian Academy of Sciences, academician of the Russian Academy of Medical Science, Sr. researcher; Aleksandra V. Vasileva, Cand. Sc. (Ec.), researcher at the Center for Economic Security

Abstract: The authors analyze the dynamics of interregional wage differentials in Russia in its interrelation with the country’s social and economic development during 1990−2011. The existing theoretical approaches explaining interregional wage differentials are considered, and their applicability for an explanation of these distinctions in the Russian conditions is examined. Having employed the search and matching model to the data on the Ural Federal District the authors identified regional mechanisms of wage formation within the country. Using these findings, the authors conclude that it is necessary to invest state funds primarily into business development in backward regions of Russia.

Key words: wage differential; regional factor; mechanism of wage formation; competitive approach; efficiency wages theory; bargaining theory; search and matching model; efficiency of search for employees; bargaining power of the employer.