Wage Determination and Wage Inequality Inside a Russian Firm in Late Transition: Evidence from Personnel Data - 1997 to 2002

We use personnel data from a Russian firm for the years 1997 to 2002 to study thedeterminants of wages during transition. Our findings indicate that remuneration isnot predetermined by formal rules and a stable institutionalized structure of wages,but rather that local labor market conditions have a strong impact on wage setting atthe firm level. In particular, we document that real wages fall substantially during aperiod of high inflation and worsening local labor market conditions. Relative wagedecreases are most pronounced for employees who initially earned the highest rents.The process of rent extraction leads to a strong compression of real wages and realcompensation at the firm.