Interregional Wage Differentials in Russia: Examining the Role of Long-term Factors

This study analyses wage differentials between Russian regions. We focus on two long-term factors shaping them: different regional economic structures and living conditions. To examine the role of these factors we use micro-data from the Rosstat’s enterprise sample surveys conducted in 2005-2015, combined with data from the aggregated regional-level statistics. By estimating mincer-type wage equations extended with regional-level variables we show that cross-regional differences in employment composition are able explain no more than one third of the total interregional variation in nominal wages. Wage compensations for relatively worse living conditions (higher price levels, colder winter, and worse environmental conditions) account for about half of the remaining variation. Both factors together explain about 60% of the total variation. These findings contribute to a better understanding of the nature of interregional wage differentials in Russia and have important implications.