Is Russia restructuring?

Abstract

This paper explores the dynamics of enterprise restructuring in Russia since 1996 using newly available firm-level data from official sources and from original individual business case studies carried out in Russia’s regions. We assess empirically how the patterns of job creation and destruction are related to various aspects of enterprise restructuring across firms in different sectors and regions, and with different ownership forms, size, vintage, and performance characteristics. Our case-study evidence - based on more than 70 business visits - suggests that job destruction has taken place, but in some sectors and regions only to a limited degree, in large part due to institutional and incentive constraints and a still-widespread “socialist” corporate culture. The case studies also indicate job creation has materialized, particularly in sectors where the import-substitution effects of the 1998 ruble devaluation have been most pronounced. This case-study evidence is complemented by analysis of data provided by Goskomstat covering approximately 128,000 enterprises across 24 industrial sectors in all of the country’s 89 regions for 1996-1999. These data suggest that in the aggregate the typical Russian firm has experienced only modest downsizing - about 12 percent - in terms of number of employees. We also find evidence of particular sectors where there has been new entry by smaller firms and exit by larger, mature businesses. Except for a lull in 1998, there has been a steady increase in the rate of job creation; at the same time, job destruction rates have been declining, with a substantial drop in the 1998-99 periods. Employment shifts between regions have steadily increased over time, but across sectors and firm ownership types, employment shifts are “u-shaped”, with a pronounced decline in 1998. Firm size is found to be statistically correlated positively) with profitability; yet restructuring through changes in net employment growth does not appear to be related statistically to profitability. This suggests that there are efficiency improvements needed in Russia’s restructuring process.