Transition to postindustrial society: a study of the service sector employment in Russia

Pre-reform employment structures in formerly socialist economies had disproportionately large shares of employment in agriculture, mining, and manufacturing. Services, in particular trade and business, were underdeveloped because of public instead of private provisions. Even social services including health, education, and public administration employed fewer people than in market economies.

In the long run the structure of employment in transition countries is expected to become more or less the same as that of advanced market economies. Hence, large-scale reallocation of labor across broad industrial sectors is one of the fundamental objectives of economic restructuring.

The paper analyzes the process of reallocation of labor from agriculture and industry to the services sector during transition. The author uses the Baumol-Fuchs model of the service sector expansion to estimate underdevelopment of services in Russia prior to the transition and measure the progress in catching-up that has taken place. The analysis was based on the Russian Longitudinal Monitoring Survey (RLMS 1994-2000).

The key findings of the paper are:

• the Russian service sector is currently employing at least as many workers as the two major sectors – industry and agriculture – altogether
• the services sector was the only one experiencing absolute growth of employment during the transition period
• at different levels of economic development, service employment adheres to different rules
• the probability of finding a new job in services is higher for those employed in urban areas and for those who have experience in services
• jobs in services are less attractive for workers at higher tenure levels and for those currently employed in large firms
• restructuring within the services sector itself will be a task for policy-makers in coming years

The author concludes that rapid reallocation of labor towards the services sector is only possible if mediated by intensive labor mobility. Empirical analysis based on the household survey data showed that despite the overall rise in labor mobility, most job-to-job movers moved within sectors, not across sectors. Thus, sectoral variation in the difference between withdrawal from and entrance to the labor force is the main explanation for changing distribution of labor.