Real Wage Adjustment in the Former Soviet Union
IMF Policy Discussion Papers, September 1, 1993
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Bibliographic details
- Authors: Louis Dicks-Mireaux
- Published: September 1, 1993
- Series: IMF Policy Discussion Papers
- DOI: https://doi.org/10.5089/9781451969603.003
Executive summary and context
- Since 1991, the economies of the former Soviet Union have experienced sizeable shocks that have pushed equilibrium real wages far from pre-transition levels.
- The paper sets out a framework to assess the degree of real wage adjustment needed to restore equilibrium and discusses practical problems in applying wage targets and monitoring real wage developments.
- A key policy conclusion: because the accuracy of real wage targets is inevitably suspect, observable indicators should be identified to evaluate the adequacy of actual movements in real wages and of the wage targets; rigid indexation rules should be avoided in nominal incomes policies.
- The views expressed are those of the author(s) and do not necessarily represent those of the Fund.
- This is a Paper on Policy Analysis and Assessment and the author(s) would welcome any comments on the present text. Citations should refer to a Paper on Policy Analysis and Assessment of the International Monetary Fund, mentioning the author(s) and the date of issuance.
Framework and measurement issues
- Provides a framework to assess the required degree of real wage adjustment to restore equilibrium wages after transition shocks.
- Discusses practical problems in:
- applying wage targets, and
- monitoring real wage developments.
- Emphasizes the limited accuracy of real wage targets and the need for observable indicators to evaluate both actual real wage movements and the targets themselves.
- Recommends avoiding rigid indexation rules in nominal incomes policies due to measurement uncertainty.
Key findings and policy implications
- Findings:
- Equilibrium real wages have been pushed far from pre-transition levels as a result of sizeable shocks since 1991.
- Real wage targets are inevitably of uncertain accuracy; therefore, reliance on them alone is problematic.
- Policy recommendations:
- Identify and use observable indicators to evaluate the adequacy of real wage movements and targets.
- Avoid rigid indexation rules in nominal incomes policies.
- Use the proposed framework to guide assessment of wage adjustment needs while acknowledging measurement limitations.
Subjects and keywords
- Subject: Income, Inflation, Labor, National accounts, Prices, Real wages, Wage adjustments, Wages
- Keywords: Baltics, full employment, Income, income loss, Inflation, input price shock, PDP, price, price liberalization, real product wage, Real wages, terms of trade estimate, terms-of-trade deterioration, Wage adjustments, wage-price dynamics, Wages