The Transition in Russia: Successes (Privatization, Low Unemployment...) and Failures (Mafias, Liquidity Constraints...). A Theoretical Analysis

The paper analyses the transition in Russia through a theoretical model in which job-to-job mobility plays a crucial role. It shows that job-to-job mobility is a key factor preventing a discontinuous break in unemployment and insulating wages in declining sectors from aggregate disequilibria. In the case where the mafia can impose a tax on entry, it shows that a range of inefficient sectors can be kept indefinitely alive. In this case the spectrum of wages remains wide and will never reach perfect equalization as promised by laissez-faire.