How Late to Pay? Understanding Wage Arrears in Russia

Authors

John S. Earle, W.E. Upjohn Institute for Employment ResearchFollow
Klara Sabirianova Peter, William Davidson Institute

Series

Upjohn Institute Working Paper No. 02-77

**Published Version**

In Journal of Labor Economics 20(3): 661-707

DOI

10.17848/wp02-77

Issue Date

Revised March 2002

Abstract

We organize an empirical analysis of Russian wage arrears around hypotheses concerning factors that create incentives for firms to pay late and for workers to tolerate late payment, both reinforced by a prevalent environment of overdue wages. Our analysis draws upon nationally representative household panel data matched with employer data to show substantial interfirm variation with the probability of arrears positively related to firm age, size, state ownership, and declining performance. Estimation of a constrained multinomial logit model also reveals intrafirm, variation related to job tenure and small shareholdings in the firm. Workers tend to have higher arrears in rural regions with low hiring rates, concentrated labor markets, and more prevalent arrears in the past. We argue that wage arrears, unlike wage cuts, have a theoretically ambiguous effect on workers' quit behavior, and we show empirically that the effect varies negatively with the extent of the practice in the local labor market.

Sponsorship

Funding for data collection provided by the MacArthur Foundation, the Ruben Rausing Fund, and the William Davidson Institute; research support from the Technical Assistance for the Commonwealth of Independent States Action for Cooperation in Economics (TACIS ACE) Project T95-4115R of the European Commission.

Subject Areas

LABOR MARKET ISSUES; Wages, health insurance and other benefits; INTERNATIONAL ISSUES; International labor comparisons; Transition economies