Community Norms and Organizational Practices: The Legitimization of Wage Arrears in Russia, 1992-1999

Authors

John S. Earle, W.E. Upjohn Institute for Employment ResearchFollow
Andrew Spicer, University of California, Riverside
Klara Sabirianova Peter, William Davidson Institute

Series

Upjohn Institute Working Paper No. 03-97

DOI

10.17848/wp03-97

Issue Date

December 2003

Abstract

What role do community norms play in the diffusion and persistence of new organizational practices? We explore this question through an examination of the widespread practice of wage arrears, the late and non-payment of wages, in Russia during the 1990s. Existing research on wage arrears most often examines this practice as a means of flexible wage adjustment under difficult economic conditions. We develop an alternative theory that explains wage arrears through their acceptance as a legitimate form of organizational behavior within local communities. Our empirical analysis finds some support for the neoclassical position that wage arrears reflect adjustment to negative shocks, but this perspective fails to account for a number of important facts, including a high level of arrears among apparently successful firms. In contrast, our results find strong support for the institutional perspective. The statistical analysis demonstrates powerful and robust community effects both in firm adoption of this practice, controlling for firm performance, liquidity, and fixed firm effects, and in workers' reaction to arrears, through their quit (exit) and strike (voice) behavior.

Sponsorship

Support for data collection from Technical Assistance for the Commonwealth of Independent States Action for Cooperation in Economics (TACIS ACE), MacArthur Foundation, Ruben Rausing Fund, Ford Foundation, and the Central European University (CEU) Research Board.

Subject Areas

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