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Complementarity and Custom in Wage Contract Violation

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We present and estimate a model with strategic complementarities in firms' choices of on-time or delayed wage payment. Linked employer-employee panel data from Russia facilitate identification of the endogenous interactions through fixed effects for firms, workers, and local labor markets, and instrumental variables based on policy interventions. The estimated reaction function displays strongly positive neighborhood effects, and the estimated feedback loops-worker quits, effort, strikes, and legal penalties-imply that costs of wage delays are attenuated by neighborhood arrears. We also study a nonlinear case with two stable symmetric equilibria: a punctual payment and a late payment equilibrium. Copyright by the President and Fellows of Harvard College and the Massachusetts Institute of Technology.

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Paper provided by W.E. Upjohn Institute for Employment Research in its series Upjohn Working Papers and Journal Articles with number jse20092.

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Handle: RePEc:upj:weupjo:jse20092

Note: Appears in The Review of Economics and Statistics 91(4): 832-849
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Keywords: transition economies; privatisation; wages; contact violation;

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Cited by:
  1. Yuriy Gorodnichenko & Klara Sabirianova Peter & Dmitriy Stolyarov, 2009. "Inequality and Volatility Moderation in Russia: Evidence from Micro-Level Panel Data on Consumption and Income," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper0905, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
  2. Morris M. Kleiner & David Weil, 2010. "Evaluating the Effectiveness of National Labor Relations Act Remedies: Analysis and Comparison with Other Workplace Penalty Policies," NBER Working Papers 16626, National Bureau of Economic Research, Inc.
  3. Danzer, Alexander M., 2011. "Labor Supply and Consumption Smoothing When Income Shocks Are Non-Insurable," IZA Discussion Papers 5499, Institute for the Study of Labor (IZA).

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