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 nonpayment 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.
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Length: 53 pages Date of creation: 01 Jan 2004 Date of revision: Handle: RePEc:wdi:papers:2004-641
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Find related papers by JEL classification: A12 - General Economics and Teaching - - General Economics - - - Relation of Economics to Other Disciplines A14 - General Economics and Teaching - - General Economics - - - Sociology of Economics B52 - Schools of Economic Thought and Methodology - - Current Heterodox Approaches - - - Institutional; Evolutionary J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation O17 - Economic Development, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements P31 - Economic Systems - - Socialist Institutions and Their Transitions - - - Socialist Enterprises and Their Transitions P37 - Economic Systems - - Socialist Institutions and Their Transitions - - - Legal
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