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Complementarity and Custom in Wage Contract Violation

Author

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  • John S. Earle

    (Upjohn Institute for Employment Research and Central European University)

  • Klara Sabirianova Peter

    (Georgia State University, CEPR, and IZA)

Abstract

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.

Suggested Citation

  • John S. Earle & Klara Sabirianova Peter, 2009. "Complementarity and Custom in Wage Contract Violation," The Review of Economics and Statistics, MIT Press, vol. 91(4), pages 832-849, November.
  • Handle: RePEc:tpr:restat:v:91:y:2009:i:4:p:832-849
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    Cited by:

    1. Polina Kozyreva & Klara Sabirianova Peter, 2015. "Economic change in Russia: Twenty years of the Russian Longitudinal Monitoring Survey," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 23(2), pages 293-298, April.
    2. Yuriy Gorodnichenko & Klara Sabirianova Peter & Dmitriy Stolyarov, 2010. "Inequality and Volatility Moderation in Russia: Evidence from Micro-Level Panel Data on Consumption and Income," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 13(1), pages 209-237, January.
    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).
    4. 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.
    5. J. David Brown & Julie L. Hotchkiss & Myriam Quispe-Agnoli, 2008. "Undocumented worker employment and firm survivability," FRB Atlanta Working Paper 2008-28, Federal Reserve Bank of Atlanta.

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    JEL classification:

    • P2 - Economic Systems - - Socialist Systems and Transition Economies

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