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A Neoclassical Theory Of Wage Arrears In Transition Economies

  • Lilia Maliar

    ()

    (Universidad de Alicante)

  • Serguei Maliar

    (Universidad de Alicante)

The paper proposes a theory of the wage arrears phenomenon in transition economies. We build on the standard one-sector neoclassical growth model. The neoclassical firms in transition make losses and use wage arrears as the survival strategy. At the agents' level, the randomness in the timing and extent of wage payments act as idiosyncratic shocks to earnings. We calibrate the model to reproduce evidence from the Ukrainian data and assess its quantitative implications. We find that wage arrears imply substantial social costs such as the consumption loss of 8% - 16% and the welfare loss from idiosyncratic uncertainty, equivalent to an additional consumption loss of 1% - 6%.

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File URL: http://www.ivie.es/downloads/docs/wpasad/wpasad-2003-15.pdf
File Function: Fisrt version / Primera version, 2003
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Paper provided by Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie) in its series Working Papers. Serie AD with number 2003-15.

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Length: 27 pages
Date of creation: Apr 2003
Date of revision:
Publication status: Published by Ivie
Handle: RePEc:ivi:wpasad:2003-15
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  1. Huggett, Mark, 1993. "The risk-free rate in heterogeneous-agent incomplete-insurance economies," Journal of Economic Dynamics and Control, Elsevier, vol. 17(5-6), pages 953-969.
  2. Hartmut Lehmann & Jonathan Wadsworth, 2002. "Wage Arrears and the Distribution of Earnings in Russia," CERT Discussion Papers 0202, Centre for Economic Reform and Transformation, Heriot Watt University.
  3. G. Alfandari & M.E. Schaffer, 1996. ""Arrears" in the Russian Enterprise Sector," CERT Discussion Papers 9608, Centre for Economic Reform and Transformation, Heriot Watt University.
  4. Per Krusell & Anthony A. Smith & Jr., 1998. "Income and Wealth Heterogeneity in the Macroeconomy," Journal of Political Economy, University of Chicago Press, vol. 106(5), pages 867-896, October.
  5. John S. Earle & Klara Z. Sabirianova, 2002. "How Late to Pay? Understanding Wage Arrears in Russia," Upjohn Working Papers and Journal Articles 02-77, W.E. Upjohn Institute for Employment Research.
  6. Jose-Victor Rios-Rull, 1997. "Computation of equilibria in heterogeneous agent models," Staff Report 231, Federal Reserve Bank of Minneapolis.
  7. Richard Layard & Ansgar Richter, 1995. "How Much Unemployment is Needed for Restructuring?: The Russian Experience," CEP Discussion Papers dp0238, Centre for Economic Performance, LSE.
  8. Christopher J. Gerry & Byung-Yeon Kim & Carmen A. Li, 2001. "The Gender Wage Gap and Wage Arrears in Russia: Evidence from the RLMS," Economics Discussion Papers 533, University of Essex, Department of Economics.
  9. S. Rao Aiyagari, 1993. "Uninsured idiosyncratic risk and aggregate saving," Working Papers 502, Federal Reserve Bank of Minneapolis.
  10. Lehmann, Hartmut & Wadsworth, Jonathan & Acquisti, Alessandro, 1999. "Grime and Punishment: Insecurity and Wage Arrears in the Russian Federation," IZA Discussion Papers 65, Institute for the Study of Labor (IZA).
  11. Earle, John S. & Peter, Klara Sabirianova, 2000. "Equilibrium Wage Arrears: A Theoretical and Empirical Analysis of Institutional Lock-In," IZA Discussion Papers 196, Institute for the Study of Labor (IZA).
  12. Huggett, Mark, 1997. "The one-sector growth model with idiosyncratic shocks: Steady states and dynamics," Journal of Monetary Economics, Elsevier, vol. 39(3), pages 385-403, August.
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