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

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  • Earle, John S.

    () (George Mason University)

  • Spicer, Andrew

    () (University of California, Riverside)

  • Peter, Klara Sabirianova

    () (University of North Carolina, Chapel Hill)

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.

Suggested Citation

  • Earle, John S. & Spicer, Andrew & Peter, Klara Sabirianova, 2004. "Community Norms and Organizational Practices: The Legitimization of Wage Arrears in Russia, 1992-1999," IZA Discussion Papers 1006, Institute for the Study of Labor (IZA).
  • Handle: RePEc:iza:izadps:dp1006
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    References listed on IDEAS

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    1. Richard Layard & Andrea Richter, 1995. "How much unemployment is needed for restructing: the Russian experience," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 3(1), pages 39-58, March.
    2. John S. Earle & Klara Z. Sabirianova, 2002. "How Late to Pay? Understanding Wage Arrears in Russia," Journal of Labor Economics, University of Chicago Press, vol. 20(3), pages 661-707, July.
    3. North, Douglass C, 1994. "Economic Performance through Time," American Economic Review, American Economic Association, vol. 84(3), pages 359-368, June.
    4. Poirier, Dale J., 1991. "Editor's introduction," Journal of Econometrics, Elsevier, vol. 49(1-2), pages 1-4.
    5. Farber, Henry S, 1994. "The Analysis of Interfirm Worker Mobility," Journal of Labor Economics, University of Chicago Press, vol. 12(4), pages 554-593, October.
    6. Lehmann, Hartmut & Wadsworth, Jonathan & Acquisti, Alessandro, 1999. "Grime and Punishment: Job Insecurity and Wage Arrears in the Russian Federation," Journal of Comparative Economics, Elsevier, vol. 27(4), pages 595-617, December.
    7. Robert H. Topel & Michael P. Ward, 1992. "Job Mobility and the Careers of Young Men," The Quarterly Journal of Economics, Oxford University Press, vol. 107(2), pages 439-479.
    8. 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.
    9. 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).
    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. Pencavel, John H, 1972. "Wages, Specific Training, and Labor Turnover in US Manufacturing Industries," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 13(1), pages 53-64, February.
    12. Farber, Henry S., 1999. "Mobility and stability: The dynamics of job change in labor markets," Handbook of Labor Economics,in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 37, pages 2439-2483 Elsevier.
    13. Frank, Robert H., 1993. "Choosing the Right Pond: Human Behavior and the Quest for Status," OUP Catalogue, Oxford University Press, number 9780195049459.
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    Cited by:

    1. 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).

    More about this item

    Keywords

    organizational practices; Russia; arrears; sociology; institutions; legitimacy; norms;

    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 - - - Historical; 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, Innovation, 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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