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

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  • John S. Earle
  • Andrew Spicer
  • Klara Sabirianova Peter

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 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.

Suggested Citation

  • John S. Earle & Andrew Spicer & Klara Sabirianova Peter, 2004. "Community Norms and Organizational Practices: The Legitimization of Wage Arrears in Russia, 1992-1999," William Davidson Institute Working Papers Series 2004-641, William Davidson Institute at the University of Michigan.
    • Handle: RePEc:wdi:papers:2004-641
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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 of Labor Economics (IZA).

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    More about this item

    Keywords

    institutions; norms; legitimacy; arrears; organizational practices; sociology; Russia;
    All these keywords.

    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; Modern Monetary Theory;
    • 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 - Political Economy and Comparative Economic Systems - - Socialist Institutions and Their Transitions - - - Socialist Enterprises and Their Transitions
    • P37 - Political Economy and Comparative Economic Systems - - Socialist Institutions and Their Transitions - - - Legal

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