Skip to main content
Article thumbnail
Location of Repository

Equilibrium Wage Arrears: A theoretical and empirical analysis of institutional lock-in

By John S. Earle and Klara Z. Sabirianova


We present a model of managerial choice of wage delays that implies a possibility of multiple equilibria in the level of arrears. Positive feedback arises because each employer's wage arrears choice has externalities for other employers by affecting worker quit, effort and protest behavior and the probability of legal penalties. We study the case of three equilibria, distinguishing two that are stable - the "punctual payment equilibrium" and the "late payment equilibrium" - and one unstable "critical mass equilibrium," a threshold of arrears in the local labor market beyond which even profitable firms may adopt the practice. Our econometric analysis of linked employer-employee data for Russia provides evidence that workers' responses to wage delays are attenuated by local labor market arrears, that the wage arrears reaction function exhibits positive feedback, and that the theoretical conditions for multiple equilibria under symmetric local labor market competition are satisfied empirically in 1995 and 1998. Simulation results imply clustering of regions around two stable levels of arrears, with the late payment equilibrium characterized by six months overdue wages for a typical worker in 1995 and nine months in 1998

Year: 2000
OAI identifier:

Suggested articles


  1. (1980). A Theory of Social Custom,
  2. (1997). Bank Privatization in Poland: The Case of Bank Slaski,” Jeffery Abarbaness and doi
  3. (1997). Bank Privatization in Post-Communist Russia: The Case of Zhilsotsbank,” Jeffery Abarbanell and Anna Meyendorff Aug. doi
  4. (1997). Bank Privatization in Transitional Economies,” Roger Kormendi doi
  5. (2000). Beyond Rosenstein-Rodan: The Modern Theory of Underdevelopment Traps,"
  6. (1985). Clio and the
  7. (1989). Competing Technologies, Increasing Returns, and Lock-in by Historical Events,” Economic Journal,
  8. (1993). Contract Enforceability and Economic Institutions in Early Trade: the Maghribi Traders' Coalition,"
  9. (1995). Contract Enforcement Institutions: Historical Perspective and Current Status in Russia,"
  10. (1988). Coordinating Coordinating Failures in Keynsian Models,"
  11. (1999). Coordinating Regime Switches,"
  12. (1994). Coordination, Commitment, and Enforcement: The Case of the Merchant Guild,"
  13. (1995). Corruption and Growth,”
  14. (1997). Council on Foreign Relations
  15. (1997). Cultural Encounters and Claims to Expertise in Postcommunist Capitalism
  16. (1998). Davidson Institute Working Papers are available at:
  17. (1996). Davidson Institute Working Papers are available at: No. 12 Published in:
  18. (1998). Davidson Institute Working Papers are available at: No. 143 Published in:
  19. (1998). Davidson Institute Working Papers are available at: No. 213 Published in:
  20. (1997). Davidson Institute Working Papers are available at: No. 63: How Taxing Is Corruption on International Investors? Shang-Jin Wei Feb.
  21. (1997). Davidson Institute Working Papers are available at: No. 89: The Economic Determinants of Internal Migration Flows in Russia During Transition Annette N. Brown
  22. (1996). Equilibrium: Empirical Estimates,
  23. (1992). Evolution in Economics and in the Economic Reform of the Centrally Planned Economies.”
  24. (1999). Grime and Punishment: Job Insecurity and Wage Arrears in the Russian Federation,"
  25. (1995). How Much Unemployment is Needed for Restructuring: The Russian Experience,” Economics of Transition, III
  26. (1997). Incentives, Scale Economies, and Organizational Form Eric Maskin, Yingyi Qian, and Chenggang Xu
  27. (1989). Industrialization and the Big Push,"
  28. (1999). Interfirm Relationship and Informal Credit in Vietnam,"
  29. (1997). Internal Migration in Russia During the Economic Transition,"
  30. (1982). Labor Contracts as Partial Gift Exchange,"
  31. (1998). Learning from the Behavior of Others: Conformity,
  32. (1994). Magnitude and Persistence of Wage Arrears (Household Survey, RLMS) Expected Probability and Magnitude of Wage Arrears
  33. (1995). Migration and the Quasi-Labor Market in Russia,"
  34. (1988). Multiple Expectational Equilibria under Monopolistic Competition,"
  35. (1997). No. 102: Social Networks in Transition Lorena
  36. (1998). No. 105: Getting Behind the East-West [German] Wage Differential: Theory and Evidence Michael Burda and Christoph Schmidt
  37. (1997). No. 107: The Worker-Firm Matching in the Transition: (Why) Are the Czechs More Successful Than Others? Daniel Münich, Jan Svejnar,
  38. (1997). No. 109 Published in: Industrial and Labor Relations Review, “Markets for Communist Human Capital: Returns to Education and Experience
  39. (1997). No. 124: Financial Discipline in the Enterprise Sector in Transition Countries: How Does China Compare? Shumei Gao
  40. (1998). No. 127: Accounting for Growth in Post-Soviet Russia Daniel Berkowitz and
  41. (1998). No. 129: Restructuring Investment in Transition: A Model of the Enterprise Decision Richard E. Ericson
  42. (1998). No. 142: Industrial Policy and Poverty in Transition Economies: Two Steps Forward or One
  43. (1998). No. 149: Commitment, Versatility and Balance: Determinants of Work Time Standards and Norms in a Multi-Country Study of Software Engineers Leslie Perlow and Ron Fortgang Apr.
  44. (1998). No. 151: Labor Productivity in Transition: A Regional Analysis of Russian Industry Susan
  45. (1997). No. 154: The Model and the Reality: Assessment of Vietnamese SOE Reform—Implementation at the Firm Level Edmund Malesky, Vu Thanh Hung, Vu Thi Dieu Anh, and Nancy K.
  46. (1998). No. 155 Published in: Oxford Review of Economic Policy, “From Theory into Practice? Restructuring and Dynamism in
  47. (1996). No. 16: Banks in Transition—Investment Opportunities in Central Europe and Russia, Edited Transcript from 31
  48. (1998). No. 164: Finance and Investment in Transition: Czech Enterprises, 1993-1994 Ronald Anderson and Chantal Kegels Sept.
  49. (1998). No. 169 Published in: American Economic Review, “Unemployment and the Social Safety Net during Transitions to a Market Economy: Evidence from
  50. (1998). No. 170: Published in:
  51. (1998). No. 176: Chronic Moderate Inflation in Transition: The Tale of Hungary János Vincze
  52. (1998). No. 186: Performance of Czech Companies by Ownership Structure Andrew Weiss and Georgiy Nikitin
  53. (1997). No. 189: Published in:
  54. (1998). No. 206: Why Do People Work If They Are Not Paid? An Example from Eastern Europe. Forthcoming in Managing Organizational Change in Transition Economies.
  55. (1998). No. 208: A Cultural Analysis of Homosocial Reproduction and Contesting Claims to Competence in Transitional Firms Michael
  56. (1998). No. 212: The Marketing System in Bulgarian Livestock Production – The Present State and Evolutionary Processes During the Period of Economic Transition Yordan Staykov,
  57. (1998). No. 215 Published in:
  58. (1999). No. 216 Published in: doi
  59. (1999). No. 226: Unemployment Benefit Entitlement and Training Effects in Poland during Transition
  60. (1998). No. 237: Analysis of Entrepreneurial Attitudes in
  61. (1997). No. 27: East-West Joint Ventures in a Transitional Economy: The Case of Slovakia Sonia Ferencikova
  62. (1999). No. 270: Tests for Efficient Financial Intermediation with Application to
  63. (1999). No. 274: Transition with Labour Supply Tito Boeri Dec.
  64. (1997). No. 28: Published in:
  65. (2000). No. 311 Subsidized Jobs for Unemployed Workers in
  66. (1998). No. 32: What Can North Korea Learn from China’s Market Reforms?
  67. (1997). No. 36: Restructuring an Industry During Transition: A Two-Period Model Richard Ericson
  68. (1997). No. 39: Privatization and Managerial Efficiency Olivier Debande and Guido Friebel
  69. (1997). No. 41: Published in: Economics of Transition, “Labour Market Characteristics and Profitability: Econometric Analysis of Hungarian Exporting Firms,
  70. (1999). No. 43: Agency in Project Screening and Termination Decisions: Why Is Good Money Thrown After Bad? Chong-en Bai and Yijiang Wang
  71. (1997). No. 56: Taxes and Government Incentives: Eastern Europe vs.
  72. (1997). No. 60a: Enterprise Investment During the Transition: Evidence from Czech Panel Data Lubomír Lizal and Jan Svejnar Dec.
  73. (1997). No. 64: Published in:
  74. (1998). No. 76: China’s Emerging Market for Property Rights: Theoretical and Empirical
  75. (1997). No. 81: Determinants of Unemployment Duration in Russia Mark C. Foley Aug.
  76. (1996). No. 9: Corporate Debt Crisis and Bankruptcy Law During the Transition: The Case of China
  77. (1997). No. 94: Pre-Reform Industry and the State Monopsony in China Xiao-Yuan Dong and Louis Putterman Oct.
  78. (1997). Observations on the Use of Law by Russian Enterprises.” Post-Soviet Affairs,
  79. (1996). Ownership Transformation, Economic Behavior, and Political Attitudes in Russia," CISAC Working Paper
  80. (1960). Pattern Bargaining: A Case Study of the Automobile Workers,"
  81. (1996). Promotions and Wage Growth,”
  82. (1997). Published by Council on Foreign Relations. “The Coming Global Pension Crisis”
  83. (1990). Rationalizability, Learning, and Equilibrium in Games with Strategic Complementarities,"
  84. (1998). Russia's Virtual Economy," Foreign Affairs, LXXVII (September-October
  85. (1991). Specific Capital, Mobility, and Wages: Wages Rise with Job Seniority,”
  86. (1994). Table 10: Wage Arrear Reaction Function 1994-1998, OLS Dependent Variable – ω (number of overdue monthly wages)
  87. (1991). Table 2: Incidence, Magnitude and State Dependence of Wage Arrears (Survey of Industrial Firms) Expected Probability and Magnitude of Wage Arrears
  88. (1998). Table 3: Characteristics of the Individual Sample,
  89. (1998). Table 4: Characteristics of the Firm Sample,
  90. (1994). Table 5: Measures of Worker Behavior,
  91. (1991). Table 6: Measures of Cost of Wage Arrears,
  92. (1994). Table 8: Quit Function,
  93. Table 9: Costs of Wages Arrears: Strikes and Legal Penalties Strikes (Probit) Legal Penalties (Probit)Independent Variables dF/dX t dF/dX t Mean ω (number of monthly wages overdue) 0.005*** 5.803 0.0004*** 3.817 1.046 Ω (regional arrears environment)
  94. (1998). ten Horn doi
  95. (1997). The Czech Republic’s Commercial Bank: Komercni Banka,” Edward A. Snyder and
  96. (1986). The Economics of Strikes,"
  97. (1994). the Economy in Transition, Russian Economy in 1993: Trends and Prospects. Moscow: Institute for the Economy in Transition,
  98. (1996). The Foreign Economic Contract Law of China: Cases and Analysis Dong-lai Li
  99. (1997). The Invisible Hand and the Grabbing Hand,"
  100. (1983). The Iron Cage Revisited: Institutional Isomorphism and Collective Rationality in Organizational Fields,"
  101. (1990). The Role of Institutions in the Revival of Trade: The Medieval Law Merchant, Private Judges, and the Champagne Fairs,"
  102. (1993). The Role of Sectoral Interactions in Wage Determination in the UK Economy,"
  103. (1985). The Spread of the Multidivisional Form among Large Firms, 1919-1979,” American Sociological Review, L
  104. (1978). Threshold Models of Collective Behavior,”
  105. (2000). Toward a Comparative Institutional Analysis, manuscript,
  106. (1997). Transactional Structures of Bank Privatizations in Central Europe and Russia,” Anna Meyendorff doi
  107. (1996). Transition as a
  108. (1998). Understanding Wage Arrears in Russia,”
  109. (1998). Wage Arrears in Russia,” Mimeo,
  110. (1994). Work Organization, Employment Security, and Macroeconomic Stability,"
  111. (1997). Worker Trust and System Vulnerability in the Transition from Socialism to Capitalism Andrew Schotter Aug.

To submit an update or takedown request for this paper, please submit an Update/Correction/Removal Request.