@techreport{Earle2000Equilibrium,
abstract = {We present a model of wage contract violation that implies a possibility of multiple equilibria in
the level of arrears. Positive feedback arises because each employer's arrears affect the costs
of late payment faced by other employers operating in the same labor market, resulting in a
network externality or strategic complementarity in the adoption of the practice. We study the
case of three equilibria, distinguishing two that are stable: the "punctual payment equilibrium"
and the "late payment equilibrium." Our econometric analysis of linked employer-employee data
for Russia supports the model's contention that the firm's costs of wage arrears \textendash{} as embodied
in worker effort, quit and strike behavior, and the probability of legal penalties \textendash{} are attenuated
by arrears in the local labor market. We estimate the arrears reaction function implied by the
model, showing that it exhibits strongly positive feedback, and that the theoretical conditions for
multiple equilibria under symmetric local labor market competition are satisfied in 1995 and
1998. Simulation results imply a late payment equilibrium characterized by six monthly overdue
wages for a typical worker in 1995 and nine in 1998.},
author = {John S. Earle and Klara Z. Sabirianova},
copyright = {http://www.econstor.eu/dspace/Nutzungsbedingungen},
keywords = {P23; L14; J30; O17; J33; P31; K42; 330; Wage arrears; contractual failure; institutions; institutional lock-in; social interactions; Russia; transition; Lohn; Verbindlichkeiten; Hysteresis; Lohntheorie; Arbeitsmarkttheorie; Soziale Beziehungen; Betrieblicher Konflikt; \"{U}bergangswirtschaft; Sch\"{a}tzung; Theorie; Russland; Lohnr\"{u}ckst\"{a}nde; wage arrears},
language = {eng},
number = {196},
title = {Equilibrium Wage Arrears: A Theoretical and Empirical Analysis of Institutional Lock-In},
type = {IZA Discussion paper series},
url = {http://hdl.handle.net/10419/21040},
year = {2000}
}
