Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/64346
Authors: 
Earle, John S.
Sabirianova Peter, Klara
Year of Publication: 
2006
Series/Report no.: 
Upjohn Institute Working Paper 06-129
Abstract: 
We analyze a model of wage delay in which strategic complementarity arises because each employer's costs of violating its contracts decrease with the arrears in its labor market. The model is estimated on panel data for workers and firms in Russia, facilitating identification through fixed effects for employees, employers, and local labor markets, and instrumental variables based on policy interventions. The estimated reaction function displays strongly positive neighborhood effects, and the estimated feedback loops - worker quits, effort, strikes, and legal penalties - imply that costs of wage delays are attenuated by neighborhood arrears. We also study a nonlinear case with two stable equilibria: a punctual payment and a late payment equilibrium. The estimates imply that the theoretical conditions for multiple equilibria under symmetric labor market competition are satisfied in our data.
Subjects: 
contract violation
wage arrears
social custom
strategic complementarity
neighborhood effect
social interactions
multiple equilibria
network externality
transition
Russia
JEL: 
A12
B52
J30
K42
L14
O17
P31
P37
Document Type: 
Working Paper

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