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Complementarity and Custom in Wage Contract Violation

John S. Earle^1,2; Klara Sabirianova Peter

¹ Central European University · ² W.E. Upjohn Institute for Employment Research

We present and estimate a model with strategic complementarities in firms' choices of on-time or delayed wage payment. Linked employer-employee panel data from Russia facilitate identification of the endogenous interactions through fixed effects for firms, workers, 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 symmetric equilibria: a punctual payment and a late payment equilibrium.

DOI

10.1162/rest.91.4.832

Volume

91 (4)

Pages

832-849

Language

en

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BibTeX

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