Grime and Punishment: Job Insecurity and Wage Arrears in the Russian Federation

The initial years of transition in the Russian federation have been characterised by relatively smaller falls in employment than observed in other reform-orientated countries of Eastern Europe. We show that for many Russian workers, the dominant form of labour market adjustment is instead the delayed receipt of wages. There are large regional variations in the incidence of wage arrears. Workers in the metropolitan centre are significantly less affected by delayed and incomplete wage payments than workers in the provinces. There is less evidence that individual characteristics contribute much toward the incidence of wage arrears, though unobserved heterogeneity has some role to play. Wage arrears are found across the skill distribution. As with the incidence of unemployment, however, there is evidence that the persistence of arrears is concentrated on a subset of the working population. We show that workers can only exercise the exit option of a job quit from a firm paying wages in arrears if the outside labour market is sufficiently dynamic. ----------------------------------------------------------------------------------------------------For valuable comments the authors would like to thank Sarah Ashwin, Vladimir Gimpelson, Evgenyij Gontmakher, Tatyana Gorbacheva, Michael Harrison, Barry Ickes, Douglas Lippoldt, Mark Schaffer, Viktor Starodubrovsky, Ruslan Yemtsov and participants at the conferences "Labor Markets in Transition", University of Michigan, 17-19 October 1997 and "Economic Transition in CEE and Russia, Theory and Empirical Evidence", EERC (Russia), Moscow, 13 December 1997. The paper has also benefited from seminar presentations at the Catholic University of Leuven, the London School of Economics and Trinity College, Dublin. Financial support from the European Commission (Tacis-Ace Project No. T94-1073-R) is gratefully acknowledged. Acquisti wishes to thank the Trinity Foundation for additional financial support. Views expressed belong solely to the authors and do not necessarily reflect the opinions of the Department of Economics of Trinity College.