Complementarity and Custom in Wage Contract Violation

Earle, John S.; & Peter, Klara Sabirianova. (2009). Complementarity and Custom in Wage Contract Violation. Review of Economics and Statistics, 91(4), 832-49.

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Journal Article

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Author(s):
Earle, John S.
Peter, Klara Sabirianova

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2009

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Review of Economics and Statistics

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91

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4

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832-49

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Reference ID:
4663

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Abstract:

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.

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Population and Health Policies and Programs

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Earle, John S.; & Peter, Klara Sabirianova. (2009). Complementarity and Custom in Wage Contract Violation. Review of Economics and Statistics, 91(4), 832-49.