1997 Reports

The Wage Arrears Crisis in Russia

Desai, Padma B.; Idson, Todd

In this paper, we propose an analytical framework suggesting that wage nonpayment in the Russian state sector and privatized factories, which resulted from acute cash flow problems in both, reflected an implicit contract among the government, managers and labor against worker layoff. We analyze the impact of wage nonpayment on workers grouped by demographic features, occupation and job location on the basis of a panel data set covering the years 1994 to 1996. Based on a multivariate specification that incorporates these features, we find that the frequency and amount of wage withholding increased sharply in 1996. While wages were denied less frequently and in lower amounts to low paid workers by age, occupation and location, this pattern(for which we find a correlation between the frequency of wage nonpayment and wage level at the regional level), needs to be confirmed with further statistical tests. While the practice of wage nonpayment tended to push families into poverty and increase their expectation of living in poverty in the immediate future, it also raised the likelihood of workers holding additional jobs and undertaking informal paid activity. At the same time, the frequency and magnitude of barter payments to workers in our sample were not sufficient to exercise a significant effect in mitigating the adverse effects of wage arrears.