Wage arrears and the distribution of earnings: what can we learn from Russia?

We examine the implications for estimates of wage relativities and inequality when countries experience wage arrears on a substantial scale, using the Russian labour market as a test case. The increase in wage inequality in Russia during its transition process has far exceeded the increase in wage dispersion observed in other European countries undergoing transition. Russia also has much the largest incidence of wage arrears. Given data on wages and the incidence of wage arrears we show that it is possible to construct counterfactual wage distributions, derived from a variety of different methods. The results suggest that conventional measures of earnings dispersion in Russia would be some 20 to 30% lower in the absence of arrears. Since the incidence of arrears is not random, we then go on to show how wage gaps across gender, education, region and industry are influenced by a failure to allow for wage arrears. If those in arrears are distributed uniformly across the underlying wage distribution, as appears to be the case in Russia, then it may be feasible to use wage information on the subset of those not in arrears and still get close to the underlying population parameters. -- Wage Arrears ; Earnings Inequality ; Pay Gaps ; Counterfactual Estimates