Perceptions and Behavior: Analyzing Wage Arrears in Russia

We investigate the link between perceptions and behavior using the wage arrears phenomenon in Russia as our case study. To measure perception, we utilize assessments of ‘marketability’ -- what we call perceived demand. For behavior, we first consider the behavior of managers in the allocation of wage arrears, and second, the response by workers to wage arrears. Using Russian Longitudinal Monitoring Survey data collected between 1994 and 2004 and controlling for regional macroeconomic conditions, firm characteristics and worker characteristics in the probit and Poisson regressions, we find that managers avoid allocating wage arrears to workers with high perceived demand. We argue that this happens because workers with high perceived demand tend to have more employment options and consequently are more likely to quit their jobs. Managers try to retain these workers by reducing their wage arrears. Our empirical results support this argument, as we find that job change is reduced by lowering arrears.