Wage Arrears Uncertainty and Precautionary Saving in Russia

Wage arrears are widespread in Russia, and are one of the main causes of uncertainty in the labour market. In this paper, we use the Russian Longitudinal Monitoring Survey over the period 1994-98 to construct a new and improved measure of household income risk, based on the uncertainty due to wage arrears. We then use this measure of uncertainty to test the precautionary saving hypothesis, according to which households save to self-insure against risk. We find significant evidence of additional saving by those households whose head is more likely to suffer from wage arrears one year hence. This suggests the existence of a strong precautionary saving motive