Many developing and transition countries, and even some in the industrialized West, experience periods in which a substantial proportion of the workforce suffer wage arrears. We examine the implications for estimates of wage gaps and inequality using the Russian labor market as a test case. Wage inequality grew rapidly as did the incidence of wage arrears in Russia in the 1990s. Given data on wages and the incidence of wage arrears we construct counterfactual wage distributions, which give the distribution of pay were arrears not present. The results suggest that wage inequality could be some 30 percent lower in the absence of arrears. If individuals in arrears are distributed across the underlying wage distribution, as appears to be the case in Russia, we show that it may be feasible to use the wage distribution for the subset of those not in arrears to estimate the underlying population wage distribution parameters.

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21 May 2007

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Published in Aspects of Worker Well-Being (2007), Edited by Solomon W. Polachek and Olivier Bargain, volume 26, pp. 125-155, Emerald Publishing Ltd.

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Link To Website

DOI: 10.1016/S0147-9121(06)26004-7

This Chapter is part of the centre's Labour programme, Community Wellbeing programme.