This paper attempts to estimate the impact of wage arrears on subjective well being,
as measured by the RLMS (Russian Longitudinal Monitoring Survey). This latter is
a comprehensive survey, conducted from 1992 up to 1998, on a representative sample
of Russian households and individuals. The results are unambiguous: working with
wage arrears implies a clear fall in satisfaction. We are able to calculate the shadow
price of wage arrears, that is the increase in wages which would place an individual
with wage arrears on the same indifference curve as an individual without such arrears.
Another result, on the face of it more puzzling, is that the level of satisfaction
provided by a job with arrears is lower than that provided by inactivity (although
higher than that provided by unemployment). We suggest some explanations which we
will test in further work. Sub-regressions show that the psychological impact of
wage arrears is greater for men and less well-educated workers, and smaller for women
and better-educated workers.