What role do community norms play in the diffusion and persistence of new organizational practices? We explore this question through an examination of the widespread practice of wage arrears, the late and nonpayment of wages, in Russia during the 1990s. Existing research on wage arrears most often examines this practice as a means of flexible wage adjustment under difficult economic conditions. We develop an alternative theory that explains wage arrears through their acceptance as a legitimate form of organizational behavior within local communities. Our empirical analysis finds some support for the neoclassical position that wage arrears reflect adjustment to negative shocks, but this perspective fails to account for a number of important facts, including a high level of arrears among apparently successful firms. In contrast, our results find strong support for the institutional perspective. The statistical analysis demonstrates powerful and robust community effects both in firm adoption of this practice, controlling for firm performance, liquidity, and fixed firm effects, and in workers’ reaction to arrears, through their quit (exit) and strike (voice) behavior. *300 S. Westnedge Ave., Kalamazoo, MI 49007 (earle@upjohn org). We owe many thanks to Sergiy Biletsky, David Brown, Vladimir Gimpelson, Julia Khaleeva, Ivan Komarov, Mikhail Kosolapov, Polina Kozyreva, Dmitry Krutikov, Olga Lazareva, Inna Maltseva, and Michael Swafford, our colleagues and collaborators in data collection. We are also grateful to Wendy Bailey, Bob Flanagan, Scott Gehlbach, Joanne Lowery, Livia Markoczy, Gerry McNamara, John Haleblian, Kathleen Montgomery, Michael Lounsbury, Peter Murrell, Ugo Pagano, Trex Proffitt, Raymond Russell, Mark Schneiberg, Mathew Kraatz, Marc Ventresca, and Valery Yakubovich for valuable discussions and suggestions; and to Tacis ACE, MacArthur Foundation, Ruben Rausing Fund, Ford Foundation, and the CEU Research Board for support of data collection. None of these individuals or organizations, however, should be held responsible for our analysis and conclusions.