Students of post-communist labor relations have argued that the social contract would deteriorate with privatization, as managers secured ownership rights and enterprises reoriented toward the market. To examine this expectation, we investigated the state of labor relations in two enterprises in the metallurgical industry. In St Petersburg, marketization brought little positive change in production and the social contract decayed, while Tula's management embarked on an ambitious reform program, rewriting the social contract. We attribute the variations in the outcomes to differing regional conditions that affected the mutual dependence of labor and management and, hence, “exit options” of both parties.

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