and Rule of Law variables). These effects are among the largest (in absolute terms) in most specifications and for all country groups.

In emerging Europe (East and South) and in wealthy Europe (West and North) alike, as well as in Europe at large, the share of non-contracted employees is positively related to _economic growth_ (plausibly, through demand side channels - the scale effect and the time pressure). The same is true for informal self-employment in Eastern and Southern Europe and in Europe at large, whilst in Western and Northern Europe this effect is absent. These findings suggest that _informal [at the main job] employment is a pro-cyclic phenomenon in Europe_ . This is in line with finding by Hazans (2011a), based on 70 observations of 27 European countries, that the rates of dependent informal employment and unemployment never went up simultaneously between 2004 and 2009<sup>32</sup> . The level of _GDP per capita_ has a positive and significant effect on the share of non-contracted employees in Europe at large and on both types of informal employment within Eastern and Southern Europe, again suggesting that the scale effect overcomes both the substitution effect and the supply side effects. Positive association between the income level and employment informality in Europe is in a sharp contrast with the situation found in large samples of either high-income and developing countries across the world, or only developing countries, or in Latin America and the Caribbean (see Loayza and Rigolini, 2006; Perry et al., 2007; their results partly reported in Table 10). However, we find a negative effect of income level on employment informality when the wealthy part of Europe (the West and the North) is considered separately. Fialova and Schneider (2011) find a similar effect on self-employment for the ―old Europe‖ (the West, the North, and the South).

Note that our results are not directly comparable to those of Schneider et al. (2010) and Bajada and Schneider (2009) on determinants of the size of the shadow economy (although theoretical considerations are to a large extent similar, as long as factors controlled in all these studies are concerned). In fact, for 2004-2007 there is virtually no correlation between the size of the shadow economy as estimated in Schneider et al. (2010) and the share of informal (at the main job) employment, be it dependent, or own-account, or total. This is because a formal employee or a formal self-employed might contribute to the shadow economy (as defined in Schneider et al., 2010) via his/her main (formal) job or via secondary (formal or informal)

> 32 Data from Estonian Labor Force Survey (Statistics Estonia, 2010) provide partial support: during the growth period between 2003 and 2008, the rate of non-contracted employees was fairly stable near 2% of the labor force, but felt to 1% in 2009. Nikolovova et al. (2010: Figure 10) compare the dynamics of GDP growth and two (rough) proxies of the share of informal employment in the labor force for Czech R. and Slovakia, based on LFS data for 1998-2009. The overall dynamics of informality is clearly pro-cyclic, but during the 2009 recession (for Slovakia – also during the 1999 recession) in became counter-cyclic. Note that Nikolovova et al. (2010) use small establishment size or self-employment status as proxies for informal employment, because Czech and Slovak LFS (in contrast with Estonian LFS) do not provide information on employees without legal contract.

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