different definitions of informal employment may lead to substantially different results and ―may imply very different conceptual understandings of informality‖, exact definitions applied in particular studies are often dictated by data availability. To give an example, Bernabè (2008) suggests a classification of informal employment, but operational definitions based on available household surveys for seven CIS countries appear to be far from identical. For cross-country studies, ability to apply a comparable operational definition is crucial. This study fills an apparent gap in the literature in this respect for Europe.

Details of our suggested classification of the employed population by ̳formality‘ of employment are given in Table 1. The ESS questionnaire does not ask details on work activities other than main job, hence informal employment outside main job is beyond the scope of this study. Hence, our estimates of informality rates are quite conservative. _Formal employment_ includes anybody holding an employment contract (including family workers with a contract).

Employers with more than five employees, as well as the self-employed without workers who work as professionals (i.e. those belonging to ISCO main group 2) are considered _formally self-employed_ . The ̳five workers threshold‘ is a natural extension of the approach used in the literature when classifying the ―formality‖ of employees based on data without information on contract type. On the other hand, professionals are more often operating legally with some kind of license and pay taxes from at least some part of their income; unreported part of their income, if any, if not relevant for our classification – as are ̳envelope wage‘ payments received by legally employed workers. Other self-employed persons (i.e. all non-professional self-employed operating solely, as well as employers with 5 or fewer workers) are considered _informally self-employed_ . Thus, all employers, including those working as professionals, are treated according to the firm-size criterion<sup>9</sup> .

Persons working without a contract for own family‘s business ( _family workers_ ) form a separate (small) category. These persons belong rather to informal than to formal employment (ILO, 2003), but being residual earners from profits they are different from both the formal employees and the self-employed. Finally, employees without a contract (or those uncertain of their contract) are _informally employed_ , i.e. belong to _informal dependent employment_ .

> 9 An alternative approach would be to classify all employers working as professionals as formally self-employed, disregarding the number of employees. In both cases some classification errors are inevitable. As a robustness check, informality rates have been recalculated under this alternative definition. Country rankings are not affected on total informality and not significantly affected on informal self employment. The decline in the share of informal self employed in the extended labor force in most cases is well below 1 percentage point, except for Italy, Germany, Switzerland and Cyprus where it is between 1.0 and 1.3 points (from a base above 10%). In relative terms, the decline is below 3% for 12 countries, between 4% and 6% for another 12 countries, 7% to 9% for 3 countries, and between 10% and 14% for Germany, Switzerland and Romania.

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