specification are informal workers more likely to self-assess worse health than formal workers. Finally, the association between informal employment and household poverty or life satisfaction is not robust to changes in econometric specification of the sample. It seems the self-employed informals -but not the salaried informals- do find themselves in poorer households and have less life satisfaction, but further research is needed here. This leads the authors to believe that informality in Russia is mostly a problem of fiscal sustainability, labor contract enforcement and labor productivity; but worsening wages and some association to household poverty may turn it also into a social equity problem.

The rest of this paper is organized as follows. Section II provides a review of the international and Russian literature on informal employment, a description of the various data sources used and the levels and trends in informal employment derived from them. Section III describes the methodology used for the regressions that estimate the impact of informal employment on wellbeing. Section IV presents the main results. Section V summarizes and concludes.

# **II. Measures of Informal Employment in Russia**

This paper focuses on informal employment rather than the informal sector. Informal aspects of the economy are notoriously difficult to measure and there are several definitions of what is meant by “informal”. There is broad agreement that several criteria must be considered, which include registration, legal incorporation, firm size, coverage by statistical surveys, borderline of activity, illegal activity, location and terms of employment. The word “sector” refers to production activities and not a grouping of institutional units (i.e. firms, households, government) in the System of National Accounts (SNA) sense. In addition to the production side and firms’ perspective, employment can also be characterized as formal or informal. It is possible for formal production units to have informal employees, and for informal units to have formal employees. Finally, there is a distinction between a job and an employee as one employee can hold several jobs. Hence informal employment refers to “...the total number of informal jobs, whether carried out in formal sector enterprises, informal sector enterprises, or households, during a given reference period...”<sup>3</sup> The primary reason for focusing on informal employment in this paper is that the information available from household surveys allows for identification of informal employment from the workers’ side. Importantly, a comprehensive analysis of the informal sector would need to consider firm-level decisions and the use of firm-level data, which we do not use in this paper. Throughout the paper, we rely on variations of legalistic definitions of informal employment, vis-à-vis

> 3 For a full description on concepts and definitions on informality, see Chapter 25 “Informal aspects of the economy” in _System of National Accounts 2008_ (United Nations Department of Economic and Social Affairs, 2010) and see Chapter 8 “Employment in the Informal Economy” in Key Indicators <u>of the Labour Market 2015 (ILO, Geneva, 2016).</u>

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