Estimates of informal employment for high income economies are less regular but, when compared to this group, Russia does not appear to have systematically higher rates of informal employment. The bottom panel of Figure 1 shows that the proportion of employers, own account and unpaid family workers within total employment (a proxy indicator correlated but not exactly the same as informal employment) in Russia is very low when compared to countries of similar or higher income per capita. An OECD study collects several other proxy indicators of informal employment and does not find Russia as an outlier. For instance, according to this OECD study, 10 percent of Russian workers have no contract, which is well below the 40 percent in Turkey, Greece and Ireland, but is also higher than the 5 percent in Czech Republic, Sweden and Finland. Similarly, 40% firms in Russia do not report all annual sales to tax authorities, less than Turkey, Greece and Czech Republic which misreport more than 50 percent of sales, but more than Spain or the Slovak Republic that misreport around 20 percent of sales.<sup>1</sup> On the other hand, the OECD study finds that most high income countries have less than 10 percent of the labor force being paid “envelop” wages, which is well below the 20 percent that we document for Russia later in this study. Finally, if using contributions to pension schemes as an indicator of formal employment, Russia does not look too different from comparable countries: _“...By the latest available data, in Russia, 65.9 percent of labor force aged 15+ contributed to the pension system, compared to 69.7 percent on average in ECA; additionally, 48.7 percent of the working-age population aged 15-64 contributed, compared to 48.9 percent in ECA on average...”,_ but is certainly well below if compared to richer countries because _: “...In developed countries, on average 71.5 percent of individuals aged 15-64 contributed, as well as 92.9 percent of the labor force aged 15+.”_<sup>2</sup> However, there is a long-term increase in informality from the early 2000s through 2016. Rosstat estimates that informal employment increased from 12.5 percent in 2001 to 17.6 percent in 2005, then slightly decreased to 16.4 percent in 2010 but increased significantly to 21.2 percent in 2016. Other data sources, used in this study for their rich microdata and for comparison purposes, show similar trends. Moreover, the growth of informality is seen across most economic sectors and, as our findings show, is not due to changes in the structure of the economy or changes in population characteristics.

We find that informal workers are more likely to have inferior work conditions, but do not necessarily report worse subjective well-being. Starting with lower wages, but also with less stability of hours and job benefits, informal workers have higher incidence of envelope payments than formal workers but not of hazardous or unstable jobs. After controlling for work conditions, informal workers do not have statistically significantly lower job satisfaction. Moreover, under no

> 1 Numbers taken from (Andrews, Caldera Sanchez, & Johansson, 2011), figure 3 and figure 8, on pages 14 and 18, respectively. This study also reports Russia being the country with the highest share of informal economy (in terms of shadow economy, or percentage of GDP that evades tax payments or regulations, rather than unregulated employment), as per latent variable estimation methods. See Op. Cit., pages 10-12.

> 2 <u>(World Bank, 2018), page 14.</u>

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