contract. The former sub-group of informals -characterized by smaller capital endowment per worker- partly explains the lower level and higher variability of wages among informals.

A simple wage gap regression suggests that informal workers receive on average a lower pay per hour, and this difference is statistically significant and robust against the inclusion of job characteristics. We pool data sets from the RLMS that spans 2004-2016 and remove outliers from the wage distribution.<sup>22</sup> Based on results from OLS regressions, there appears to be a wage penalty for informal workers, as suggested by the negative and statistically significant coefficient on being an informal worker, controlling for individual and job-related characteristics, both for salaried and self-employed informals (Table 8, columns 1 and 2). We further control for selection and unobservable characteristics at the individual level using a specification that includes individual fixed effects. Now, we find a statistically significant wage gap only for informal salaried workers (Table 8, columns 3 and 4). This means that, despite controlling for region, year and person fixed effects, there remains a systematic difference in pay between formal and informal workers, even after controlling for all observable productive characteristics. This is an important departure from existing literature that has previously suggested that the labor market is largely integrated with possible weak segmentation only at the bottom of the distribution (Lukiyanova, 2015).

The wage gap has widened in recent years, and is statistically significant for both types of informal workers. Using data for year 2016 only, the wage regressions show a much larger coefficient and strong statistical significance for both salaried and self-employed informal workers (Table 8, columns 5 and 6). In contrast with the regressions using pooled surveys, which showed a wage gap of ranging between 2 and 8 percent, the most recent data shows a wage gap between 15 and 19 percent. This confirms the widening informal-formal wage gap (described in foregoing paragraphs and shown in Figure 10). This wage gap is significant even after controlling (for a sample of salaried workers only) for job conditions such as vacations and job hazards (column 7).

To summarize, we find that informal workers have systematic differences when compared to formal workers in some working conditions. Informal workers have less stability of work hours and incidence of vacations, are more likely to receive envelope wages and to have lower wages. On the other hand, informal workers are not more dissatisfied with the contract, the pay or the opportunities that their job provides. Neither are they more likely to have a hazardous job or be more concerned about job loss than formal workers. These differences lead to the question on whether informal workers have more or less job satisfaction than formal workers.

# **Informal employment and job satisfaction**

We first examine whether informal workers are more or less likely to be satisfied with their job. The original question in the RLMS asks “How satisfied are you with your job in general?” and

> 22 To remove <u>the influence from outliers in the wage regression, we drop 1 percent of the sample from both tails of the distribution.</u> Informal Employment and Worker’s Wellbeing in Russia 21/67