productivity-based ones. The former considers compliance with labor regulation and the right to social protection (e.g., pension, health care). The latter considers the type of job, such as being unskilled self-employed, salaried in a small firm, casual/irregular worker or a zero-income worker. However, this measure has been shown to introduce large measurement errors in transition economies and is deemed less relevant (Lehmann H. , 2014). We draw from multiple sources of data and find a broad congruence across surveys -despite the type of definition used- in the evolution of informal employment in the last decade.

The rest of this section proceeds as follows: we briefly summarize findings from the previous literature on the causes and consequences of informality, both globally and specifically for the case of Russia. Then we describe in more detail the various data sources, the specific definitions of informal employment used, and the evolution of trends that are uncovered from different data sources.

# **Findings of the previous literature**

The literature has approached the causes of informality from two main viewpoints: “exit” and “exclusion”. The exclusion view maintains that workers and firms are excluded from the formal sector, due to cumbersome and expensive regulations, and formal employment is somehow rationed so many workers, despite wanting to have a formal job, are not able to get one. While these factors are important, there is a second perspective, the exit view, which presumes that informality is an outcome preferred by workers and firms as the optimal level of engagement with the state, especially when the perceived costs of formalization outweigh the benefits. In other words, informality is a large-scale opting out of formal institutions by firms and individuals as a result of their valuation of the net benefits from formality and the state’s service provision and enforcement capability. In other places, this labor market divide is explained in terms of segmented (in contrast to integrated) or dual labor markets.<sup>4</sup> These two viewpoints are generally best understood as complementary, as the context differs across countries and the informal sector itself can be tremendously heterogeneous, with some informal workers choosing to be informal and others being involuntarily excluded (Perry, et al., 2007).

Existing research so far suggests that labor market institutions tend to have a modest impact on the informal sector. Stricter labor market institutions are frequently associated with greater incentives for firms to operate and hire informally. However, a careful review of recent findings in the literature on the impact of labor market institutions concludes that “...their impacts are generally smaller than the heat of debates suggests” (Betcherman G. , 2014). In other words, while it may be expected that minimum wage increases would induce a compositional change in employment from the formal to the informal sector, empirical evidence suggests that these effects are modest.

> 4 Cain G.G. (2018) Segmented Labour Markets. In: Macmillan Publishers Ltd (eds) The New Palgrave Dictionary of Economics. Palgrave Macmillan, London.

4/67 Informal Employment and Worker’s Wellbeing in Russia