Labor Supply in the Informal Economy in Russia During Transition

Abstract:     
This paper investigates the informal labor market in Russia in late 1995 and estimates a labor supply function in the informal sector using nationally representative micro-data from the Russian Longitudinal Monitoring Survey, Round VI. The findings show that the informal economy constitutes a considerable source of additional income for many families, though it is associated with a large degree of wage and gender inequality. Informal job holding appears to be a safety valve for several individuals rationed in the regular labor market, either unemployed or experiencing compulsory periods of unpaid leave. At the same time, however, the data provides little support for the fact that wage arrears and low earnings from the regular economy increase the probability to join the informal sector. There are substantial gender differences in how demographic and market factors influence the attitudes towards informal activities. For men, the labor supply curve in the informal labor market is forward sloping, but the informal wage does not seem particularly significant for women.

JEL Classification: J22

working papers series