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Economy Blurs the Line between Formal and Informal Employment

The informal nature of employment does not affect an employee's social status, because the differences between formal and informal employment are insignificant in Russia, says Anna Zudina, Junior Researcher at the HSE's Centre for Labour Market Studies

As before, informal employment, with its important role of helping people and economies adapt to transformational shocks, remains a significant part of the Russian labour market, even though those engaged in it are not covered by most rules and regulations of labour legislation.

Anna Zudina wondered whether informal employment in Russia plays a role in shaping the country’s social structure – in other words, whether being employed informally is associated with belonging to less (or more) privileged social groups, and if so, in what way?

Zudina searched for answers by studying the relationship between her respondents’ employment in the formal or informal sector and their perception of their own social status.

Zudina's assumption had been that self-perception of one’s social status would differ depending on whether the respondent was employed formally or informally. According to her main hypothesis, informal employees would view themselves as having lower social status than formal employees. Thus, informality in the labor market would act as a stratifying mechanism, placing informal employees on different rungs of the social ladder, situated below the baseline for formal employees.

The Country Factor

Various studies reveal that in more prosperous countries informal employees tend to have lower self-esteem regarding their status than formal employees, while self-employed individuals often have more self-esteem than informal wage earners. In less developed countries, however, the distinction between formal and informal employment is often merely nominal, thus there is little difference in self-esteem.

In certain cases, a country's level of economic development may affect the growth of differences in the self-esteem of formal and informal employees – eg when an economy produces many low-skilled, informal jobs that are likely to be accepted by applicants who assess their social status to be on a lower level. This phenomenon was observed in Russia in the 2000s, when economic growth produced a multitude of informal jobs, filled mostly by an unskilled workforce. Based on these findings, Zudina had assumed that self-assessment of social status would differ significantly between formal and informal employees and would be lower among informal workers.

No Change in Status

However, Zudina's study suggests that no significant difference exists between formal and informal employees in Russia regarding how they perceive their social status. While the economic growth in the 2000s created mostly informal jobs, it did not make formal employment more prestigious. This means that both formal and informal employees in Russia share a common social environment with little difference in status.

But this does not mean that Russian employees are equally comfortable in this environment. A significant portion of employed Russians are dissatisfied with their situation and have low self-esteem concerning their status, regardless of whether their employment is formal or informal. These findings not only characterize informal employment in the Russian labour market, but also may indicate that institutions in the formal sector are perceived as being unable to offer better salaries or better social security.

After a decade of sustained economic growth, most Russians continue to perceive their social status as being low, which may be partly due to an unfavourable institutional environment and ineffective government regulation that is causing the state to fail to deliver fully on its social obligations, even to formal workers.

On the other hand, informal employment is no longer seen as a rare and unusual thing; its various forms have helped many Russians adapt to the country's economic transformation and are currently perceived as an employment norm. As such, the growth in informal employment is not likely to contribute to the social vulnerability of Russian employees who do not perceive any fundamental difference between formal and informal employment.

 

February 03, 2014