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Informal Employment: Money, but Not Happiness

Employees without a formal contract are less happy than those fully protected by the Labour Code, suggests the report by Ludmilla Leonova 'Empirical Models for the Correlation Between Unregistered Employment and Life Satisfaction'

Informal employment is on the rise in Russia – about one third of all workers are employed wholly or partly outside the Labour Code regulations, making them 'informal' and off the government's radar.

Lyudmila Leonova, Senior Lecturer of Mathematical Economics with the HSE in Nizhny Novgorod, enquired whether there is a correlation between unregistered employment – a type of informal employment – and life satisfaction in Russia and presented her findings at a seminar organized by the HSE's Laboratory for Labour Market Studies (LLMS).

A Path to Self-realization or Forced Choice?

It is often assumed that informal employment benefits the employer by making it easy to fire a worker. However, the principle of economic rationality means that any voluntary transaction is mutually beneficial.

Informal employment may allow the worker greater flexibility for initiative and creativity, even though itdenies him or her an employee benefits package or legal protection.

The implications of informal employment are poorly understood, as most studies have only focused on the paycheck.

"Most studies comparing formal and informal employment from different perspectives suggest that informality is a forced choice for someone who cannot find a formal job and faces unemployment," Leonova said. "But we were trying to understand why anyone would stay in informal employment even though there are job vacancies available for them in the formal sector."

Leonova's empirical analysis focused on the relationship between life satisfaction and the choice of unregistered employment – a particular type of informal employment in the formal sector without a proper contract required by the labour law.

She examined the 2002-2009 data from the HSE's Russia Longitudinal Monitoring Survey (RLMS) and from the Federal State Statistics Serviceto analyze people's employment status, life satisfaction, earnings, education, marital status, and age, with an added regional perspective on the average local income, the share of informal employment, and the unemployment rate.

The largest share of unregistered workers was found in the retail sector and among unskilled laborers.

Unregistered but Happy

Leonova found higher rates of life dissatisfaction among informal workers compared to those working under formal employment contracts. "On average, the informal sector workers are less likely to be satisfied with their lives," she said, "and we found a higher percentage of people totally dissatisfied with their lives among unregistered employees."

However, the study found a statistically significant positive relationship between life satisfaction and the choice of unregistered employment in male respondents meeting certain criteria, such as a fixed income. In contrast, in female respondents such correlation was observed only where unregistered employment was associated with an increasing income.

 

October 17, 2013