Life satisfaction and informal employment in Russia. Liudmila Leonova Higher School of Economics, Nizhny Novgorod

Related literature the average individual earnings in the informal sector are lower than in the formal one (Merrick, 1976 ) other drawbacks: people often face poorer working conditions, have no formal employment agreement, and, therefore, are deprived of various social benefits…

informal sector is often preferable for the individual than unemployment (De Grazia, 1982; Kesner-Skreb, 1997; Gërxhani, 2004b)

even better than formal sector the financial advantages of tax evasion (Hansson, 1982) the informal sector sometimes provides more flexibility and opportunities for individual initiative and creativity, as opposed to the formal sector (De Grazia, 1982; Renooy, 1990;. Marcouiller, etc. 1997)

The consequences of informal sector for the welfare?

What is welfare? Income => But there is something more than just money => economic well-being, namely the subjective well-being

informal employment people working in firms with five or less employees, non-professional self- employed and people engaged in domestic housework workers receiving no social security, not covered by ​​ social security contributions and taxation system

Present work the Russian Longitudinal Monitoring Survey (RLMS-HSE) questionnaires: whether the employee is registered at the place of employment formally, or not

Data the Russian Longitudinal Monitoring Survey (RLMS-HSE) period from 1998 till 2007 aged years

Hypothesis Model: status of informally employed reduces the likelihood of becoming happier ceteris paribus.

Methodology Individual’s unobserved traits and environment => estimates of pooled regressions will be biased + RE model estimation inconsistent => FE model

no generally accepted econometric estimation method for ordered choice model with fixed effects FE logit model: the subsamples of those individuals for which there is time variation of dependent variable the sample size is usually reduced considerably, especially in the case of an ordinal dependent variable

Probit adapted OLS model van Praag / Ferrer-i-Carbonel (2004) rescale ordinal variable or “roughly cardinalisation” in order to use linear models will be more justified

The “cardinalised” dependent variable is constructed by taking the expectation of a standard normally distributed variable under the condition that it is in the interval between those two Z-values that correspond to the class of the value of the original variable Linear FE model is estimated

Robustness check a polled ordered probit model probit adapted OLS FE probit adapted OLS RE

Endogeneity Source: Many of the factors determining employment status, at the same time influence the level of satisfaction but FE can control for time-invariant individual traits

Results Independent variable : Life satisfaction Dependent variable Pooled oprobitFERE Informal employment 0,133***0,0520,089***

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