Risk Attitudes and Informal Employment in the Labor Market in Russia

This paper is related to the research of reasons of the choice of informal employment by the employees. Informal employment is a complex and heterogeneous concept that requires comprehensive consideration. In our case informally employed workers are those who work without employment agreement or contract. The main purpose of the study is to analyze the factors related to the characteristics of the individual's workplace, as well as the individual attitude of the employee to risk, which may determine the probability of choosing the informal employment sector. The main method in the work is the probit-model of the binary choice. With the help of the model we estimate the probability of choosing the sector of informal employment by an individual. The empirical model is estimated on a representative sample of Russian Longitudinal Monitoring Survey 2009 with the usage of a closed unit question about informality and attitude to risk. In particular, the work reveals in more detail how the attitude to risk affects the likelihood of an individual entering informal employment compared to different types of formal employment, namely, by a written employment contract for an indefinite period; under a written employment contract for a fixed term; under a completed work contract or a civil law contract. We assume that people who are more risk averse will be more likely to choose the sector of informal employment. Moreover, the socio-demographic, individual characteristics and characteristics of the workplaces that influence the probability of an individual entering informal employment are identified.