Informal Employment under Sanctions: The Case of Russia in 2022−2023

Abstract

This paper represents the first comprehensive analysis of the impact of the second wave of foreign sanctions on informal employment in the Russian labour market. It focuses on changes in the structure of various types of informal employment in 2022−2023, as well as on an assessment of the possible impact of sanctions on the dynamics of the probability of informal employment, which allows to clarify the reaction of the Russian labour market to large-scale sanctions pressure and adaptation to it. The general analytical framework of the study is based on theoretical approaches and empirical works that consider changes in the level of informal employment depending on the stages of the economic cycle. The results, obtained on the basis of the RLMS HSE data, indicate that the initial reaction of the Russian labour market in 2022 is accompanied by an increase in the share of both formal and informal workers in the overall structure of the population, while already in 2023 the overall level of informal employment and its characteristics return to pre-sanction values, and the share of formal workers continues to grow. This process is explained by the short-term movement of workers between formal and informal jobs (for example, to various forms of self-employment and individual entrepreneurship) after losing their job or in search for higher earnings, which is again replaced by formal employment as enterprises adapt to the sanctions pressure. The identified dynamics of informal employment was concentrated in certain economic sectors—the public sector, construction, as well as in the housing and communal services and social services. At the same time, the estimation of dynamic multinomial logit models did not reveal any independent effect of sanctions on the probability of informal employment of various types, confirming that it was accumulated in specific industries. Sanctions pressure in 2022−2023, all other things being equal, also did not lead to an increase in the risks of job loss (transition to unemployment or inactivity state) after previous employment—in contrast to the period of the COVID crisis, they generally either remained stable or decreased.