Job Separations, Job Loss and Informality in the Russian Labor Market

Having unique data we investigate the link between job separations (displacement and
quits) and informal employment, which we define in several ways posing the general
question whether the burden of informality falls disproportionately on job separators in
the Russian labor market. After we have established positive causal effects of
displacement and quits on informal employment we analyze whether displaced workers
experience more involuntary informal employment than their non-displaced counterparts.
Our main results confirm our contention that displacement entraps some of the workers in
involuntary informal employment. Those who quit, in turn, experience voluntary
informality for the most part, but there seems a minority of quitting workers who end up
in involuntary informal jobs. This scenario does not fall on all the workers who separate
but predominantly on workers with low human capital. We also pursue the issue of
informality persistence and find that informal employment is indeed persistent as some
workers churn from one informal job to the next. Our study contributes to the debate in
the informality literature regarding segmented versus integrated labor markets. It also
contributes to the literature on displacement by establishing informal employment as an
important cost of displacement. We also look at the share of undeclared wages in formal
jobs and find that these shares are larger for separators than for incumbents, with
displaced workers bearing the brunt of this manifestation of informality.