Assessing the impact of employment in the informal sector of the economy on labor market development

Abstract

The paper analyzes employment in Russia’s informal sector based on its spatial and dynamic characteristics. In recent years, the Russian labor market has been characterized by a steady growth of employment rates in the informal sector of the economy, high volatility and territorial differentiation of such employment, and its ambiguous effect on the gross value added and productivity. Given slowing economic growth and reduced productivity, this trend is by no means positive. The database for this study is based on Rosstat data from 83 Russian regions over the period between 2006 and 2020. The research explains the territorial and dynamic features of employment in the informal sector and classifies Russian regions by their employment situation in the informal sector of the economy. We hypothesize that the instability of the labor market is driven by higher rates of employment in the informal sector. To assess employment volatility in the informal sector, we identify the main trends of intersectoral labor mobility and evaluate their intensity. The results distinguish between regions with negative and positive effects. We also reveal problem regions experiencing the negative effects of intersectoral mobility and high or very high rates of employment in the informal sector. The findings can be used to diagnose and monitor regional labor markets, productivity dynamics, and changes in employment as well as to develop national employment programs to ensure the sustainable development of the labor market.