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Working paper

Informality as a Stepping Stone

Informality is a deаfining characteristic of labor markets in developing countries. This paper analyzes patterns of mobility across different forms of formal and informal employment in Russia. Using transition matrices and a dynamic multinomial logit model, we find little evidence of entry barriers to the formal sector. The main exception involves casual and irregular activities, which seem to be weakly integrated to the rest of the labor market. There is evidence that informal entrepreneurship acts as a stepping-stone toward formal entrepreneurship. Informal employees, on the contrary, are not more likely than unemployed individuals to get a formal position. An analysis of earnings and life satisfaction confirms that entrepreneurship is the most desirable position. Individual performing irregular activities are the least happy.