Russia’s Informal Economy Growing to Record Levels

On a monthly basis YouDo.com registers more than 40,000 self-employed people looking for work or just extra earnings in Moscow and St. Petersburg alone.

Twenty-six-year-old Muscovite Maxim Krylov used to earn extra money driving a taxi at night. But with the rise of the Uber and Yandex.taxi apps two years ago, he started working as a taxi driver full-time. “Before, I would wait around for hours for an order, but now there’s no dead time–the orders are coming in non-stop. I can drive around my neighborhood the whole day,” says Krylov, rbth.com reported.

Krylov says he now earns up to 40,000 rubles a week (over $700). According to law, he has to register as an individual entrepreneur and pay income tax, but for now he prefers not to do it. He’s registered with a taxi application as a driver, which means he doesn’t have to officially register himself as an individual entrepreneur—or pay tax. This helps as he’s saving for a mortgage.

In 2016, employment in the informal sector of Russia’s economy set a record level for the last 10 years, reports Rosstat, the Russian Statistics Agency.

Rosstat believes that the informal employment category consists of those people who work in enterprises that are not registered as a legal entity, that is, the self-employed, farmers, individual entrepreneurs, and people whom they hire. Family members who help the family business or a business belonging to a relative are also included.

The informal economy employed 15.4 million people in 2016. This is 21.2% of the total number of people employed in Russia.

However, the Russian Presidential Academy of National Economy and Public Administration estimates that the informal labor market in Russia consists of 30 million people, 21.7 million of whom either combine official employment with informal earnings, or receive a part of their salary unofficially, “in envelopes”.

According to the Russian Finance Ministry, the volume of informal salaries in the country is estimated at 12 trillion rubles ($200 billion), which is 10-13% of the GDP.

In the words of Sergei Khestanov, from the RANEPA Department of Financial Markets and Financial Engineering, the main factor for the growth of informal employment is the combination of the fall of the citizens’ real income and the strengthening of fiscal pressure. “Although income tax in Russia is 13%, the level of the total fiscal burden in the country is rather high, more than 30%, which results in the growth of informal employment,” he explains.