Informal employment in Kazakhstan: a blessing in disguise?

Informality is heterogeneous, dynamic and difficult to quantify; the formal-informal gap in earnings is one major component of it that we wish to examine. Using the 2013 Kazakhstan Labor Force Survey, we analyze the returns that formal and informal workers receive for a given set of characteristics and also use a matching technique to decompose the gap. We observe that in Kazakhstan, there is a substantial earnings gap in favor of formal workers and that a quarter of the gap remains unexplained. Our study also highlights the importance of matching-based decomposition and distributional analysis in explaining the differences in earnings between formal and informal workers.