Informal Employment and Earnings Determination in Ukraine

Informal employment is a serious challenge for the Ukrainian economy, since the number of informal workers has been rising over time. This chapter provides an extensive literature review on labour market segmentation in Ukraine, along with a review of the current state of informal employment in Ukraine according to the latest ILO definition. We pay detailed attention to distribution across four categories of workers: formal employees, formal self-employed, informal employees and the informal self-employed. We use data from the Ukrainian Longitudinal Monitoring Survey (ULMS) for 2007 and design a Mincer earnings distribution function to investigate the factors that determine the income of individuals. Human capital theory proves robust in as much as educational attainment is a major explanatory factor for formal workers, although it is not as robust regarding informal workers.