Risk Attitudes and the Incidence of Informality among Workers: Evidence from a Transition Country

In our research we relate demographic characteristics to risk attitudes that in turn are linked to the incidence of informal or formal employment. Using the 2007 wave of the Ukrainian longitudinal monitoring survey (ULMS) to study the Ukrainian labor market, we first show that the determination of our measures of risk attitudes by carefully chosen predetermined demographic variables in Germany in 2004 can be replicated with the ULMS data. The measures employed thus seem to catch persistent patterns of risk attitudes across time and space. The ULMS allows the distinction between voluntary and involuntary informal employment. Our preliminary findings show that those workers who are willing to take more risks engage in voluntary informal employment relationships or are in formal or informal self-employment, both of which states we consider voluntary. These results provide additional evidence to support the hypothesis that the labor market in Ukraine is segmented in three ways: a formal sector co-exists with an informal sector which in turn has a voluntary "upper tier", where a minority of informally employed workers is located, and an involuntary "lower tier", where the majority of informally employed workers finds itself.