Legalization of Informal Employment as a Reserve for Increasing Revenues to the Pension System of Russia

• Published in: Prostranstvennaâ ékonomica Vol. 4; no. 4; pp. 130 - 147
• Main Authors: Chistova, Elena, Tyrsin, Alexander, Azaryan, Alexan
• Format: Journal Article
• Language: English; Russian
• Published: Economic Research Institute of the Far East Branch of the Russian Academy of Sciences 01.12.2017
• Subjects: economic activity; informal employment; optimization problem; pension system; subjects of the Russian Federation; wage replacement rate
• ISSN: 1815-9834; 2587-5957
• DOI: 10.14530/se.2017.4.130-147

In this study the aim was to determine of options for increasing insurance contributions to the Russian pension system.. As a reserve for growth of revenues to the pension system are considered, the growth in the number of employees (payers of fees) through the legalization of informal employment. The paper is formulated and solved an optimization problem of the legalization of the informal economy in the framework of the current PAYG pension system while raising the level of pensions up to 40% of lost earnings in the context of economic activities and the subjects of the Russian Federation. It’s was built an optimization problem of nonlinear programming on the basis of balance equations of a distributive pension system. The paper presents a number of calculations on the basis of which conclusions are made. First, to increase the level of pensions in Russia, such a reserve as the legalization of informal employment is significant, but insufficient. Secondly, a 40% wage replacement rate can be achieved only in case of virtually complete legalization of population employment in the informal sector. Thirdly, the authors identified the particular characteristics of informal employment legalization in specific economic activities and subjects of the Russian Federation