Self-Employment in Russia: The Development of the SME Sector or the “Garage Economy” Trend

Abstract

Russia’s experiment with legalization of self-employment has gone on for more than three years. The number of persons officially registered as self-employed exceeded five million by mid-2022, and they have been included in the employment statistics for small and medium-sized enterprises (SMEs), which are a target indicator for one of the national goals defined by the President of the Russian Federation. However, the increase in self-employment may not indicate a qualitative advance in the SME sector but may instead partially conceal a decline in the main indicators. The purpose of this article is to trace the principal trends and factors in the development of self-employment in Russia’s various regions, including a possible exodus of workers from SMEs to self-employment. Based on an econometric model, the article analyses the main factors that determine the development of self-employment in Russia’s regions: GRP per capita, average salary, unemployment, the economic structure, and human capital. The results indicate that self-employment in the regions is correlated with such negative economic factors as low salaries and GRP per capita, high unemployment, low-quality human capital, and less industrial productivity in the regional economy. The growth of self-employment is not accompanied by a qualitative advance in the SME sector. Analysis of current development trends for Russia’s SME sector has shown that the growth in selfemployment is due mostly to legalization of micro-businesses. During a crisis, self-employment becomes a way for entrepreneurs to maintain their income. The article proposes measures for supporting formal employment in the SME sector in order to help the self-employed create promising businesses.