Direct Estimation of Hidden Earnings : Evidence From Administrative Data

We estimate hidden earnings by matching car registries to employers’ records of paid earnings for a panel of individuals and households in Moscow. The identification strategy is based on the idea that reported earnings may be falsified, but car registries are accurate. Hidden earnings comprise over 75 percent of actual earnings of the large majority of car owners, at least twice as high as estimated in previous studies using less direct methods. There is also a lot of heterogeneity across employers. Foreign-owned firms, large firms and state-owned firms in capital-intensive industries report earnings more transparently than do small firms and firms in labor-intensive industries, where actual earnings may be more than five times higher than reported earnings. Differentials of similar magnitude are found in public services, especially among educators. Our findings shed new light on the perceived links between firm ownership, size and productivity in countries with large hidden economies