In this paper I study and compare the earnings distributions for formal and informal workers using the data from the RLMS HSE survey for 2000–2010. I find that during the whole period earnings inequality was significantly higher in the informal sector than in the formal sector. Informality has statistically significant impact on the distribution of earnings, but its contribution is much smaller than the effects of other variable such as gender, education, region, and settlement type. Earnings inequality dramatically decreased in both sectors over the 2000–2010 period. In the formal sector the changes in the earning distribution were mainly generated by the changes in the distribution of hourly earnings. In the informal sector the reduction of inequality went through two channels: differences in both hourly rates and hours of work were declining. This reflects several underlying forces: a declining share of workers without permanent job and low barriers between the sectors (as inequality decreased by similar amount in both sectors). In fact, one third of the overall decline in the variance of logs over the 2000–2010 period is due to workers without permanent employment.