The Commonality of Envelope Wages in Eastern European Economies

Abstract

This paper evaluates the commonality in Eastern European economies of the employment practice whereby formal employers pay their formal employees both a declared wage and an undeclared ‘envelope wage’. Until now, little survey evidence has been available. Here, an extensive Eurobarometer survey involving 10,171 face-to-face interviews in Eastern European economies conducted in 2007 is reported. The finding is that 1 in 10 formal employees had received envelope wages in the previous year amounting to on average two-fifths of their gross annual wage and this is found to be a ubiquitous practice, albeit one that is more common in some countries, sectors, occupations and population groups than others. The paper concludes by calling for a more in-depth evaluation of this wage practice in Eastern Europe and greater discussion of how this arrangement might be tackled.

Keywords: shadow economy, informal sector, undeclared work, envelope wages, tax compliance, Eastern Europe, European Union

JEL Classification: H26, J46, K42, O17, P3