The Prevalence and Impacts of ‘Envelope Wages’ in East–Central Europe

ABSTRACT

To evaluate the prevalence and impacts of the illegitimate wage practice where employers pay formal employees both a declared wage and an additional undeclared ‘envelope wage’, a survey involving 10,171 interviews across 10 East–Central European nations is reported to evaluate its commonality and evidence from 313 interviews conducted in Moscow to analyse its impacts. Finding that 10% of employees were paid envelope wages during 2007 amounting on average to two-fifths of their gross wage, and that this arrangement has deleterious implications for both employees and the economy, the article concludes by discussing how it might be tackled.

KEYWORDS:

• East–Central Europe
• envelope wages
• European Union
• illegal work
• informal employment
• Moscow
• Russia
• tax compliance
• tax fraud

The authors thank the Employment Analysis division of DG Employment and Social Affairs at the European Commission for providing access to the Eurobarometer database. We also thank the anonymous reviewers for their useful comments on an earlier draft of this article. The normal disclaimers of course apply.

Notes

Source: Eurobarometer survey 2007.

Source: Eurobarometer survey 2007.

Additional information

Notes on contributors

Colin C. Williams

Colin C. Williams is Professor of Public Policy in the School of Management at the University of Sheffield in the United Kingdom.

John Round

John Round is Lecturer in Economic Geography in the School of Geographical Sciences at the University of Birmingham in the UK.