ABSTRACT
This article addresses a link between the size of the shadow economy and the corporate labour share of income in the European Union. Fixed individual and time effects models suggest that there is a negative link between these two indicators. The coefficients are statistically significant if we control for other variables related to labour markets, such as unemployment rates or strictness of employment protection (regular contracts). Depending on the exact model specification, our estimates suggest that an increase in the shadow economy by 1% of GDP results in a 0.5–1% decline in the labour share of income in the corporate sector.
Disclosure statement
No potential conflict of interest was reported by the author.
Notes
1 The corresponding p-values are in the range 3.07 × 1014–4.67 × 107.
2 This is a common feature of plm package in R, which was used in our work. In comparison, a few other packages consider variation explained by fixed effects as ‘explained variation’, resulting in very high coefficients of determination.