Illegitimate Wage Practices in Eastern Europe: The Case of 'Envelope Wages'

Zusammenfassung

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To evaluate the prevalence in Eastern Europe of a little discussed illegitimate wage practice in which employers pay their formal employees both a declared wage and an undeclared 'envelope wage', an extensive survey involving 10,671 face-to-face interviews in eleven post-socialist societies is here reported. The finding is that 10 per cent of all employees received envelope wages during the last 12 months amounting on average to two fifths of their gross annual wage. Revealing how although unevenly distributed, this wage practice is nonetheless ubiquitous throughout Eastern Europe, the paper concludes by briefly reviewing policy options for tackling this labour arrangement. Der Beitrag untersucht die wenig erforschte illegale Praxis in Osteuropa, wonach Arbeitgeber ihren Mitarbeitern sowohl einen deklarierten Lohn als auch einen undeklarierten, sog. 'Briefumschlag-Lohn' bezahlen. Dazu wurde eine umfangreiche Umfrage mit 10.671 persönlichen Interviews in elf postsozialistischen Ländern durchgeführt. Das Ergebinis ist, dass 10 Prozent aller Angestellten während der letzten 12 Monate 'Briefumschlag-Löhne ' empfingen, was im Durchschnitt zwei Fünftel ihres Jahreslohns umfasste. Es wird aufgezeigt, dass diese Praxis zwar ungleich verbreitet, aber doch überall in Osteuropa anzutreffen ist. Zum Abschluss werden einige politische Handlungsoptionen angesprochen, die geeignet sind, diese Praktiken zu bekämpfen.

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Auszug

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Illegitimate Wage Practices in Eastern Europe: The Case of 'Envelope Wages'

Introduction

Over the past decade, a small tributary of scholarly thought analysing the postsocialist societies of Eastern Europe has begun to unravel a little discussed wage practice used by formal employers. This is the labour arrangement where employers pay their formal employees two wages, an official wage which is declared to the state for tax and social security purposes and an unofficial 'envelope' wage which is not declared and allows employers to avoid paying their full social insurance and tax liabilities (Karpuskiene 2007; Neef 2002; Sedlenieks 2003; Zabko/Rajevska 2007; Williams 2007; Williams/Round 2007). Until now, whether this violation of work payment principles by formal employers is ubiquitous across the Eastern European labour market or merely exists in a few small enclaves has not been evaluated. This paper seeks to fill this gap.

To do this, the paper commences by showing that although there is a small emergent literature on envelope wages in Eastern Europe, most of the studies so far conducted have been local and small-scale. The result is a lack of understanding of its overall prevalence, nature and distribution in Eastern Europe. To resolve this, the second section introduces a cross-national survey conducted in 2007. In this paper, the data collected from the 10,671 face-to-face interviews in eleven Eastern European nations on envelope wage practices are reported. Analysing these findings, the third section will reveal that a significant minority of formal employees in Eastern Europe receive enve...

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