Evaluating the Illegal Employer Practice of Under‐Reporting Employees’ Salaries

Abstract

This article advances understanding of the prevalence and distribution of the illegal employer practice of under-reporting employees' salaries, explains this practice and evaluates policy approaches. Analysing a 2013 Eurobarometer survey of 11,025 employees in 28 European countries, one in 33 employees receive under-reported salaries, mostly in small businesses and vulnerable groups (e.g. unskilled workers, with lower education levels and financial difficulties). Explaining this practice, not as an individual criminal act that increasing the risk of detection can tackle, but as a symptom of systemic problems, which require improvements both in tax morale at the individual level and in the formal institutional environment at the country level to resolve, we then discuss the implications for theory and policy.

Rethinking informal payments by patients in Europe: An institutional approach

“…Indeed, most previous studies reveal that women are more likely to make informal payments for health care services [6,40,42,46,59], as do younger persons [6,45,47,49,60], better educated persons [6,[40][41][42]47,49], those having a job [41], those married [49], those living in a smaller household [40,49,50], those living in rural areas [45,60,61], and those with lower income [31,37,57,61]. By testing this hypothesis, whether these populations also have a higher institutional asymmetry can be evaluated.…”

Evaluating the prevalence of employees without written terms of employment in the European Union

“…Meanwhile, and in relation to under-declared employment (i.e., where formal employees are paid an official declared wage and an additional undeclared 'envelope' wage so that employers evade paying their full tax and social contributions), the finding has been that underdeclared employment is more likely among younger persons, men, unskilled manual workers, and those living in East-Central and Southern Europe (Williams and Horodnic, 2016a), suggesting again that some marginal populations are more likely to be engaged in the undeclared economy but not others.…”

Why is informal employment more common in some countries? An exploratory analysis of 112 countries

“…The total tax rate measures the amount of taxes and mandatory contributions payable by a business in the second year of operation, expressed as a share of commercial profits. The total amount of taxes is the sum of five different types of taxes and contributions: profit or corporate income tax, social contributions and labour taxes paid by the employer, property taxes, turnover taxes, and other small taxes (World Bank, 2017b).Meanwhile, and to test political economy theory that informal employment is associated with the level of poverty(Williams, 2014;Williams and Horodnic, 2017), three indicators are analysed:  Poverty gap at national poverty lines (%). Poverty gap at national poverty lines is the mean shortfall from the poverty lines (counting the nonpoor as having zero shortfall) as a percentage of the poverty lines.…”

“…Gini index measures the extent to which the distribution of income (or, in some cases, consumption expenditure) among individuals or households within an economy deviates from a perfectly equal distribution. Thus a Gini index of 0 represents perfect equality, while an index of 100 implies perfect inequality (World Bank, 2016e).To evaluate both the neo-liberal theory of state over-interference and political theory of state under-intervention, meanwhile, indicators previously used(Eurofound, 2013; European Commission, 2013;Vanderseypen et al, 2013;Williams and Horodnic, 2017) are employed as well as some similar additional indicators, namely:  Social contributions (% of revenue). Social contributions include social security contributions by employees, employers, and self-employed individuals, and other contributions whose source cannot be determined.…”