The prevalence of envelope wages in the Baltic Sea region

Economic and Industrial Democracy

2013

This article seeks to explain the cross-national variations in the tendency of employers to under-declare salaries by paying formal employees an undeclared ('envelope') wage in addition to their official declared salary. Analysing the prevalence, size and nature of envelope wage payments across ten East-Central European countries using data from a 2007Eurobarometer survey, envelope wage payments are found to be less common, smaller and more likely to be for extra work in wealthier, less corrupt and more equal nations with higher levels of taxation, social protection and effective redistribution via social transfers. The theoretical and policy implications are then discussed.

Section: Methodology: Examining Envelope Wage Payments In East-centramentioning

confidence: 99%

Evaluating cross-national variations in envelope wage payments in East-Central Europe

Economic and Industrial Democracy

2013

“…Indeed, one earlier study conducted in 2007 reveals that in the Baltic Sea region, some one in eight formal employees had received an envelope wage from their formal employer during the year prior to the survey (Williams, 2009a). This is not therefore some minor practice.…”

Section: Explaining Envelope Wages: An Institutional Approachmentioning

confidence: 99%

“…In the Baltic Sea region and beyond, a small but burgeoning literature identifies that many employers evade their full tax and social payment liabilities and reduce their labour costs by paying their employees two wages, an official declared salary and an additional undeclared (envelope) wage (Kapelyushnikov et al, 2012;Kukk and Staehr, 2014;Meriküll and Staehr, 2010;Morris and Polese, 2014;Rodgers and Williams, 2009;Putni š and Sauka, 2011;Sasunkevich, 2014;Sauka and Putni š, 2011;Surdej and l zak, 2009;Williams, 2009aWilliams, ,b, 2010Williams, , 2014bWilliams et al, 2013). This illegitimate wage arrangement is important to study because firstly, money is being lost by governments which could otherwise pay for social protection and wider social cohesion projects, secondly, it results in a decrease in the quality of working conditions and thirdly, it represents unfair competition for legitimate enterprises thus putting pressure on them to also flout the laws and regulations and pay envelope wages (Andrews et al, 2011;ILO, 2014;TUC, 2008).…”

Section: Introductionmentioning

confidence: 99%

Explaining and tackling envelope wages in the Baltic Sea region

Baltic Journal of Management

Horodnic

2015

PurposeThe aim of this paper is to advance a new way of explaining and tackling the illegitimate wage practice where employers pay their employees an undeclared (envelope) wage in addition to their formal salary. Drawing upon institutional theory, it is here proposed that envelope wages result from the lack of alignment of a society's formal institutions (i.e., the codified laws and regulations) with its informal institutions (i.e., the socially shared unwritten understandings which reflect citizens' norms, values and beliefs). MethodologyTo evaluate this, data is reported from a 2013 Eurobarometer survey involving 1,738 face-toface interviews with formal employees in four Baltic countries, namely Estonia, Latvia, Lithuania and Poland. FindingsThe finding is that the greater is the asymmetry between the formal and informal institutions (i.e., the level of disagreement of citizens with the codified laws and regulations of formal institutions), the higher is the propensity to pay envelope wages. This is the case at both the individual-and country-levels. Practical implicationsTo reduce the prevalence of envelope wages, the resultant argument is that the values of employers and employees need to be aligned with the formal institutions. This requires alterations not only in the informal institutions, using measures such as tax education, awareness raising campaigns and normative appeals, but also changes in formal institutions so as to improve trust in government by fostering greater procedural justice, procedural fairness and redistributive justice. Originality/valueThis is the first paper to apply institutional theory to explaining and tackling envelope wages in the Baltic Sea region.

“…Thirdly, they were asked to estimate the percentage of their gross yearly income from their main job received as an undeclared envelope wage and fourthly, whether they were happy to receive a portion of their salary as an envelope wage. Although previous studies have described the findings of this Eurobarometer survey with regard to the commonality of envelope wage payments in East-Central Europe [51] as well as South-East Europe [52,53] and the Baltic region [54], these have been purely descriptive reports. No attempt has been so far made to explain the cross-national variations in the prevalence, size and nature of envelope wage payments.…”

Section: Methodology: Examining Envelope Wages In the Eu-27mentioning

confidence: 99%

Evaluating Cross-National Variations in Under-Declared Wages in the European Union: an Exploratory Study

2013

TOARSJ

Abstract:In recent years, there has been a growing recognition that some employers illegitimately under-declare employees' salaries by paying an undeclared ('envelope') wage in addition to their official declared salary. The aim of this paper is to evaluate critically the competing perspectives that variously explain the cross-national variations in the propensity of employers to under-declare wages to be: simply a legacy of under-development (modernisation perspective); due to high taxes, state corruption and burdensome regulations and controls (neo-liberal perspective), or a result of inadequate state intervention in work and welfare arrangements which leaves workers less than fully protected (structuralist perspective). Reporting the results of a 2007 Eurobarometer involving 26,659 face-to-face interviews across the 27 member states of the European Union (EU-27) to evaluate the prevalence, size and nature of envelope wage arrangements across the EU-27, this exploratory study reveals that envelope wages are more common, larger and more likely to be for regular work in poorer, more corrupt and less equal nations with lower levels of taxation, state intervention in the labor market, social protection and redistribution via social transfers. The paper concludes by discussing both the theoretical and policy implications.