Evaluating the Prevalence and Distribution of Envelope Wages in the European Union: Lessons from a 2013 Eurobarometer Survey

Abstract:
The aim of this article is to evaluate the prevalence and distribution in the European Union of a little discussed illegitimate employment practice whereby employers pay their formal employees both an official declared salary and an undeclared ‘envelope’ wage so as to evade the full tax and social security dues owed.

To do this, a 2013 Eurobarometer survey involving 11,025 face-to-face interviews with formal employees in the 28 member states of the European Union is employed. The finding is that one in 33 employees received envelope wages during the 12 months prior to the survey, amounting on average to one quarter of their gross annual wage. Employers in East-Central and Southern European countries, and in smaller businesses, are more likely to use this fraudulent wage practice which is concentrated amongst weaker more vulnerable employee groups such as younger, skilled and unskilled manual workers, those facing financial difficulties and those with fewer years in formal education, but interestingly, also professionals and those travelling for their jobs. The paper then discusses possible causes as well as the policy options and approaches for tackling this illicit wage practice.