Explaining the Prevalence of Illegitimate Wage Practices in Southern Europe: An Institutional Analysis

Abstract:

This paper proposes that the prevalence of illegitimate wage practices in Southern European societies results from the discord between the formal rules (formal institutions) and the socially shared unwritten rules that reflect citizens' beliefs (informal institutions).

To evaluate this, a 2013 survey is reported on whether employers in five Southern European countries fraudulently evade tax and social security payments by paying employees a portion of their salary off the books. A strong association is revealed between the extent of wage under-reporting and the degree of institutional asymmetry across these societies. The implications for theorising illegitimate wage practices are then explored.