Evaluating the cross-national variations in under-declared wages in the European Union: an exploratory study

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.