Explaining and tackling envelope wages in the Baltic Sea region

What is it about?

The 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).

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Why is it important?

The 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.

Perspectives