How many employees receive undeclared cash-in-hand payments from their employers?

What is it about?

To transcend the view of employment as either formal or informal, this paper evaluates the prevalence of quasi-formal employment where formal employers pay formal employees an unreported (“envelope”) wage in addition to their formal reported salary. To explain the individual-level variations in quasiformal employment, the “marginalisation” thesis is evaluated that this practice is more prevalent among vulnerable groups and to explain the country-level variations, and a neo-institutionalist theory is evaluated that it is more prevalent where formal institutional failures lead to an asymmetry between the formal laws and regulations and the unwritten socially shared rules of informal institutions. To evaluate the individual- and country-level variations in the prevalence of quasi-formal employment, a multi-level logistic regression is provided of data from special 2019 Eurobarometer survey 92.1 involving 11,793 interviews with employees across 28 European countries (the 27 member states of the European Union and the United Kingdom).

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Photo by Katt Yukawa on Unsplash

Photo by Katt Yukawa on Unsplash

Why is it important?

Of the 3.5% of employees (1 in 28) who receive under-reported salaries, the marginalisation thesis is supported that it is largely vulnerable population groups. So too is the neo-institutionalist explanation that quasi-formal employment is more common in countries where the non-alignment of formal and informal institutions is greater, with the formal institutional failings producing this identified as lower levels of economic development, less modernised state bureaucracies and lower levels of taxation and social protection.

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