Envelope wages in Central and Eastern Europe and the EU

Abstract

This article reports the first cross-national evaluation of the prevalence of a little discussed wage arrangement where formal employers pay their formal employees two wages, one declared and the other an undeclared ‘envelope wage’. Analysing the results of a 2007 survey conducted in the 27 European Union member states, the finding is that some 5% of employees in formal employment receive an additional undeclared wage from their formal employer which amounts on average to some two-fifths of their wage packet. However, this employment practice is found to be markedly more prevalent in East-Central European countries, where some 11% of formal employees receive an undeclared wage and this is more often paid for their regular employment hours, which is in stark contrast to Continental Europe and Nordic countries, where such wages are less common and received mostly for overtime or extra work performed. The article concludes by discussing how this neglected but nevertheless significant practice might be tackled.