Explaining Undeclared Wage Payments by Employers in Central and Eastern Europe: A Critique of the Neo-liberal De-regulatory Theory

Abstract

The aim of this article is to evaluate critically the neo-liberal de-regulatory theory which asserts that the way to tackle undeclared work is to de-regulate economies and cut-back welfare provision. Reporting the results of a 2007 Eurobarometer survey of envelope wages in 10 Central and Eastern European countries, the finding is that the practice of formal employees receiving two wages from their formal employer, an official declared salary and an additional undeclared wage, markedly varies cross-nationally, from 23% of formal employees in Romania to just 3% of formal employees in the Czech Republic. Analyzing this from a “varieties of capitalism” perspective, undeclared envelope wage payments are found to be more prevalent in neo-liberal economies with lower levels of state intervention and less common in more “welfare capitalist” economies in which there is greater state intervention in work and welfare. The resultant conclusion is that envelope wages are correlated with the under- rather than over-reg...