The prevalence of envelope wages in the Baltic Sea region

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Abstract
Purpose – The purpose of this paper is to evaluate in the Baltic Sea region the prevalence of an illegitimate wage arrangement whereby formal employers pay their formal employees both an official declared wage as well as a supplementary undeclared (envelope) wage. Design/methodology/approach – A 2007 Eurobarometer survey is reported that evaluates envelope wage practices in 27 European Union (EU) member states. This paper focuses upon the 4,031 face-to-face interviews conducted in four countries from the Baltic Sea region that are now member states of the EU, namely Estonia, Latvia, Lithuania and Poland. Findings – Some one in eight formal employees in these four countries from the Baltic Sea region received an undeclared “envelope” wage from their formal employer during the past 12 months which on average amounted to 45 per cent of their gross wage packet. Although this practice is concentrated in smaller businesses, the construction industry, and amongst younger people, manual workers and lower income groups in these four countries, it is by no means confined to specific pockets of the economic landscape. Rather, it exists throughout these countries in all business types and employee groups. Research limitations/implications – The existence and commonality of envelope wages reveals the need to transcend the dichotomous depiction of formal and informal jobs as always separate and discrete and to recognise how they can be inextricably interwoven. Practical implications – This paper outlines a range of potential policy measures for tackling envelope wages and calls for their piloting and evaluation. Originality/value – The first cross-national evaluation of the incidence and nature of envelope wages in the Baltic Sea region and what needs to be done to tackle this practice.