The Commonality of Envelope Wages in Eastern European Economies

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Abstract
This paper evaluates the common practice in East European economies whereby formal employers pay their formal employees both a declared wage and an undeclared "envelope wage." Until now, little survey evidence has been available. Here, an extensive Eurobarometer survey involving 10,171 face-to-face interviews in East European economies conducted in 2007 is reported. It finds that one in ten formal employees had received envelope wages in the previous year, amounting on average to two-fifths of their gross annual wage. This is found to be a ubiquitous practice, albeit more common in some countries, sectors, occupations, and population groups than others. A more in-depth evaluation of this wage practice in Eastern Europe and greater discussion of how the arrangement might be tackled is called for.