Evaluating the prevalence of “envelope wages” in Europe

This paper aims to evaluate the prevalence in Europe of a so far little discussed wage practice in which employers pay their declared employees two wages, one declared and the other an undeclared (“envelope”) wage.

To evaluate the pervasiveness of envelope wages in Europe, a 2007 Eurobarometer survey on undeclared work is reported involving 26,659 face‐to‐face interviews which included a section on whether employees are paid an additional envelope wage by their declared employer.

The finding is that one in 20 employees receive some of their wage from their employer as an undeclared “envelope wage” and on average this amounts to two‐fifths of their wage packet. This payment arrangement, however, is more prevalent in some businesses, places and populations than others. Smaller businesses and construction firms are more likely to pay envelope wages. Men, younger persons and the lower paid are more likely to receive such wages. And geographically, envelope wages are more common in East‐Central Europe, where such payments are more likely to be for regular employment hours, whilst in Continental Europe and Nordic countries envelope wages are less common and received more for overtime or extra work conducted.

Through an evaluation of its prevalence, this paper displays the need for action to tackle this illegitimate wage practice and briefly reviews a range of policy options and measures.

This is the first extensive evaluation of the commonality of envelope wages in Europe.