Unreported Employment and Envelope Wages in Mid-Transition: Comparing Developments and Causes in the Baltic Countries
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This paper compares the prevalence and determinants of unreported employment in the three Baltic countries in 1998 and 2002 using a hitherto little used data set. The prevalence of unreported employment varies substantially across the three countries and across the two sampling years. Microeconometric estimations show that firm-related characteristics, such as sectoral activity, firm size and employment changes, are important determinants of unreported employment in all three countries. The impact of socio-demographic factors, such as gender, age and education, is generally less important and varies across countries and time. Only a small part of the changes in unreported employment between 1998 and 2002 can be accounted for by changes in firm-specific factors and socio-demographic characteristics. Exploratory calculations suggest that the gain for individuals undertaking unreported employment is modest or non-existent, in particular among individuals who engage regularly in such activities. This suggests that the many of the recipients of envelope wages may have few alternatives to accepting unreported employment.
Keywordsunreported employment informal employment envelope wages
JEL ClassificationsH26 H24 D19
The authors would like to thank two anonymous referees, David Grigorian and Martti Randveer for excellent comments. Pekka Ylöstalo from the Finnish Ministry of Labour kindly provided the Working Life Barometer data set and answered many questions. All errors remain the responsibility of the authors. The views expressed are those of the authors and do not necessarily represent the official views of Bank of Estonia.
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