Informality on the rise: Dissecting quasi-formal employment in the EU

Abstract

In spite of a growing body of literature on quasi-formal employment in the European Union (EU), there is still limited knowledge regarding the exact functioning of this illegal employment scheme. To fill this gap, we report data from the 2019 Special Eurobarometer on undeclared work, which reveals that 30.1% of European workers have higher income from employment than reported to tax authorities. Explicitly, 2.6% of registered dependent employees are entitled to cash top-ups to the official wage, for 7.8% of them the amount of supplementary payments depends on the work efforts, whereas 9.2% receive informal remuneration under multiple arrangements. In addition to these ‘regular recipients’, we also found that 10.5% of employees in the EU can be classified as ‘sporadic quasi-formal workers’. Besides showing that wage underreporting is far more pervasive than previously assumed, the study also offers a more nuanced insight into different manifestations of this illicit practice in the EU. Results of a two-level random intercept multinomial logit model reveal that women are less likely to receive fixed and variable cash-in-hand payments, whereas older individuals have a lower propensity to receive work-time-related income. The analysis also highlights that professionals, service sector employees, manual job workers and individuals whose jobs require travelling are more prone to variable wages compared to the rest of the population. Given a modest success in combating the phenomenon to this date, these findings will be particularly valuable for policymakers in their endeavours to devise tailored policy measures.

JEL Codes: E26, H26