Minimum wage policy and undeclared wages in transition economies

Nicolas Gavoille

World of Labour, 2026, No 523, 523

Abstract: How do minimum wage policies interact with labour tax evasion? In many transition economies, two features stand out: a large spike in the wage distribution at the minimum wage and widespread use of “envelope wages†—undeclared cash paid in addition to official earnings. This spike can be explained by the over-representation of tax-evading employers among minimum wage payers. In such a context, raising the minimum wage may serve as an enforcement tool by compelling evading firms to convert part of the undeclared pay into formal wages in order to comply with the legal minimum.

Keywords: minimum wages; envelope wages; tax evasion; income underreporting (search for similar items in EconPapers)
JEL-codes: H26 J08 J38 (search for similar items in EconPapers)
Date: 2026
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