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Cash wage payments in transition economies: Consequences of envelope wages

Ioana Horodnic

IZA World of Labor, 2016, No 280, 280

Abstract: In transition economies, a significant number of companies reduce their tax and social contributions by paying their staff an official salary, described in a registered formal employment agreement, and an extra, undeclared “envelope wage,” via a verbal unwritten agreement. The consequences include a loss of government income and a lack of fair play for lawful companies. For employees, accepting under-reported wages reduces their access to credit and their social protections. Addressing this issue will help increase the quality of working conditions, strengthen trade unions, and reduce unfair competition.

Keywords: envelope wages; informal employment; undeclared economy; tax evasion (search for similar items in EconPapers)
JEL-codes: J46 J48 O17 E26 (search for similar items in EconPapers)
Date: 2016
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Handle: RePEc:iza:izawol:journl:y:2016:n:280