IS THE INCIDENCE OF ENVELOPE WAGES LESS PREVALENT IN MORE MODERNISED AND DEVELOPED COUNTRIES? AM EMPIRICAL ANALYSIS BASED ON EU28 MULTILEVEL APPROACH
IS THE INCIDENCE OF ENVELOPE WAGES LESS PREVALENT IN MORE MODERNISED AND DEVELOPED COUNTRIES? AM EMPIRICAL ANALYSIS BASED ON EU28 MULTILEVEL APPROACH

Summary/Abstract: The paper aims to investigate the validity of modernisation thesis according to which the incidence of envelope wages is less prevalent in more developed and modernised countries, using the EU 28 member states and the multilevel modelling approach. In order to do that, a two-level logistic regression model in which the first level includes individuals’ characteristics and the second one quantifies some proxies for modernisation thesis. While most studies provide evidence on the determinants of informality at the level of individual country or cross-country analysis, the present study has the advantage of analysing the prevalence of envelope wages using a special type of models controlling for both micro and macro information. The envelope wage is defined as a registered formal employment agreement, and an extra, undeclared “envelope wage,” via a verbal unwritten agreement. In order to capture the incidence of envelope wages, the 2013 Special Euro barometer survey was used. Empirical results revealed the total validity of the modernisation thesis, in countries with higher levels of economic development, higher qualities of government, a low level of corruption, a higher level of happy planet as well as a higher level of social progress, salary under-reporting is less prevalent. Also, a lower prevalence of envelope wages was proved to be associated with a higher tax morale.

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