Identifying the envelope wages phenomenon based on LFS and SES data sets – evidence from Poland

Abstract

This paper deals with the problem of identifying envelope wages based on the Labour Force Survey (LFS) and the Structure of Earnings Survey (SES). The research samples have been adjusted so that the distribution of individuals in both databases is the same. The maximum likelihood method is used and the parameters of multilevel models that explain wages are estimated. Theoretical wages for selected workers groups are calculated. Based on differences between the theoretical wages of individuals from the LFS and SES databases, a measure associated with envelope wages is calculated. The novelty of this study lies in providing a new method for evaluating the phenomenon of envelope wages. The analysis indicates that various features of the employees and enterprises significantly affect the propensity to receive an envelope wage. This propensity is also strongly determined by affiliation to a NACE section. Regional differentiation of the propensity to receive envelope wages was also identified. This problem is urgent in light of the negative demographic tendencies in Poland and similar countries of the Central and Eastern Europe that lead to an intensified competition for employees. However, cost competition does not allow for significant increases of labour costs. Therefore, fiscal authorities in Poland and similar countries should rethink their taxation policies.