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<p>We develop a novel way to evaluate the size of unreported wage payments at employee level. It is only the reported employer-employee income data combined with firm-level financial statements and survey information on various person-level indicators that are required for this purpose. We estimate the Mincer earning regression by the Stochastic Frontier Analysis approach, proxying the unreported wage payments by the non-negative inefficiency term. Our methodology is tested on the Latvian data: we find that unofficial payments to employees with small reported wages are more frequent and sizeable, revealing lower wage inequality in Latvia when the unreported wage is taken into account.</p>

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Chasing the shadow: unreported wage payments and income inequality

  • 期刊论文

  • 发表日期：

    2025年1月15日

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  • Konstantīns Beņkovskis,
  • Ludmila Fadejeva

摘要

We develop a novel way to evaluate the size of unreported wage payments at employee level. It is only the reported employer-employee income data combined with firm-level financial statements and survey information on various person-level indicators that are required for this purpose. We estimate the Mincer earning regression by the Stochastic Frontier Analysis approach, proxying the unreported wage payments by the non-negative inefficiency term. Our methodology is tested on the Latvian data: we find that unofficial payments to employees with small reported wages are more frequent and sizeable, revealing lower wage inequality in Latvia when the unreported wage is taken into account.