World Economy

German Shadow Economy Shrinking

German Shadow Economy Shrinking German Shadow Economy Shrinking

Black market employers in Germany are facing hard times, a new study has found, because better-paid legal work has been shrinking the ranks of those forced into untaxed, cash-in-hand jobs.

According to a study released by Germany’s Institute for Applied Economic Research on Tuesday, the number of people working illicitly is likely to decrease further this year due to higher job creation in Germany, DW reported.

In 2016, moonlighting was expected to fall by 0.4% to 10.8% of Germany’s gross domestic product, the Tubingen-based researchers said, thus reducing estimated illegal revenues by €3.35 billion ($3.65 billion) to a total of €336 billion.

  Uncertainty Over Refugees

Germany’s black labor market, however, remains big business despite its decline over the past six years. Since first official records were taken in 1995, illicit employment has peaked twice, namely during the economic crisis at the turn of the millenum and the financial crisis of 2007/2008.

In 2003, the shadow economy generated illegal revenue of €370 billion, or 16.7% of GDP, while the figure came in at €352 billion, or 14.3% in 2009.

The IAW report, which was compiled with the collaboration of researchers from Austria’s University of Linz, noted, however, that uncertainty would remain about the affects of migrants seeking work in the German shadow economy.

In the face of an influx of more than a million refugees to Germany last year, the researchers estimate that up to 300,000 migrants might end up being employed illegally in 2016, for example, as cleaners or in the construction sector. Pointing out that asylum-seekers often have to wait many months until they are allowed to work, Schneider said: “They want to get out at some point and go into the illegal job market.”

  Shadow Economy Ranking

The economic researchers also wrote that the United States had one of the smallest parallel economies relative to GDP–at a projected 5.6% for 2016.

The reason for that is the lack of labor market regulations in the US as well as the generally low level of taxation, said Schneider, adding that “the incentive to work under the table there does exist in the agricultural sector and among immigrants.”

Rounding out the bottom of the parallel economy rankings of more than 20 OECD countries is Greece with 22%, or one in every five euros earned illegally. Surprisingly, Italy and Spain–Europe’s third and fourth largest economies–come hard on the heels of Greece with illegal work making up 20.2% and 17.9% of GDP respectively.