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Minimum wage policy and undeclared wages in transition economies

Author

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  • Nicolas Gavoille

    (Latvijas Banka and Stockholm School of Economics)

Abstract

How do minimum wage policies interact with labour tax evasion? In many transition economies, two features stand out: a large spike in the wage distribution at the minimum wage and widespread use of “envelope wages†—undeclared cash paid in addition to official earnings. This spike can be explained by the over-representation of tax-evading employers among minimum wage payers. In such a context, raising the minimum wage may serve as an enforcement tool by compelling evading firms to convert part of the undeclared pay into formal wages in order to comply with the legal minimum.

Suggested Citation

  • Nicolas Gavoille, 2026. "Minimum wage policy and undeclared wages in transition economies," World of Labour, LISER, pages 523-523, March.
    • Handle: RePEc:iza:izawol:journl:2026:n:523
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    Keywords

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    JEL classification:

    • J08 - Labor and Demographic Economics - - General - - - Labor Economics Policies
    • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance

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