Shoddy Work Due to Crisis: Inflation Drives Undeclared Work to Record High

Due to the ongoing recession, the expected rise in unemployment, and the continued high inflation, undeclared work in Austria is likely to increase again this year, says Linz economist and undeclared work expert Friedrich Schneider.

Recession further drives undeclared work up

With a volume of 40.7 billion euros, the shadow economy will account for 8.1 percent of the official economic output this year, which is an increase of 6.5 percent compared to the previous year.

Schneider has adjusted his calculations for 2024 upwards due to the economic downturn. Accordingly, the nominal shadow economy increased by 14.9 percent to 38.23 billion euros last year, which was 7.8 percent of the official GDP. The increase was somewhat curbed by the abolition of cold progression. This year, the tendency to engage in undeclared work is likely to rise also due to budget-saving measures, as income losses would at least be partially compensated, explains the economist.

Very little undeclared work in Austria compared to the EU

Austria still remains the country with the least undeclared work in the EU after Luxembourg. It is followed by the Netherlands and Ireland. In contrast, much more undeclared work is done in Bulgaria, Romania, and Croatia, where the volume of undeclared work accounts for about a third of the official GDP.

The largest share of the shadow economy in Austria, with around 39 percent, is held by the construction industry and craft businesses. They are followed by other commercial enterprises and household-related services with a share of 17 percent.

State loses billions due to undeclared work

The biggest loser of undeclared work is the state, which loses taxes and especially social security contributions amounting to 2.0 to 3.5 billion euros per year. However, the tax losses would be limited, according to Schneider, as on average 85 percent of the money earned in undeclared work is immediately spent again in the official economy. Another loser is the health insurance companies, which have to bear the higher costs due to additional accidents or incapacity to work of those working off the books.

On the other hand, the income earned in undeclared work also serves as a buffer for the recession, as it compensates for part of the income losses, according to the economist. Many houses would not exist without undeclared work, as very few people could afford their own home entirely without undeclared work.

Call for a comeback of the craftsman bonus

As economic policy measures to combat undeclared work, Schneider proposes the reintroduction of the craftsman bonus of 2,000 euros per household per year and a reduction in non-wage labor costs.

(APA/Red)

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