Study on informal economy: Inflation drives undeclared work

Persistently high inflation is a burden for many people in Germany. Researchers estimate that the sharp rise in prices will lead to significantly more undeclared work this year.

The high rate of inflation and the weaker economy are likely to fuel undeclared work in Germany noticeably. That’s what labor market researchers Bernhard Boockmann from the Institute for Applied Economic Research at the University of Tübingen and Friedrich Schneider, professor emeritus at the Johannes Kepler University Linz expect. In February they had predicted a decline for this year in a “shadow economy forecast”. In the meantime, however, the framework conditions have changed significantly, Boockmann told the dpa news agency.

Lower economic growth coupled with rapidly rising prices makes it more difficult for providers to pass on their own higher costs to customers. In trades, for example, this increases the incentive to offer lower prices through offers without taxes and social security contributions.

Declining for years

Since 1997, labor market researchers have been using various data to determine the proportion of undeclared work in Germany’s total economic output. In 2003, the shadow economy reached a peak with a share of 16.7 percent of the official gross domestic product (GDP).

Since then, undeclared work in Germany has tended to decline. It reached its lowest point in 2019 with a share of 9.3 percent. According to researchers’ estimates, the volume of undeclared work in Germany last year was 338 billion euros. The share of GDP was therefore 9.5 percent.

For this year, Boockmann and Schneider had expected a further drop to 8.7 percent compared to the official GDP, the volume of undeclared work should still amount to 326 billion euros according to their original estimates. In the meantime, however, an increase by a two-digit billion amount is conceivable, said Schneider.