Study shows Latvia's construction shadow economy shrank to around 30%

Take note – story published 4 years ago

A multi-year study conducted by Stockholm School of Economics in Riga (SSE Rīga) professor and Business Against Shadow Economy Board Member Arnis Sauka shows that the percentage of the construction industry represented by the shadow economy decreased to 30.7% in 2019, according to a Latvian Radio broadcast on April 29.

In 2018 the shadow economy represented 34.1% of the construction industry, so there was a 3.4% decrease in 2019. The first such study was conducted in 2016 and revealed that the shadow economy made up 40% of the construction industry, which makes the total decrease 9.3% over five years.

“This amount could be interpreted as relative, because the construction shadow economy in practically any country will always be greater than the shadow economy in the general economy,” said Sauka.

Last year the average income companies hid from the state was 23% (27.1% in 2018), the amount of under-the-table wages decreased to 27% (28.2% in 2018) and instances of failure to disclose the number of employees decreased to 16% (18.8% in 2018). Unofficial payments to “get things done” decreased to 12%, compared to the 16.4% corruption in 2018.

Despite the overall decreases, the professor said that unofficial wages are still the largest issue both in the construction industry and Latvia as a whole, though the current level of 27% percent is a big improvement on 2015, where they were at 36%. 

“If we wanted the shadow economy to decrease to 15%, then we have to take into account that we would have to decrease the total shadow economy in Latvia by around nine or ten percent more, which at the current level of 24% is a big decrease,” said Sauka.

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