Bonus to stay informal. Romanian employees receive wage premium if they accept to work without being formally employed, World Bank says

Iinformal workers in Romania receive a wage premium compared with workers legally employed in similar positions in order to compensate for the lack of social benefits and lower job security, a World Bank study says.

The study “Global Economic Prospects” recently released by the World Bank indicates that in some countries, the low wages paid to informal workers (the “wage penalty”) compared to formal workers have contributed to inequality during the last decades.

In Serbia, the wage penalty contributed to rising inequality, while a similar wage penalty was found for less educated workers in Turkey.

“However, in some cases informal workers have been found to earn a wage premium, e.g., in Russia, Romania, Tajikistan, and Ukraine. In those countries, the informal wage premium may compensate for the lack of social security and lower job security,” the study says.

Experts associate informal work with corruption.

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“Better governance and more effective tax authorities can reduce the size of the informal economy and increase tax revenue. Bureaucratic corruption has been associated with greater informal activity in Poland, Romania, and Slovakia,” World Bank’s study points out.

Conversely, better control of corruption has reduced the extent of informal activities in the countries that joined the European Union in the mid-2000s.

Some experts estimate that close to 1 million people work in informal sector and in the underground economy in Romania, based on differences in employment statistics.

Official data show that around 5.3 million people are legally employed in Romania.

A separate report released by INS said that the total number of employees in Romania reached 6.39 million in 2017. These data include military personnel and assimilated and the Romanians working in informal sector and in underground economy.