Eliciting permanent and transitory undeclared work from matched administrative and survey data

• Published in: Empirica Vol. 46; no. 3; pp. 547 - 576
• Main Authors: Elek, Péter, Köllő, János
• Format: Journal Article
• Language: English
• Published: New York Springer US 01.08.2019; Springer Nature B.V
• Subjects: Administrative records; Agriculture; Econometrics; Economics; Economics and Finance; Employment; European Integration; High school graduates; Individual differences; Industrial Organization; International Economics; Labor; Labor force; Macroeconomics/Monetary Economics//Financial Economics; Males; Original Paper; Panel data; Polls & surveys; Public Finance; Random effects; Small business; Transportation; Work; Hungary; Markov chain; Matched administrative-survey data; Labour input method; C23; C25; Random-effects panel probit with endogenous selection; H26; J46; Undeclared work
• ISSN: 0340-8744; 1573-6911
• DOI: 10.1007/s10663-018-9403-0

We study the undeclared work patterns of Hungarian employees in relatively stable jobs, using a panel dataset that matches individual-level self-reported Labour Force Survey data with administrative records of the Pension Directorate for 2001–2006. We estimate the determinants of undeclared work using Heckman-type random-effects panel probit models, and develop a two-regime model to separate permanent and transitory undeclared work, where the latter follows a Markov chain. We find that about 6–7% of workers went permanently unreported for six consecutive years, and a further 4% were transitorily unreported in any given year. The models show lower reporting rates—especially in the permanent segment—among males, high-school graduates, those in agriculture and transport, small firms and various forms of atypical employment. Transitory non-reporting may be partly explained by administrative records missing for technical reasons. The results suggest that (1) the “aggregate labour input method” widely used in Europe can indeed be a simple yet reliable tool to estimate the size of informal employment, although it slightly overestimates the true magnitude of black work and (2) the long-term pension consequences of undeclared work may be substantial because of the high share of permanent non-reporting.