The informal – and untaxed – sector of the German economy could reach almost 15 percent this year, or €352 billion, according to economist Friedrich Schneider at the University of Linz. That output is equivalent to roughly eight million people working full-time, Schneider estimated.
Known in German as Schwarzarbeit, or ‘black work,’ the practice is especially common in the construction industry and for domestic work, where high German taxes and social contributions make working legally less attractive.
With taxes likely to become a major issue in this year’s German national elections, Schneider’s findings are being seized upon as an argument to cut taxes for skilled tradesman.
“To confront the rising informal economy, legal work must become more attractive,” Otto Kentzler, president of the Craft Workers Association, told Wirtschaftswoche.
Germany is not alone. Spain, Britain and Italy are also likely to see a sharp uptick in the informal sector of the economy, according to Schneider.
“The stronger the country is hit by the economic crisis, the more the shadow economy will grow,” Schneider told Wirtschaftwoche.
The informal economy had been steadily shrinking since 2003, according to Schneider’s research, and started to grow again once the recession started last year.