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'Minimum wage could encourage moonlighting'

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'Minimum wage could encourage moonlighting'
A new study suggests minimum wage and other reforms could fuel a resurgence in moonlighting. Photo: DPA
08:28 CET+01:00
The nationwide minimum wage, coupled with pension reforms, could reverse a long decline in people working off the books in Germany, and even prompt an increase, according to a study released on Tuesday.

The study, from Tübingen's Institute for Applied Economic Research (IAW), working with models from the Austria's Linz University, said government reforms, including a national minimum hourly wage of €8.50, and retirement for some at 63, could lead to more earnings disappearing from official records.

The national minimum wage, which is set to be introduced next year, could encourage employers to hire people off the books in order to get away with paying them less than the legal limit, the study authors suggested.

Economic modelling software developed at Linz University predicted this could boost Germany's so-called "hidden economy" of unregistered employment by €1.2 billion a year.

German governmental efforts over the last decade to make legal employment financially beneficial for everyone concerned, were now being gradually reversed, the study said.

This year it was the stability of the economy rather than any policy initiatives that had enabled many people to find official work, meaning fewer had worked off the books, it said.

The study said that in 2014 around €338.5 billion would change hands in the "hidden economy". That represents 12.2 percent of Germany's Gross Domestic Product (GDP) – the lowest it has been for more than 20 years.

The estimate for 2013 was 0.3 percent higher.

But this decline is at its slowest rate for many years, the study authors said, and warned it could even tick into an increase.

While past job market reforms have made moonlighting less attractive, recent policy changes had done nothing to support the downward trend this year according to IAW director Bernhard Boockmann and economic modelling expert Friedrich Schneider of Linz University.

The government's lack of plans to compensate for the "cold progression" in the tax system which erodes real-value wages, could drive even more Germans to take on tax-free jobs on the side.

Cold progression it the process of taxes rising faster than income in real terms, as tax rate thresholds do not take account of inflation.

The study predicted this effect would further incentivize cash-in-hand 'moonlighting' work over regular taxed employment, strengthening the "hidden economy" by another €5.3 billion a year.

"Mainly for people on middle income, this increases the temptation to avoid higher taxes by side-stepping into the hidden economy," Boockmann said.

"If the coalition doesn't put in place any compensatory measures – and there are none to be found in the coalition agreement – then we can certainly count on the hidden economy growing in the next few years,” he added.

READ MORE: The pain of Merkel's S&M government

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