Officially, 23% of Ukrainian workers work without employment contracts, which means they don’t pay tax on their earnings and make no contributions towards pension. However, researchers believe that the real number is twice as high: Half of employees in Ukraine are doing undeclared work, 24tv.ua reported.

Why Ukrainians prefer to work informally?

The Undeclared Work Survey performed by Kiev’s academy and the International Labour Organization dived into data to find out what drives Ukrainian workers to choose employment options that fly under the radar.

A similar survey was conducted in Europe, so it’s possible to compare answers.

The researchers strived to find what drives the demand for undeclared workers, as well as the motivators of people choosing this option, Oksana Nezhivenko from the National University of Kyiv-Mohyla Academy stated. The behaviour of both sides was reviewed to understand the current situation with undeclared work in Ukraine.

So, why people willingly choose jobs that give them no social protection, even though they are not illegal immigrants for whom this could be the only available option?

Shadow employment

Only 7% of the respondents admitted to working without a proper employment contract, as compared to the European Union residents, where 3% of participants made such a confession.

However, when asked about others, 46% of Ukrainian respondents said they know someone who works undeclared (32% in Europe).

This led researchers to reconsider the number of illegal workers. Academics believe that most likely it’s around 30 to 46% of people in Ukraine that work illegally, as opposed to the official numbers 7-23%, as the Ministry of Economy of Ukraine reports. This share would include workers who have some kind of an official employment contract but at the same time their wages are not 100% “white” and consist of both an official (declared) part and a “black” (undeclared) part, the option, which is very popular in Ukraine to avoid paying high taxes.

Most undeclared workers are male

3/4 of undeclared workers are males and only 1/4 are females, according to the research.

This gender breakdown is typical internationally. Women tend to avoid risk and demand stability, which is also one reason for the difference in the wages of males and females.

The largest part of undeclared workers are employed on farms. Retail, auto service and construction industries also tend to have high share of undeclared workers.

Employers are the ones seeking undeclared workers

• 71% of Ukrainian respondents said that employers are the ones that offer jobs without a contract to potential workers.
• 16% said the agreement to skip on formalities was on mutual agreement between employees and employers.
• 12% of respondents said it was on demand of the worker that an employment contract wasn’t signed.

50% of employees get “black wages”

Wages paid as cash in an envelope are called “black” wages. In Ukraine workers get black wages for both regular work and overtime, while in Europe it’s overtime work that employers usually pay cash for.

Among Ukrainian workers who get paid undeclared cash, the majority of people would prefer to be paid officially. 57% of people who work without a contract in Ukraine are unhappy about their informal status.

Even among people who have an employment contract, 50% of respondents admitted to be paid “cash in an envelope”. What is surprising, 55% of people who are paid black wages only earn the minimum wage (about USD 140 per month).

30% of Ukrainian respondents earn less than 100 euro per month. A low share of workers earn average wages, while a higher share gets more than the average wage. So, in Ukraine the vast majority of people earn very little, a large portion earns quite high wages, and few people get average wages. In Ukraine, you are either very poor or you are doing well; there is no middle class. In Europe, there are not many poor people earning the minimum wage, and about the same share of mid and high earners.

Buying undeclared goods

When people were asked about buying goods that the sellers weren’t paying taxes on, Ukrainians said they purchase food in the markets, where sellers are unlikely to report their income. The reason why people knowingly buy such goods is because they are cheaper and the quality is higher.

Europeans buy undeclared goods from family members and friends, while Ukrainians buy them from strangers.

In Europe it’s mostly poor people that buy undeclared goods. In Ukraine it’s widespread; even the richest people do it.

Reasons for working illegally

Ukrainians indicated that they work illegally because they either couldn’t find another job or this was just a short-term seasonal employment. Another popular reason for working without a contract that was often voiced by respondents, “because that’s the custom in Ukraine”.

Ukrainians also don’t trust the state and showed it by selecting the option, “The state doesn’t do anything for me, why should I do something for the state.” In Europe it scored the lowest, but in Ukraine it was one of the leading reasons for shadow employment.

In Europe most respondents considered working undeclared undesirable and unacceptable. In Ukraine people are more tolerant to such structures.

Ukrainians also don’t see much risk in working illegally and are not afraid of being caught or hit with fines or even being arrested. In Europe punishments for illegal work are much harsher.

What would stimulate Ukrainians to get out of the shade?

The most important factors for people in Ukraine is the level of trust to the government and the state, simplifying the system of taxes and making rules for running a small business easier to comply with. These are the things that are easier said than done.

However, unless this is dealt with, 46% of the country’s economy will remain in the shade, as recent reports by Transparency International show.

Read also:

• 5 things that annoy Ukrainians at work
• Wages in Ukraine: April 2018 data
• Ukrainian culture: 1990-2017 statistics
• Rent in Ukraine