Shadow Economy Study in the Construction Industry
This study aims to explore the amount and key determinants of the shadow economy, specifically in the construction industry in Latvia. The study evaluates various policy initiatives and offers further suggestions to combat the shadow economy and to increase competitiveness within the industry.
The study draws on a survey of approximately 250 managers of construction companies in Latvia (randomly sampled, representative, phone interviews) conducted in April 2018 and the same number of managers interviewed one year later. Additionally, the insights of five experts – owner-managers of large construction companies with considerable experience in the industry and involvement in organizations representing the industry (NGOs) – complement the study.
According to the latest findings from the survey, the size of the shadow economy in the construction industry sector is still relatively high but has positive dynamics. In 2015 the shadow economy in the construction sector was 40.0%, while in 2016 it was 38.5%. In 2017 it decreased by another 3.3%, reaching 35.2% of GDP.
A decrease has been observed in the size of the shadow economy in all its components. Namely, the percentage of envelope wages has decreased slightly (32.1% in 2017, compared to 34.6% in 2016 and 36.3% in 2015) In 2017, compared to the previous year, underreporting of business income (profit) decreased (from 30.0% to 26.7%) as did underreporting of the number of employees (from 20.5% to 17.6%).