The study: Shadow Economy in Latvian Construction in 2019 and trends in the 2015-2019
Shadow economy in construction is diminishing, a predictable volume of orders is necessary to maintain the positive trend. The author of the study is SSE Riga Professor Arnis Sauka.
According to the latest study, the size of the shadow economy in the construction sector in 2015 was 40%, whereas in 2019 it had fallen to 30.7%, decreasing by 9.3% over five years.
The size of the shadow economy in the construction sector still remains relatively large, however its positive dynamic reduces the gap between the total presence of the shadow economy in the national economy, which was 24.2 percentage points in 2018.
Compared to 2018, the construction output in 2019 increased by only 2.9%. With the conclusion of the previous period’s EU fund projects, the sector could experience a decline of up to 30% without new investment sources. The study concludes, that such a trend could also significantly affect the size of the shadow economy by increasing it.
The latest shadow economy calculations demonstrate that the construction sector shows small improvements (reduction) in all the major components of the shadow economy - envelope wages, unreported corporate income, undeclared employees and the amount of corruption, however the indicators remain below the Latvian average. Envelope wages, which are one of the most important components of the shadow economy, accounted for 27.2% in 2019, while the level of corruption in the shadow economy decreased from 16.4% in 2018 to 12.2% in 2019.
The latest report by Professor Arnis Sauka also examines the main factors affecting the shadow economy - the full report published here.
In order to calculate the size of the shadow economy in the construction sector, a representative survey of 254 managers and leading specialists of Latvian construction companies was conducted in March 2020.