Almost two million Ukrainians receive salaries in envelopes: economists explain the scale of shadow wages

The problem of unofficial wages in Ukraine remains one of the most difficult for the economy, as it simultaneously affects tax revenues, social guarantees for employees, and the stability of public finances. Studies by economists and think tanks show that despite many years of attempts by the state to reduce the share of the shadow economy, a significant part of salaries continues to be paid outside official mechanisms, which creates large-scale losses for the budget and distorts the real picture of the labor market.

According to experts, the situation is complicated by the fact that unofficial wage schemes are gradually adapting to new conditions, using various legal and accounting tools to hide the real level of employees’ income. That is why the problem of salaries “in envelopes” has ceased to be exclusively a matter of labor law and is increasingly considered by economists as a structural problem of the tax system.

The scale of shadow payments

Analytical estimates cited by economic experts indicate that approximately 1.9 million Ukrainians receive part or all of their wages unofficially each year. According to the words of the coordinator of expert groups of the Economic Expert Platform and associated expert of CASE Ukraine Oleg Getman, a study conducted by the analytical group ISET shows that the total volume of such income reaches approximately 250 billion hryvnias per year.

Economists draw attention to the fact that even these figures may be only part of the real picture, since a significant part of shadow payments is not recorded in statistics. If we take the so-called upper limit of estimates, then the total income paid to workers outside the official tax system could reach approximately 400 billion hryvnias.

Experts emphasize that if such income were fully legalized, the budget would receive significant additional revenues. According to basic calculations, about 125 billion hryvnias could be received by the budget in the form of taxes, while according to maximum estimates, potential tax revenues could exceed 200 billion hryvnias.

Tax burden as a key reason

Economists who analyze the structure of the labor market explain the spread of unofficial salaries primarily by the high tax burden on the payroll. According to Oleg Getman, the effective tax burden on wages in Ukraine over the past year has reached approximately 53 percent of the payroll.

According to experts, such a level of tax burden significantly exceeds the indicators that economic theory considers optimal for stimulating legal employment. Researchers emphasize that in many countries the level of such burden that is comfortable for the economy is at about 20 percent, which allows businesses to remain competitive and at the same time does not create an excessive incentive to go underground.

Economists also note that it is the combination of taxes, social contributions, and administrative costs for accounting that often pushes employers to use unofficial payment schemes. Under such conditions, some enterprises are trying to reduce the tax burden by paying part of the salary outside the accounting records.

Structure of informal employment

Estimates of official statistics show that the problem of informal employment in Ukraine existed long before the full-scale war. According to the State Statistics Service, by 2022, approximately three million citizens worked without official registration, which amounted to almost a fifth of all employed people aged 15 to 70.

After the start of the full-scale invasion, the structure of the labor market partially changed. A representative UNICEF survey conducted in 2024 showed that about 14 percent of workers perform hired work without formal registration, and about 4 percent are self-employed without registering their business activities.

Economists note that even in wartime, the total share of informal employment remains high, approaching about 18 percent of the labor market. At the same time, about 7.6 million employees and almost 1.5 million individual entrepreneurs officially work in the legal sector of the economy.

The most common scheme: minimum wage plus an envelope

One ​​of the most common schemes for evading full taxation of wages has become the model that economists call “minimum wage plus an envelope.” Its essence is that the employee officially receives the minimum wage, from which taxes are paid, while the rest of the income is transferred in cash without being reflected in the accounting department.

According to researchers, approximately 650 thousand employees work under this scheme. Economists emphasize that such a practice creates significant losses for the budget, which can amount to from 25 to 53.5 billion hryvnias per year.

If we take into account all forms of unofficial payments, the total uncollected taxes can amount to from 150 to 253 billion hryvnias each year. Experts note that these funds could be used to finance social programs, infrastructure, and defense spending.

Industries where shadow wages are most common

Analysis of economic sectors shows that unofficial payment schemes are most actively used in the retail sector. In this sector, the difference between official salaries and actual incomes of employees is often the most noticeable.

According to research, average official salaries in the largest retail chains can range from 8 to 60 thousand hryvnias per month. Such a wide range, according to economists, indicates a significant use of unofficial bonuses.

Financial losses to the budget from retail trade are showing rapid growth. If in 2021 the uncollected taxes from this sector were estimated at approximately 13 billion hryvnias, then in 2024 this figure, according to researchers, has increased to over 37 billion hryvnias.

Economists emphasize that the growth of shadow employment during the war creates additional risks for public finances. In conditions when a significant part of the budget is directed to defense and support of the army, the reduction of tax revenues directly affects the state’s ability to finance these expenses.

Experts emphasize that overcoming the problem of unofficial salaries requires a comprehensive approach, which includes reforming the tax system, simplifying tax administration, and creating conditions under which legal employment will become more economically beneficial for employers and employees. In their opinion, without such changes, even active digitalization of the tax service and increased control are not able to significantly reduce the scale of shadow payments.