The German economy has been shrinking for years, and only a minimal improvement is expected in 2025. However, "undeclared" work is increasingly widespread - it has increased by over 11 percent in just one year. In 2024, the share of the shadow economy is even higher than that of the federal budget - 482 billion euros, which is the highest value in almost ten years. Economist Friedrich Schneider from the University of Linz predicts an increase of up to 511 billion euros this year. This would mean an additional increase of 6.1%.
Schneider has been studying this phenomenon for over 40 years. He prefers to talk about the shadow economy, not undeclared work. "These are legal economic activities - for example, car repair or cleaning. However, they are carried out by bypassing the state - taxes and social security contributions are not paid, "explains the expert. Regulations such as compliance with the minimum wage or the legal maximum working hours are also ignored.
In relation to gross domestic product (GDP), Germany is somewhere in the middle of the ranking, compared to other industrial countries - with values between 11 and 12 percent. In Romania, this indicator is 30%, and in Greece - about 22% of GDP.
People do not want to pay high taxes
But what are the decisive factors for the growth of undeclared work? Schneider believes that an important role is played by people's feeling that they are paying too high taxes. "For example, in Germany there is great dissatisfaction with the fact that the railways are not working adequately, that there are problems on many bridges on the highways, that there are heavy traffic jams, etc. And when citizens feel that they are not receiving a good enough service from the state, even though they are paying their taxes, they simply lose the desire to do so," he says.
The expert is not surprised that many are working illegally. According to him, this is the "rebellion against taxes" of ordinary people.
When unemployment rises and companies' orders decrease, those affected say to themselves: "Now I earn less money from my official job, but I want to go on vacation or afford something else". And the easiest way to compensate for the loss is to work more "under the table", says Schneider. "This is exactly what I have been observing for more than 40 years. When there are economic problems in the country, undeclared work flourishes.
A profitable combination of social benefits and undeclared work
Citizens' incomes are the subject of heated debate in Germany. Critics believe that the large social benefits in the country predispose to undeclared work. There are cases in which people receiving social benefits also work undeclared and thus bring in good monthly incomes. And others work officially only a few hours a week, but at the same time receive financial support from the state.
Meanwhile, the Minister of Labor, Berbel Bass, also admitted that state benefits predispose to illegal activity. In an interview with the magazine "Stern", she spoke of "mafia structures" in social benefit fraud.
Markus Karbaum has repeatedly witnessed this combination of social benefit fraud and undeclared work. He helps people on benefits find work. However, in some industries, he says, workers are simply offered too few working hours - and since they cannot support themselves entirely on this, they also apply for state benefits.
The feeling that the state owes them this money has also become stronger among some, says Karbaum. He has met people who receive benefits from the Employment Office, but at the same time have a car, an expensive smartphone and go on family holidays for three weeks. Of course, these are isolated cases, not the majority. But it still happens and is definitely a sign that there are structural abuses in Germany, says the expert.
In order to be able to take measures against such abuses, work must be done to synchronize data, Karbaum believes. In fact, the government already has similar plans - for example, to introduce a common system between the labor exchange and the unit responsible for prosecuting undeclared work.
And according to Friedrich Schneider, this is an important step forward. However, after about 40 years of scientific work in this field, the economist is convinced of one thing: a thriving economy is crucial. "If we are in a phase of absolute boom, undeclared work will also decrease."
Author: Thomas Coleman