The negative effects of the hidden economy are numerous – low funding and quality of public services, no healthcare and pension coverage, maternity or annual leave. Informal practices also breed unfair competition and corruption, hamper regular enterprises from growing and innovating, and create problems with regard to access to finance. Informality leads ultimately to wage and purchasing power reduction and eventual losses of state revenues. The European Commission (2019) adds to the adverse effects of informality the increasing job insecurity and the lower safety at work.
SELDI’s Hidden Economy Index reveals that the hidden employment has increased in five out of six Western Balkans countries. Serbia is the only country which shows a decline since 2016, while Kosovo* remains the country with the highest hidden employment share. According to 45% of the businesses in North Macedonia and 72% of those in Albania, corruption is the most important factor for the existence of the hidden economy. The COVID-19 pandemic has shed new light on the problem. Lockdowns imposed by governments during the pandemic have created a rapid spike in unemployment, thus increasing the risk of people seeking undeclared work. What is more, enterprises employing undeclared workers will not be able to benefit from the emergency and recovery government measures, IPA funds, or the immediate EU support for the Western Balkans. The lack of healthcare coverage of fully undeclared workers poses a serious threat. According to SELDI’s data, 60% of the employed in Kosovo* claim to have no healthcare insurance, while every tenth employed in the Western Balkans region has no social security coverage.
