Undeclared work in Germany: Over 3 million people work past the tax authorities!

Undeclared work in Germany: Over 3 million people work past the tax authorities!

Lately, undeclared work has been causing quite a stir in Germany. The shadow economy is thriving and the numbers are alarming. As a current analysis shows, more than three million people in Germany work illegally. According to a study by the German Economic Institute (IW Cologne), at least 3.3 million Germans bypassed the tax office last year. This corresponds to 5.4 percent of the population between the ages of 15 and 74. This means that the shadow economy will account for around ten percent of gross domestic product between 2014 and 2024, a circumstance that not only puts a strain on the economy but also endangers social security systems.

The customs financial control for undeclared work determined financial damage of around 615 million euros in 2023, although the number of unreported cases is probably far higher. It remains difficult to measure the true extent of undeclared work because official statistics often have blind spots. The problems emerge at various levels of investigation, from the macro to the micro level: estimation models and surveys provide insights, but reality often remains hidden. For example, in a survey, 20.7 percent of participants said that they knew someone who worked illegally.

Demographic insights

What is particularly striking is that men are more often involved in undeclared work: 7.5 percent of men stated that they had worked undeclared in the last year, while this was only 3.5 percent of women. In the 18 to 34 age group, 11 percent reported moonlighting, while among older people this proportion was only between three and five percent. Young people in particular seem to be unconcerned, while older employees are more cautious.

The IW suggests reducing the tax burden in order to counteract this phenomenon. Study author Dominik Enste makes it clear that new laws and controls will not be enough to significantly reduce undeclared work. In other countries the picture looks completely different: While in Germany the shadow economy is around ten percent, in Greece it is 21.4 percent and in Italy it is 20.4 percent.

Dealing with the shadow economy

How companies and individuals deal with undeclared work is increasingly becoming a challenge. At the institutional level, the information from the General Customs Directorate and the Financial Control Office for Undeclared Work is revealing: in 2023, 42,631 employers were checked and over 100,000 criminal proceedings were initiated. However, it remains to be seen to what extent the responsible authorities will be able to take action. Experience shows that when it comes to such illegal activities, much more is often hidden than is visible.

So what should be done? Determining the extent of undeclared work is crucial for developing effective strategies to combat it. At the micro level, the perception in society remains problematic, as around 18 percent of those surveyed reported undeclared work in their personal environment. This gray area causes both economic damage and social injustice.

A good approach could be to raise awareness of the consequences of undeclared work and to develop alternative models that protect both employers and employees. It remains to be hoped that the coming measures will lead to an improvement in the situation and that citizens will return to legal work - in the interests of legal security and social security.

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