ANALYSIS
pension and healthcare benefits to remain fixed, while
their payment for them could rise indefinitely. Others
expressed concern that the move would increase rigidity in an already rigid employment framework,2 further
increasing undocumented work.
is partially or entirely untaxed (i.e., reducing the grey
economy). Without deepening or broadening the social contributions base, the Government is left to either
shift funds from elsewhere in the budget or do nothing
to ensure the system’s long term sustainability.
After months of confusion and several adjustments to
the reform, the Government finally cancelled it, with
the justification that it was out of sync with parallel efforts to increase employment.3 Such measures temporarily exempt employers from paying social contributions on their employees’ behalf as a hiring incentive. Whether or not such incentives will translate to
increased employment in the long run remains to be
seen. Also, State institutions themselves – long thought
to be the largest informal employer – are also now reportedly hiring large groups of people they have only
informally employed for many years, including teachers
and healthcare professionals.
Regional Context
Macedonia’s neighbors are also facing similar challenges
reducing their grey economies. Serbia, which reportedly loses 30 percent of annual GDP to the grey economy,4 passed a law on Inspection Control in April 2015,
authorizing inspectors to enter unannounced into any
facility where unregistered work is suspected to be taking place.
According to a European Commission report,5 the
shadow economy also comprises over 25 percent of
GDP in Greece, which is in a unique situation, due to
its multiple bailouts and restrictions on sovereign policy-making. There, increased tax
inspections and other compliance
mechanisms have also occurred,
with mixed results.
For its part, Bulgaria has also been
historically characterized by a
large grey economy; a comprehensive study by Sheffield University6 put it at 31.2% of GDP in
2014. The country considers tackling it as part of a larger struggle
against VAT fraud and tax evasion;
in early 2015, the prime minister
stated that reining in these activities could bring in an extra 1 billion lev ($558 million).7 One rather
radical move in this regard was tripling the minimum wage from just
180 lev ( L JH[