German black economy hits EUR 364bn

13 January 2004

BERLIN – Germany’s black labour economy is expected to contract somewhat during the coming year but will still be worth a staggering EUR 364 billion, a report said Tuesday.

Illegal employment causes billions in lost tax revenue and is expected to have a volume comparable to 16.7 percent of official German GDP this year, said the report by the Institute for Applied Economic Research in Tuebingen.

New laws passed by Chancellor Gerhard Schroeder’s government are expected to reduce the overall size of the illegal labour market by 1.6 percent this year compared with 2003, the report said.

These include tax cuts and tax breaks for people earning smaller amounts of money from so-called mini-jobs, said the report. These reforms reduce incentives to hide earnings from tax authorities.

By far the biggest part of Germany’s shadow economy is in the construction sector where illegal employment and contracts are expected to be worth EUR 139 billion or 38 percent of the entire black economy this year.

The German shadow economy is average-sized among industrial countries in the Organisation for Economic Cooperation and Development (OECD). The OECD average is 16.2 percent of GDP, the report noted.

The biggest estimated OECD shadow economies are in Greece (28 percent of GDP) and Italy (25 percent), the report said. The smallest are in the United States (8.4 percent) and Switzerland (9.4 percent).