Envelope wages: Bulgaria's economy is brightening, but the labor market is not

The Bulgarian economy has achieved its highest level of transparency in 15 years, but the labor market is showing worrying signs of a return to gray practices. These are the main conclusions from the Composite Index "Economy in the Light" for 2024, presented today and developed by the Bulgarian Industrial Capital Association (BICA).

For 2024, the index reaches 79.44 points – the highest value since measurements began in 2010, when the index was only 63%. This means that the formal economy has expanded by more than 16 percentage points over the 15-year period.

Today's data show that the share of the gray economy in Bulgaria has fallen to between 12 and 21%, which is the lowest value in the country's modern history.

Transparency is not just a matter of statistics, it is a matter of competitiveness. An environment in which unregulated labor and unreported resources are used crushes honest business," said Rumen Radev, chairman of the BICA's board of directors.

The labor market paradox: Salaries in envelopes

Despite the overall positive trend, the "Declared Employment" sub-index shows a deterioration. In 2024, it fell to 81.21 points compared to 82.24 in the previous year.

The main reasons for the decline are:

• Administrative pressure: The sharp increase in the minimum wage has forced some employers to switch to the practice of "envelope wages";
• Lack of staff: The labor shortage gives greater bargaining power to employees, some of whom themselves demand not to be insured on their full income;
• Debts and loans: A significant number of employees, especially young people with unpaid quick loans, prefer to hide their income to avoid seizure by bailiffs.

Prof. Stefan Petranov, an expert on the project, explained that the declared labor force relative to the actual labor force has deteriorated, and the difference between the two figures has grown over the past year.

During the discussion, special emphasis was placed on the so-called NEETs – young people who are neither in education nor officially employed. According to the AICB's analysis, a large proportion of them are in fact actively employed, but in the deepest part of the gray economy. They become easy prey to unscrupulous practices because of their "consumerist attitudes" and need for quick, albeit unregulated, income.

Many young people fall victim to the gray economy. Their willingness to receive money in an envelope is a manifestation of the greatest shortcomings of the gray sector," commented Rumen Radev.

Macroeconomic factors and institutional measures

The brightening of the economy in 2024 is due to a combination of moderate economic growth, declining inflation, and tighter fiscal control. According to the analysis, coordinated checks between the National Revenue Agency, the National Social Security Institute, and the General Labor Inspectorate, as well as the automatic exchange of information between institutions, play a key role.

The informal economy has fallen to a historic low. We have an economy that is becoming more transparent, which means that business and society are becoming more mature and intolerant of unscrupulous practices," said Natalia Efremova, Deputy Minister of Labor and Social Policy.

Several key areas remain problematic: working with contracts that do not reflect actual remuneration, additional work without contracts, incorrect declaration of labor resources, and reporting of turnover in services.

The sectors most affected by gray practices remain construction, agriculture, and services—traditionally labor-intensive industries.

Translated with DeepL.