In Germany, when economic experts meet up and have a lunch-time chat.....there's a running list of a dozen-odd topics that will typically come up. Tax reform, pension reform, medical insurance reform, etc. Somewhere toward the last couple of topics....will be 'hidden economy' stories. Economic experts like this...because it really tells the creative nature of Germans, business operations, and the trends for the future.
The 'hidden economy' is this open area where folks pay for services in cash with no receipts and no paper trail. Yeah, it is kinda illegal.
The current tally of 'hidden economic' cash flow? Well....they say (it's an estimation because you can't get true figures on this)....it's around three-hundred billion Euro (more or less). This is cash that transfers from hand to hand....for any reason. The amount for illegal employment (cash only work)? They've figured this to be just over one billion Euro a year.
How does it work for unregistered employment? Well...you have this bathroom renovation project, and you found these two Turkish guys who have done work like this, and they would gladly do it for you....for cash. You supply the materials....the guys show up on a Monday, and finish by Friday. You pay for a non-warranty situation, and hopefully....it's all done right. No taxes, no social payments, no pension costs, no health insurance cost.
How many Germans do renovation work like this? A lot. From an American perspective....Germans just plain hate paying top price for quality work. So they look for shortcuts, and generally are very hopeful in the work done. Most projects probably meet the general desires.....some are fairly crappy and the German is stuck hiring a real professional German to fix everything done....which means double the cost of the original project.
Years ago, I had a German mechanic who would occasionally voice the comment on some repair....if I were to pay in cash (with no warranty).....he'd do the situation for twenty-five percent less than the normal deal. Typically, these were always the five hundred Euro or more repairs. Naturally, I have a slight German tendency, and went for the golden deal. Out of six such occasions on the cash-only deal....I came out badly on only one occasion. As much as I saved on the five good occasions....I needed all that cash to pay for the sixth episode that came out screwed up.
Cash-only transactions? Well....there are various gimmicks to the system. For example....as a brick mason....you find some doctor who desires a major brick wall around his house, which would typically cost 25,000 Euro for the type he wants. So the doctor offers a simple deal.....free service for twenty-four hours a day for the next three years, with some cash, to have the wall built. Years ago at Rhein Main, I worked with a brick guy who agreed to build some German dentist his new house....off the books. All the dentist paid was for the materials and half the normal cost of work. In return, the dentist agreed for the rest of his life....to provide free dental care for this guy, his wife, and his daughter. Over a three-year period....the brick guy got off work, and did two or three hours of work, with another ten on Saturdays. None of the income was reportable....so it was all tax-free, and the free dental service was a cherry on the cake.
Why does this topic come up now in major ways? Well....there's talk of a minimum wage finally coming to Germany....of 8.50 Euro an hour. Most political folks predict it will occur, and be concrete by the end of 2014.
The economic folks have come to this opinion....more under-the-table employment will occur, with folks volunteering work time for cash. This means.....work achieved....but less tax revenue collected. And that usually means....more taxes have to be geared into the system....to make up for the loss.
So as this new minimum wage business starts up and everyone is talking up the positives.....you might want to view the entire picture. There's some funny angles to this image.
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