PM: Legal work must be made more beneficial than envelope wages

Prime Minister Andris Kulbergs (AS) considers the increase in the shadow economy share in Latvia a clear sign that the country has been heading in the wrong direction. Speaking at a conference on the shadow economy on Monday, he noted that in 2025 the shadow economy reached 21.8% of GDP, with envelope wages accounting for nearly half of that amount – 47.1%. In his view, the problem lies in a system that makes honest entrepreneurs feel unheard.

Kulbergs emphasized that the shadow economy cannot be reduced solely through stricter controls, but by making legal work financially more attractive than illegal work. He pointed out that employing workers legally is still too expensive in Latvia, especially for small enterprises, in regions, and for part-time jobs. Therefore, the norm on minimum social contributions should be reconsidered in cases where a person works their only job with reduced hours.

"If a person objectively works part-time, seasonally, or a few days a week, the state should not penalize the employer for formalizing that work legally. Such a norm in practice forces a choice – either not to hire the person, or to pay part of the salary under the table," said the Prime Minister.

According to a study by the Riga Graduate School of Economics, the shadow economy share in Latvia increased by 0.4 percentage points in 2025 compared to 2024. In Estonia, it rose from 19.5% to 20.8%, while in Lithuania it decreased by 1.1 percentage points to 23.6% of GDP. Envelope wages in Latvia account for 47.1% of the shadow economy, in Estonia – 43.7%, in Lithuania – 36.6%. Unreported revenues in Latvia are 25.5%, and unreported employees – 27.4%.