In 2025 more people in Germany are expected to work cash-in-hand jobs amid the country’s economic decline, according to a study by the Klinz University and the Institute for Applied Economic Research.

Germany’s economic decline leading to more cash-in-hand work

Researchers at the Klinz University and the Institute for Applied Economic Research (IAW) in Tübingen have predicted a rise in undeclared work (Schwarzarbeit) in Germany due to the country’s increasing economic instability and increased social security costs.

The IAW researchers estimate that the value of working in Germany “under the table” will increase by 6,1 percent in 2025, to 511 billion euros. Adjusted for inflation this would mean a 3,8 percent rise in undeclared employment.

Based on the expectation that Germany will see negative GDP growth of 0,4 percent, an unemployment rate of 2,9 million and an inflation rate of 2,2 percent in 2025, the ratio of the “shadow economy” will be 11,5 percent compared to official figures of Germany’s gross domestic product (GDP).

What pushes employees towards illegal work?

In their press release, the research team at IAW broke down the main economic reasons that more people in Germany were being driven towards undeclared work.

“The main reason for an increase in the shadow economy is limited real growth in the German economy,” the IAW explained. In January 2025, figures from the Federal Statistical Office (Destatis) revealed that the German economy had shrunk for the second consecutive year for the first time in over two decades.

“An increase in social security payments, job market regulation and taxation have a more limited and irregular impact on the “shadow economy”,” the researchers explained.

A 0,8 percent increase in additional contribution rates for statutory health insurance is expected to grow the “shadow economy” by 800 million euros in 2025. Increased pension insurance contributions are predicted to provide 1.200 million euros in growth.

However, measures against bracket creep (kalte Progression), where inflation drives earners into higher tax brackets despite any real wage increases, are expected to shrink the “shadow economy” by 1.600 million euros.

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