which might be consequently reflected in higher informality. For summary of empirical findings see for instance OECD (1997, 2004). In reality, the negative effect might be offset by the extent to which unions and/or firms coordinate their wage determination (Nickell and Layard, 1999; OECD, 1997). Presence of trade unions in a firm might also lead to a more intense oversight of potentially informal activities of the firm. As showed in Zahariev (2003) using Bulgarian data, weak trade unions give more powers to management of companies in raising tax evasion and informal activities without employees’ agreement. As a result, the overall effect of trade unions on informality might be ambiguous.

In most of the European countries, trade unions play an important role in wage determination process. Their power is traditionally measured by the share of workers who are trade unions’ members―trade union density.<sup>24</sup> Overall situation in European countries is depicted in Annex 2. The source of our data is the OECD database mainly, that covers old European countries and NMS-4 (Czech Republic, Poland, Slovakia and Hungary) in longer time series. Data for the rest of NMS group except Malta and Cyprus again come from IZA database and were available for years 1999, 2003 and 2007 only. Therefore, NMS average in the following paragraph and Annex 2 refers to above mentioned four countries only for sake of comparability of development in time.

The data show higher trade union influence in old member countries, which might be on the other hand offset by higher degree of centralization and coordination (see for instance Fialová and Schneider, 2009). Trade union density is in average much lower in the NMS group compared to old European average. Moreover, while the indicator has had an increasing tendency in old Europe, NMS group clearly exhibited an opposite trend. The highest unionization exceeding 50% of wage earners among the examined countries has traditionally been characteristic for northern Europe―Sweden, Norway, Finland, Denmark and Belgium. In contrast, relatively modest levels of trade unionization (under 20%) were recorded in France, the Netherlands, Portugal, Spain and several NMS―Hungary, Poland, Estonia and Lithuania. Most countries exhibited a decline in trade union density in period 2000-2007 (with exception of Belgium, Norway and Slovenia); the largest reductions were registered in Slovakia, Estonia, Lithuania, Latvia and Romania.

# _<u>Labor market policies</u>_

Labor market policies (LMP) may also have ambiguous impact on unemployment, labor market performance and incentives for informal behavior. Empirical literature on determinants of informality does not provide any clear evidence on effects of this factor as far as the authors know. Nevertheless, we assume that potential consequences of this factor are implied by its influence on labor market flexibility and motivation of individuals to seek employment and adjust their wage claims.

> 24 However, even if the density might be rather low in some countries, it is a common practice to extend the agreements also to non-unionized workers, thus covering a large share of employees in the whole economy (e.g. France, Spain). Thus, the degree of collective bargaining coverage (share of all salary earners whose wage is actually determined by a collective agreement―legal extension of bargained wage rates to non-unionized workers) might be a more reliable indicator in terms of real economic consequences. The level of union coordination and centralization is also an important aspect. Coordination refers to ability to coordinate bargaining among various unions and employers’ organizations. Centralization refers rather to the level of bargaining (firm, industry, country) and the role of the government; high degree of centralization does not necessarily have to mean close coordination. Yet, data on these aspects of trade union functioning are rather limited.

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