sample S1) yields results summarized in Table 4. The model’s fit is quite strong: R-squared reached more than 80%. All explanatory variables but minimum wage and trade union density exhibit a significant impact on the explained variable. Similarly to Model 1, taxation of labor and fiscal freedom have negative impact on this proxy of shadow employment. The negative effect of labor taxation might be again connected to improving quality of public services and provision of a better legal environment in high-tax countries. Furthermore, negative effect was also estimated for active labor market policy expenditure and control of corruption, both confirming our initial hypotheses.

On the other hand, stimulating impact on level of shadow employment was again recorded for employment protection legislation, and in this case also for passive labor market policy expenditure, GDP per capita, business freedom and regulatory quality. As regards employment protection legislation, the result confirms our initial hypothesis, although the outcome is significant for sample S3 only. Likewise, the estimation outcomes for business freedom and regulatory quality were significant for one of the two utilized samples only. Positive coefficient for passive labor market policies may be explained by potential abuse of the system, enabling both reception of unemployment benefits and simultaneous engagement in informal economy. The positive influence of level of economic development on the share of non-contributing workers seems to contradict results of Model 1 and previous economic research. Potential explanation of this counterintuitive result is that increasingly generous pension benefits, unrelated to life-time contributions to the system, made contributing to the pension systems in rich European countries redundant as the eventual pensions reflect noncontributing periods only partially. Yet, this result must be taken carefully and should be subjected to further research.

In case of this explanatory variable, we also examined the possibility that our results might be biased by adjustment of the dependent variable for the unemployment rate. This might happen for instance if people were working informally and declaring themselves unemployed in order to receive benefits as is indicated by above-mentioned regression coefficients for passive labor market policies. However, analysis of unadjusted data yields very similar results to those presented in Table 4.<sup>38</sup> Due to limited data available, we were not able to examine differences between old European countries and NMS group.

**_Table 4. Results of Model 2 – dependent variable CONTRIB_**

||S2 – Model 2.2|S3 – Mode|l 2.3|
|---|---|---|---|
||Total|Total||
|EPL|222.1883|9.4872|**|
|MW|-0.7356|0.0106||
|TU||0.2190|*|
|TAX|-0.4715 ***|-0.3733|**|
|LMPA|-127.6588 ***|-138.9402|***|
|LMPP|36.2993 ***|63.5549|***|
|lnGDPPC|19.5971 ***|16.0823|***|
|FISF|-0.3434 ***|-0.1456|***|
|BUSF|0.3849 ***|0.0196||
|CORR|-18.2655 ***|-21.1944|***|
|REGQUAL|13.9020|25.5393|***|
|Constant|-41.0798 **|-54.3431|**|

38 Regression estimation results for the share of labor force not contributing to the pension system unadjusted for the unemployment rate used as dependent variable are available from the authors upon request.

22