Undeclared work is defined by the European Commission in its 2007 Communication Stepping up the fight against undeclared work (COM/2007/0628) as ‘any paid activities that are lawful as regards their nature but not declared to public authorities, taking into account differences in the regulatory system of Member States’. This definition links undeclared work with tax and/or social security fraud and covers a range of activities from informal household services to clandestine work by illegal residents, but excludes criminal activities. In its 2007 communication, the Commission states that undeclared work is a ‘complex phenomenon influenced by a wide range of economic, social, institutional and cultural factors’ and that it can ‘obstruct growth-oriented economic, budgetary and social policies’.
Undeclared work affects all Member States and is therefore a matter of common concern. The transformation of undeclared work into formal work is an important issue for the employment policy of the European Commission. Undeclared work risks undermining the financing of social services, already under pressure, decreases individuals’ social protection status and labour market prospects, and may affect competitive conditions. It also runs counter to European ideals of solidarity and social justice.
A 2007 Eurobarometer survey, Undeclared work in the European Union, represents the first attempt to measure undeclared work on an EU-wide basis. The survey found that the level of participation in undeclared work is relatively low overall, with just 11% of the EU27 population admitting to having bought goods or services that involved undeclared work and 5% of citizens reporting having engaged in undeclared work themselves in the previous 12 months. However, there was significant variation among Member States. A 2008 Eurofound report, Tackling undeclared work in the EU, found that EU countries currently pursue a ‘deterrence approach’, which seeks to increase the actual or perceived likelihood of detection and penalties. It found that Member States’ main policy measures to combat undeclared work are focused on punishing non-compliance, although prevention measures are also becoming more commonplace.
The European Union has undertaken a number of actions to reduce the incidence of undeclared work. In the 2007 communication mentioned above, the Commission identified the main drivers for the informal economy, set out ways to reduce it and proposed a series of concrete follow-up actions at European and national levels.
In the April 2012 Employment Package, the Commission stated that transforming informal or undeclared work into regular employment could help to reduce unemployment in the European Union. The Employment Package highlights the need for improved cooperation on undeclared work between Member States and calls for the creation of an EU-level platform for labour inspectorates and other enforcement bodies to combat undeclared work.
In the Commission’s Country-specific Recommendations 2012 and Country-specific Recommendations 2013, a number of Member States received recommendations concerning the prevention of undeclared work, the shadow economy, tax evasion and/or tax compliance.
Among the initiatives recently carried out at EU level is Eurofound’s updated online database on measures to curb the practice of undeclared work in the EU Member States and Norway.
In July 2013, the Commission launched a formal consultation of the EU social partners, under Article 154 of the Treaty on the Functioning of the European Union on enhancing EU cooperation in the prevention and deterrence of undeclared work. It pinpointed the three main issues surrounding undeclared work:
- abusive behaviour regarding working conditions and/or health and safety norms, leading to the involvement of labour inspectorates;
- fraud on social insurance contributions, involving social security inspectorates;
- tax evasion, mobilising tax authorities.
The Commission believes that enhancing cooperation at EU level between these enforcement authorities would greatly improve the situation and suggests that one way of achieving this would be to set up a European platform comprised of representatives of the Member States and other stakeholders. The consultation seeks to elicit the social partners’ views on whether membership of the platform should be mandatory or voluntary, whether it should deal with cross-border issues alone or with national issues too, whether its work should be limited to labour inspections, and what form it should take. The social partners may decide in future to launch their own negotiations in the area of undeclared work.