Undeclared work refers to forms of employment that sidestep the norms of employment regulations. The concept is taken to mean any paid activities that are lawful as regards their nature but not declared to the public authorities, bearing in mind differences in the regulatory system of Member States.
Undeclared work affects all Member States and is therefore one of the issues of common concern in the employment field. The transformation of undeclared work into formal work is thus 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 to have done undeclared work themselves within the past 12 months. However, there was significant variation among Member States. A 2008 report by the European Foundation for Living and Working Conditions, 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. The report found that the principal policy measures that Member States had taken were in relation to punishing noncompliance while at the same time prevention measures have become more commonplace.
For guidance in seeking to combat the negative consequences of undeclared work in the labour market, the Commission looked to the Member States for the formal requirements which made it easier for employment contracts and relationships to be identified. The outcome of these deliberations was Council Directive 91/533/EEC of 14 October 1991 on an employer’s obligation to inform employees of the conditions applicable to the contract or employment relationship, which was directed at:
…improving the transparency of the Community labour market, while at the same time giving workers more security, a better idea of their rights and more mobility within the Community. Moreover, the more general provision of a written proof of the working relationship may constitute an element in the fight against ‘black work’.
The notion of undeclared work has been integrated in the European Employment Strategy. Since 2001, the issue of undeclared work has been taken up in the employment guidelines (second pillar) in which Member States have committed themselves to combat undeclared work:
Member States will encourage the take-up of entrepreneurial activities by combating undeclared work and encouraging the transformation of such work into regular employment, making use of all relevant means of action, including regulatory measures, incentives and tax and benefit reform, in partnership with the social partners.
In their National Action Plans (NAPs), Member States have reported on relevant measures taken in their country to address the issue. Furthermore, Council resolution on transforming undeclared work into regular employment of 2003 aimed to strengthen employment guideline 9 (2003-2005), which was included in guideline 20 (2005-2008) on the transformation of undeclared work into regular employment in the framework of the European Employment Strategy (EES).
The 2004 Commission Communication on strengthening the implementation of the European Employment Strategy (COM (2004) 239) highlighted the issue of undeclared work. It referred to actions aimed at transforming undeclared work into regular employment, with the policy-mix combining both preventive actions and sanctions. Its policies were based on preventive actions, sanctions, and cooperation between Member States, together with a campaign to raise social awareness. It emphasised that it is vital that Member States improve data collection and monitor progress, including impact evaluation of policy initiatives.
More recently, the Commission declaration on Stepping up the fight against undeclared work (COM (2007) 628) identified the main drivers for the informal economy, set out successful ways to reduce it and proposed a series of concrete follow-up actions at European and national levels.