Tackling the problem of undeclared work

Undeclared work is a major issue affecting the Greek labour market. Significantly, two of the main causes – the extra wage costs of legitimate staff and protective labour laws – have significantly weakened in the last two years. A new framework for the Labour Inspection Body was adopted in mid 2011 to improve the effectiveness of labour market audits. Nonetheless, far from shrinking, the problem is in fact assuming alarming proportions in a growing recession.

Extent of this phenomenon

The 2011 report of the Labour Inspection Body (SEPE) says that, during the year, the percentage of uninsured workers was 30%. The inspections (20.246, which represent 2.5% of the country’s work undertakings), revealed 19.968 uninsured workers in a total of 66.615 (29.98%). Of these, 40% were foreigners.

The 2011 data from the Special Insurance Audit Service of ΙΚΑΕΤΑΜ (ΕΥPΕΑ) was almost identical. There were 20.567 uninsured workers (8.225 foreigners and 12.342 nationals) out of 68.345 workers registered during the on-the-spot inspections (30.2% uninsured workers).

Of uninsured workers registered by ΕΥPΕΑ, 40% were foreigners avoiding any official registration, showing the disproportionality between work permits and applications for legalisation by the large number of migrants who live and work illegally in the country.

Both surveys suggest that the sectors most vulnerable to uninsured employment are: catering (restaurants, reception halls, snack bars, cafes, bars and night clubs), industrial parks, industrial zones, hairdressing, petrol stations, garages, transport, cleaning, construction, accommodation services and security firms.

The findings show that almost one in three workers is involved in completely undeclared work.Other surveys have shown that uninsured employment constitutes the most widespread and the easiest to detect form of undeclared work. However, the particularities of the Greek social insurance system and especially the system associating working day with social contribution (‘ensimo’, which corresponds to one working day) allows for the emergence of various forms of this phenomenon.

Measures against undeclared work

The restructuring of SΕPΕ (under Act 3986) aims to make it a modern organisation for the implementation of labour law. The most important changes are:Improved conciliatory powers for individual and collective labour disputes. These include the speed of the procedure, the ability of unilateral appeal from the employer’s side and the increased binding effect of the conciliation. The intention is rapid progress of the procedure, aiming for an agreement between the two sides at the latest within 20 days. Provision is made for the involvement of bodies such as the Ministry of Labour, or even of representatives of other ministries, such as the Ministry of Finance or Growth, Competitiveness and Shipping.Administrative modernisation.

SEPE’s organisation, including recruitment and operations, is revamped. New moves include an independent office of information, submission, assessment and management of complaints and a special team of readiness and direct intervention that will operate on a 24-hour basis. SΕPΕ has also been electronically linked to ΙΚΑ (Social Insurance Fund) and ΟΑΕD (Manpower Employment Organisation) to reduce bureaucracy.

Reform of administrative sanctions and fines. In a violation of labour law, employers can get exemptions and concessions for quick payment of fines on condition of not re-offending for four years. In the case of severe violations such as non-payment of accrued income, holiday and leave bonuses, back pay and increases related to working time, if the employer accepts the fine and pays the worker within two months, he earns an 80% discount on the fine. For all other violations, apart from those pertaining to undeclared work, the discount is 30% if the employer complies within 15 days.

Special measures against undeclared work. The new obligatory‘work card’ electronically displays the employee’s arrival and departure times, as well as working hours. This information is registered online in a system shared by ΙΚΑ, SΕPΕ and ΟΑΕD. If the employer pays insurance contributions on time, both employer’s and employee’s contribution will be reduced by 10%. This measure is destined for areas with traditionally high rates of undeclared work.

Reasons for failing to combat undeclared work

Undeclared work and, in particular, uninsured employment, is the symptom of a series of long-term problems. It can be dealt with only if relevant measures constitute part of an overall reform of the labour law. However, despite the seven months of public consultation that preceded the adoption of the measures, the new framework does not include any definition of undeclared work, contrary to the public commitment made by the government.

Insisting on one aspect alone, reducing labour costs, has proved to be not only ineffective, but has also strengthened the problem. In the private sector, the direct wage cost has been reduced by at least 20%, while in many cases in the private sector (newcomers in the labour market, specific economic sectors) the reduction exceeds 40%.

Uninsured and undeclared work is growing because of factors that have intensified in an environment of recession and crisis.

The most important are:

  • increased taxation, especially for salaried personnel (and pensioners);
  • general bad feeling about the dissolution of public services and structures (hospitals, education, welfare) despite high levels of taxation;
  • the diminishing perspective of a decent retirement due to the new social insurance system (new age limits, dependence of a contractual amount of working years and level of salaries throughout working life).

Consequently, employees are recommending to employers measures that reduce the obligations of both sides. These are assuming epidemic proportions:

  • fraudulent work rotas (one or two working days per week) and partial employment (2-3 hours of work daily) or virtual reduction of income in order to reduce tax, with the remaining amount paid ‘in hand’;
  • virtual dismissals with the aim to access unemployment benefit and to pay the remaining amount ‘in hand’.

These methods aim to preserve jobs in an environment of high unemployment (officially 21% in November 2011) and to help households, mainly those with the lowest income, by avoiding tax and the funding of insurance funds (which have gone bankrupt, at least in the minds of those insured, both employees and employers).

Positions of the social partners

The government initiative to conduct a round of social dialogue on the indirect wage cost divided not only public opinion, but also both employees’ and employers’ camps.

Numerous trade unions criticised the General Confederation of Greek Workers (GSEE) for participating in a discussion on the reduction of indirect wage costs because there had been no previous dialogue on constant reductions in salaries and pensions in the private sector, and because a further reduction in insurance contributions would seriously jeopardise the social insurance system.

The employers’ organisations agree that indirect wage costs are high. The confederations of employers of small enterprises say that if growth measures are not adopted immediately to reverse the recession, the policy of interior devaluation and austerity will lead to the closure of hundreds of thousands of small and medium enterprises, which are hit the most by the decline in the population’s purchasing power.

Commentary

If work cards are brought in, a 10% reduction of indirect labour costs will have no substantial impact on undeclared work, since the economic, social and working environment continues to oblige employees and employers to seek ways of survival under unprecedented recession. On the other hand, placing one’s trust again in legality is a basic requirement in order to exit the crisis. The programme for jointly resetting a completely dismantled working environment is the only hope against the collapse of the insurance funds.

Apostolos Kapsalis, Labour Institute of Greek General Confederation of Labour (INE GSEE)

 

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