Thematic feature - industrial relations and undeclared work

Jørgensen, Carsten

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Článek

Thematic feature - industrial relations and undeclared work

Publikováno: 1 September 2004

The phenomenon of undeclared work - defined as 'any paid activities that are lawful as regards their nature but not declared to the public authorities'- is an issue which has been preoccupying the EU institutions for a number of years. In 1998, the European Commission issued a Communication [1] on undeclared work, which was designed to launch a debate on the causes of such work and the policy options for combating it (EU9804197F [2]). It suggested that there was a need to clarify the causes and extent, and concluded that combating undeclared work should be part of the overall European employment strategy [3].[1] http://europa.eu.int/comm/employment_social/employment_strategy/index_en.htm[2] www.eurofound.europa.eu/ef/observatories/eurwork/articles/undefined/commission-targets-undeclared-work[3] http://europa.eu.int/comm/employment_social/employment_strategy/index_en.htm

This article gives a brief overview of the industrial relations aspects of undeclared work in Denmark, as of June 2004. It looks at: the nature and extent of undeclared work; the regulatory framework; the role, activities and views of the social partners; and partnerships between social partners and public authorities to tackle undeclared work.

The phenomenon of undeclared work - defined as 'any paid activities that are lawful as regards their nature but not declared to the public authorities'- is an issue which has been preoccupying the EU institutions for a number of years. In 1998, the European Commission issued a Communication on undeclared work, which was designed to launch a debate on the causes of such work and the policy options for combating it (EU9804197F). It suggested that there was a need to clarify the causes and extent, and concluded that combating undeclared work should be part of the overall European employment strategy.

According to the Communication on undeclared work, the main motivation for employers, employees and self-employed people to participate in the undeclared economy is economic. Working in the informal economy offers the opportunity to increase earnings and to evade taxation on income and social contributions. For employers, the incentive is to reduce costs. The same document mentions three factors contributing to undeclared work: i) demand for 'personalised services' to households; ii) reorganisation/restructuring of industry and firms; and iii) the impact of new technologies. Undeclared work has impacts on the social security systems, public finances, competition and industrial relations. At that time, studies estimated the average size of the informal economy at between 7% and 16% of the GDP of the then 15 EU Member States. The Commission has launched a number of studies on the topic, covering issues such as 'Measuring undeclared work' (the latter in collaboration with Eurostat). In July 2004, the Commission issued a new report on Undeclared work in an enlarged Union (EU0407204F). It looks at the incidence in each Member State, including the 10 new Member States that joined in May 2004, and examines the reasons behind the growth in undeclared work.

Since 2001, the issue of undeclared work has been included in the EU employment guidelines. The current version includes a specific guideline entitled 'transform undeclared work into regular employment'. This provides that Member States should develop and implement broad actions and measures to eliminate undeclared work, which combine simplification of the business environment, removing disincentives and providing appropriate incentives in the tax and benefits system, improved law enforcement and the application of sanctions. They should undertake the necessary efforts at national and EU level to measure the extent of the problem and progress achieved at national level.

Finally, in October 2003, the Council of the European Union adopted a Resolution on undeclared work (EU0311206F), calling on Member States to address this issue and to work together to improve the situation. Suggested actions include preventative measures and sanctions aimed at eliminating undeclared work. The Resolution also invites the social partners at European level to address this issue within the context of their current multiannual work programme (EU0212206F) - indeed, the partners plan a seminar on the issue in 2005, with the aim of reaching a joint opinion - and to deal with it in the context of the sectoral social dialogue committees. The Council calls on the social partners at national level to promote the declaration of economic activity, to engage in awareness-raising and to promote the simplification of the business environment, particularly in relation to small and medium-sized enterprises.

Given this high level of interest in the subject, in June 2004 the EIRO national centres in 23 European countries were asked, in response to a questionnaire, to give a brief overview of the industrial relations aspects of undeclared work, looking at: the nature and extent of undeclared work; the regulatory framework; the role, activities and views of the social partners; and partnerships between social partners and public authorities to tackle undeclared work. The Danish responses are set out below (along with the questions asked).

Nature and extent

Please describe briefly the nature and extent of undeclared work (ie 'any paid activities that are lawful as regards their nature but not declared to the public authorities') in your country. The aim here is not to provide very detailed statistical information or go into concrete calculation methods, but only to give what overall figures are available, plus broad estimates and indications where such figures are lacking. This should cover matters such as: the overall amount of undeclared work; gender aspects (ie are women more or less affected, and why?); the relationship between undeclared work and migration (please distinguish between legal and illegal migration); and sectoral aspects (ie which sectors are most involved).

Undeclared work has been relatively widespread in Denmark for a century, since income tax was introduced in 1903. It is mainly found in the provision of personal services to families, friends and colleagues, and in work in restaurants, retail, cleaning, construction, agriculture and horticulture. Although accurate data are not available, it appears that 'domestic' undeclared work, performed for householders may be skilled or unskilled, and is more likely to involve men in construction work and women in cleaning and childcare. It is undeclared in order to avoid taxation. The more 'commercial' undeclared work in the other sectors mentioned is in many cases performed by students (in all sectors, but especially in restaurants), and migrant workers from Turkey, the Middle East, Pakistan and Somalia (often in retail, cleaning and catering) or from the new EU Member States in central and eastern Europe (notably in construction and agriculture).

According to a recent study (Danmarks uformelle økonomi - historiske og internationale aspekter, Gunnar Viby Mogensen, 2003)., undeclared work represented some 3.8% of Danish GDP in 2001, and this level had fluctuated over previous years - see table 1 below. The same study notes that, as in the formal sector of the economy, there is a gender pay gap in the informal economy - on average, men earn 15%-18% more than women for comparable jobs.

**Table 1. Unclared work as % of GDP**
1988	1991	1994	1996	2001
2.5%	4.4%	3.4%	2.6%	3.8%

Source: Viby Mogensen 2003.

In April 2004, the government launched an inspection campaign against undeclared work in restaurants and pizzerias, kiosks, taxi-driving, agriculture and gardening, markets, nightclubs, newspaper distribution, massage parlours and bakeries. The campaign involves a partnership between different ministries and public authorities, with the social partners and trade associations also participating (see below under 'Social dialogue' and 'Partnerships'). Some of the campaign's findings are outlined in table 2 below.

**Table 2. Findings of undeclared work inspections carried out by tax authorities, 3-13 June 2004**
.	No. of companies inspected	% of companies with unsatisfactory accounts	No. of workers in companies inspected	% of workers listed in MIA*	% of workers said to be on first day at work	% of workers receiving unemployment benefit	% of workers receiving social benefit %
Pizzerias, restaurants	678	40.7% (276)	1,846	45.4% (839)	18% (332)	7.4% (136)	10.1% (186)
Others	1,099	24.7% (271)	2,271	61.7% (1,401)	6.6% (149)	2.8% (64)	5.1% (116)
Total	1,767	31.7% (547)	4,117	54.4% (2,240)	11.1% (481)	4.9% (200)	7.3% (302)

Source: Ministry of Taxation.

* New employees have to be registered within the first month of employment in an establishment in the Monthly Report on Employees (Månedlig Indberetning af Ansatte, MIA) . Thus if the workers inspected in June 2004 were claimed to be on their 'first day at work' at the establishment, this could not be verified by the authorities.

Table 2 shows that failure to declare work, whether because of unsatisfactory accounts or undeclared work proper, is quite substantial. Almost all pizzerias and kiosks are owned and staffed by immigrants from countries outside Europe. Overall, it could be concluded that 45.6% of the workers inspected in June 2004 were performing undeclared work, since their employment was not known to the tax authorities, with those supposedly working their first day accounting for a substantial part of the problem.

According to the government, the share of undeclared work in total tax evasion has been increasing, and currently stands at about two-thirds

Law

What is the legislative framework in your country concerning undeclared work? Please include here: definition; incentives for transformation of undeclared work into regular work; sanctions and penalties; connection with the tax system and benefits; any attempts at administrative or fiscal simplifications; and any recent legislative changes.

The legislative framework concerning undeclared work is primarily connected to the laws on taxes, duties etc. The legislation provides that it is illegal not to pay tax, duties or customs charges on goods and services - it is thus illegal not to declare earnings from work to the tax authorities. Undeclared work is subject to fines, and in severe cases imprisonment.

In early July 2004, following the inspection campaign on undeclared work (see above under 'Nature and extent') the minister responsible for taxation announced new measures (DK0408101N), which include the following:

all employees must be registered with the relevant authorities from their first working day. This is aimed at dealing with the abovementioned situation whereby tax inspectors are often told that employees found not to be registered with the tax and social security authorities are on their first day of work and thus not registered yet.;
insurance companies must ensure that work carried out to rectify damages for which insurance claims have been made is declared properly;
Dansk Tipstjeneste, the national football pools, lottery and gambling body, is to terminate its contracts with retailers charged with tax fraud. Dansk Tipstjeneste has contracts with 4,000 retailers, and administering its services is a profitable business for retailers; and
a nationwide campaign will focus on 'criminalising' undeclared work with the aim of changing the perceived general attitude that 'a little favour now and then doesn’t harm'. Workplaces will be involved in discussions on undeclared work.

According to Denmark's 2003 National Action Plan (NAP) on employment, it is the government’s policy to make it easier in administrative terms to comply with the relevant legislation - including that on the establishment and operation of enterprises - and thus address an important barrier to transforming undeclared work into regular employment. Under a recent 'competition package', a number of statutory rules and regulations have abolished, and obligations to submit reports and data to public authorities have been simplified. The package also comprises a number of tax relief measures, such as higher income limits for VAT registration and extension of a special 'business set-up account' scheme.

Social dialogue

Please provide an overview of any collective agreements dealing with the issue of undeclared work (at any level - eg intersectoral, sectoral, company, regional). If there are any such agreements, please outline their content and, if possible, their impact, giving examples. Where possible, please provide details on collective agreements in sectors particularly affected by undeclared work, such as hotels/restaurants/catering, agriculture, domestic/personal services, retail or construction.

Undeclared work was not a specific topic during the spring 2004 collective bargaining in the private sector. However, Danish Union of Wood, Industrial and Building Workers (Forbundet Træ-Industri-Byg i Danmark, TIB) and the General Workers Union in Denmark (Specialarbejderforbundet i Danmark, SiD) have reached agreements with the Danish Construction Association (Dansk Byggeri) to undertake monitoring work in the construction sector in order to prevent work that is not performed in line with the industry's collective agreement, ie undeclared and illegal work (or what the partners call the 'grey market').

Please give details of any joint or unilateral initiatives on undeclared work taken by trade unions and employers’ organisations (such as information campaigns, providing training for their members responsible for negotiations, or adopting codes of conduct/ethics).

The social partners in the relevant sectors, and especially in building/construction (see previous point) have agreed to monitor workplaces, as far as possible, and report any cases where the employer cannot account for workers at the workplace. Local branches have been asked to be 'on the alert' (also see below under 'Partnerships').

In summer 2003, the TIB trade union announced plans to set up an affiliated organisation which will offer membership to self-employed people in the construction sector (DK0308102F). This initiative was targeted at people working as self-employed under questionable circumstances, usually receiving lower pay than set by collective agreements. The issue of increasing 'bogus' self-employment is also seen as a problem by the main building industry employers’ organisation, the Danish Construction Association. Out of the 11,000 sole operators in building and construction, only half are considered to be genuinely self-employed by both trade unions and employers. The SiD union is conducting monitoring in the agricultural sector to uncover undeclared and illegal work, but so far there are no such initiatives in retail or catering.

Are there cases in your country where workforce representatives have mobilised employees on the issue of undeclared work? If so, what form did this take (demonstrations, strikes etc)? Are there cases where social partners have made appeals on this issue to the public authorities (the government, elected representatives etc)? What were the results?

There is currently a heightened awareness among workers (and in the general public) about undeclared and illegal work. This has partly to do with the enlargement of the EU in 1 May 2004, which triggered many debates about possible illegal workers coming from the new Member States (DK0312103F). In this context, it is especially in building/construction and agriculture that trade unions (and employers' association to a certain degree) have called on the authorities to introduce rules to prevent undeclared and illegal work.

Partnerships

Please outline any initiatives taken jointly by public authorities and social partners in order to address undeclared work, and their results. What types of partnerships exist in your country (eg involving local authorities or NGOs) and what tools or measures have been used to address the problem? Please refer to good and bad practices, indicating which policies have proved to be successful in the national context and why (such as a good mix of actors, cultural traditions or flexible tools).

In 2003, at the behest of parliament, the national police was asked to draw up an action plan to combat illegal and undeclared work. Innovatively, the police's plan involved a wide range of different authorities, along with the social partners, in a cooperative effort to combat crime in this area. Public authorities such as the police, the public prosecutor, the Immigration Service (Udlændingestyrelsen), the Customs and Tax Authority (Told & Skat) and the Public Employment Service (Arbejdsformidlingen, AF) met representatives of trade unions and employers’ organisations to discuss possible initiatives in this field. The result was the creation of regional networks, with the local branches of trade unions playing a major role in the detection of illegal workers at workplaces, and employers’ organisations helping in particular to identify the ringleaders who organise the illegal workers and the employers that hire them (DK0308101N). The campaign has so far been successful in uncovering the scope of undeclared work and tax evasion. In June 2004, the Ministry of Taxation launched a campaign on avoiding undeclared work aimed at employers, and trade unions in construction are to do the same.

Has a comprehensive partnership on undeclared work developed in the context of your country’s National Action Plans (NAPs) on employment (in response to the EU employment guidelines)? Have there been significant tripartite arrangements on undeclared work as a result or in the context of the NAPs? How have the social partners at various levels implemented the aspects of EU employment guidelines on the issue of undeclared work that are under their responsibility?

The NAP on employment has not specifically resulted in any partnerships in this area. The NAP specifies the government's strategy on undeclared work, but does not point to partnership initiatives.

Views

Please summarise the views of trade unions and employers’ organisations on the issue of undeclared work. Please include their positions on the role of the administrative, tax system and social welfare regime, and their view/assessment of government initiatives.

The social partners support the various initiatives taken by the authorities, including practical support as far as possible. They agree that undeclared work is a violation of, and a threat to, the Danish collective bargaining system, which regulates most labour market issues.

Trade unions in construction have criticised government campaigns against undeclared work for not addressing building work in private households. They also state that the tax authorities can only pay inspection visits to establishments, but a construction site is not defined as an establishment and is thus outside the scope of inspection visits from the authorities.

The Danish Federation of Small and Medium-Sized Enterprises (Håndværksrådet, HVR), which represents enterprises mainly in building, construction, services and small industry, while welcoming recent measures to address firms that use undeclared work, believes that customers that avoid paying the full price for services should also be criminalised. The member enterprises of HVR are often asked to work 'without a bill'- in most cases meaning without charging VAT. HRV also calls for large-scale initiatives to change attitudes towards undeclared work. Undeclared work represents a substantial parallel economy damaging the competitiveness of small enterprises and resulting in increased taxation on them, HVR claims. In this connection, HVR proposes a lower VAT rate on services and a lower minimum turnover above which firms must register for VAT. Both trade unions and employers' organisations have raised the possibility of excluding members that carry out undeclared work.

Commentary

Please give your own comments on the issue of industrial relations and undeclared work.

The campaign in Denmark against undeclared work goes hand in hand with the campaign against illegal work, and illegal work is often connected to immigration. However, public debate has a tendency to exaggerate the role of the immigrants in undeclared work in Denmark. Undeclared work has existed since income tax was introduced a century ago and, while being quite widespread, it does not appear to have grown in any very significant way. In recent decades undeclared work has involved immigrants to a considerable degree, and the current campaign against undeclared work is concentrated on sectors with a relatively high share of immigrant workers. However, it should be emphasised that the campaign, which is supported by the social partners, also focuses on illegal work - especially in connection with the recent EU enlargement. It remains to be seen what further steps the authorities will take in the campaign against undeclared work. (Carsten Jørgensen, FAOS)

Eurofound doporučuje citovat tuto publikaci následujícím způsobem.

Eurofound (2004), Thematic feature - industrial relations and undeclared work, article.