Improved cooperation between inspection authorities, Latvia
Policy principles aiming to reduce illegal employment in Latvia recommend greater cooperation between controlling authorities. Cooperation and coordination between the inspection authorities have improved, including better exchange of information and joint activities. The State Labour Inspectorate is responsible for the labour market, while the State Revenue Service is responsible for financial and tax issues.
The Latvian Ministry of Welfare (Labklājības ministrija, LM) developed a set of key principles entitled Measures for the prevention of illegal employment in 2004.
Undeclared work is an aspect of the illegal economy. At the time when the key principles were being prepared, estimations about the scale of the illegal or shadow economy fluctuated across various state authority studies from 17% of gross domestic product (GDP) – according to the Central Statistical Office – to 25% of GDP, according to the Ministry of Finance (Finanšu ministrija, FM). The state authorities were concerned about undeclared work because it reduces the state budget revenue and the state’s ability to provide social services. Employers, too, believe that illegal employment is harmful as it creates unfair competition and indirectly increases the tax burden on entrepreneurs who pay taxes in compliance with the law.
The key principles identify seven main factors in the financial and labour field facilitating undeclared work: a complicated taxation system, inadequate controls, a lack of cooperation among the authorities, an increase in economic crime, the possibility to register fictitious companies, unemployment and a low level of public awareness regarding labour law matters.
The policy document determines four main directions of action or groups of measures:
- increased administrative capacity of the State Labour Inspectorate (Valsts Darba Inspekcija, VDI) and improved controls on illegal employment;
- greater cooperation between the inspection authorities;
- public awareness campaigns;
- educational campaigns for pupils and students.
LM has set out that the aim of improving cooperation between the controlling authorities is to curtail illegal employment in Latvia. According to the definitions used in the country, undeclared work is also a target in the policies for combating illegal work.
The target group of the measures is employed persons and employers.
Greater cooperation between the controlling authorities means improving the exchange of information and coordinating the work of the many organisations concerned, namely: VDI, the State Revenue Service (Valsts ieņēmumu dienests, VID), the State Employment Agency, the State Social Insurance Agency, the Office of Citizenship and Migration Affairs (Pilsonības un migrācijas lietu pārvalde, PMLP), the State Border Guard, the Republic of Latvia’s Register of Enterprises, the State Construction Inspectorate, the State Control, the Union of Local and Regional Governments of Latvia (Latvijas Pašvaldību savienība, LPS), institutions issuing licences for commercial activities and the Free Trade Union Confederation of Latvia (Latvijas Brīvo arodbiedrību savienība, LBAS).
Exchange of information
The key principles envisaged establishing a coordination mechanism model for fast information exchange that would uncover and eliminate illegal work at an early stage. This coordination mechanism model was enacted by Regulation No. 431 of the Latvian Cabinet of Ministers in 2005.
Coordination of work
Since the adoption of the key principles, controlling authorities are encouraged to act in a coordinated way. This is understood as the coordination of policies and the organisation of common or parallel actions comprising controlling, information and public awareness activities.
Coordination of policies means a stricter division of responsibilities. Thus, LM focuses its strategy of action on the field of labour. Meanwhile, the measures taken in the fields of financial supervision and taxation policy are developed by FM.
The controlling activities are organised with the participation of officers from several inspection agencies, particularly VID and VDI. Common activities may be organised on call when suspicious circumstances are detected by one or other institution; in the case of the involvement of foreign workers, the State Border Guard would play a role.
Information and public awareness activities are usually implemented independently by VID and VDI; nevertheless, the topics of discussion are organised according to the general division of responsibilities set out in the key principles.
Information campaigns are organised jointly by VDI, VID, LBAS and the Latvian Employers’ Confederation (Latvijas Darba devēju konfederācija, LDDK).
An example of coordinated action is the organisation of free telephone hotlines in both of the main institutions involved – VID and VDI.
Eliminating illegal employment of foreigners
In order to prevent the irregular employment of foreigners, VDI has entered into a cooperation agreement with the State Border Guard and PMLP; together, they verify the information received in relation to illegally employed foreign nationals.
Evaluation and outcome
Achievement of objectives
Despite the adoption of the regulations, the exchange of information has not yet improved very much. The report on Assessment of undeclared work, published by the University of Latvia in 2007, reveals in its special analysis of the work of institutions combating illegal work that the coordination of these agencies is still poor. Almost all of the authorities involved in combating irregular work maintain complicated databases. However, none of them registers employment contracts or details of the work regime – for example, overtime work.
Obstacles and problems
The use of information from different institutions for comparison and analysis is difficult because the information systems are not fully compatible. A significant obstacle is identifying cases of illegal or undeclared employment and ensuring that VDI officers are authorised to verify the practice of such irregular employment.
Another obstacle is the different specialised remits of VID and VDI, which makes it difficult to organise common actions.
Specific impact indicators measuring the improvement of cooperation between the controlling authorities have not been established. Nevertheless, some improvement has been achieved, because common actions are reported more often than before.
There is no specific innovative experience in the improvement of cooperation among controlling authorities that may prove useful for other countries.
- Ministry of Welfare (Labklājības ministrija, LM)
- State Labour Inspectorate (Valsts Darba Inspekcija, VDI)
- State Revenue Service (Valsts ieņēmumu dienests, VID)
Latvian government, Key principles: Measures for the prevention of illegal employment (Informative part), Republic of Latvia Cabinet Order No. 60, 29 January 2004, available online (in Latvian) at: http://lm.gov.lv/upload/darba_tirgus/darba_attiecibas_socialais_dialogs/lmpamn_kops2.doc.
Latvian government, Action Plan 2005–2009 for increasing the VDI administrative capacity in relation to reducing illegal employment, Republic of Latvia Cabinet Order No. 836, 2 November 2004, available online (in Latvian) at: http://lm.gov.lv/upload/darba_tirgus/darba_attiecibas_socialais_dialogs/vdi_271004_kops2.doc.
Latvian government, Amendments to the RL Cabinet Order No. 60 ‘Regarding the key principles: Measures for the prevention of illegal employment’, Republic of Latvia Cabinet Order No. 52, 26 January 2005.
Ministry of Finance, Measures by the Ministry of Finance, financial supervision and taxation policy to reduce illegal employment (in Latvian).
State Labour Inspectorate (VDI), Annual report of the State Labour Inspectorate, Rīga, 2007, available online (in Latvian) at: http://www.vdi.gov.lv/admin/files/dokumenti/VDI_2007.parskats.pdf.
VDI, State Labour Inspectorate’s experience of reducing illegal employment, Presentation of the Head of the Labour Law Department at VDI, Vilnis Virza, 10 November 2006, available online (in Latvian) at: http://www.vdi.lv/admin/files/dokumenti/Vilnis_Virza.ppt.
University of Latvia, Nereģistrētās nodarbinātības novērtējums, Rīga, 2007.
Raita Karnite, Institute of Economics, Latvian Academy of Sciences