National strategy to reduce illegal work, Romania

About

Country: 
Romania
Sectors: 
All
Target Groups: 
employers/purchasersworkers/suppliers

 

In view of the high level of informal work in the country, in June 2009 the Romanian Government (Guvernul României) signed a Memorandum of Understanding with the European Commission for the purpose of creating a ‘Mechanism to monitor, control, and reduce the rate of illegal work in Romania’. The national strategy and action plan form an integral part of an inter-institutional approach to tackle the problem of undeclared work, which includes stiffer penalties for employers found to be in breach of the regulations.

 

Background

Since 2009 the global economic crisis has severely affected the Romanian economy, with GDP, expressed in real terms, dropping by 6.6%, after a 7.3% growth in 2008, from the previous year.

The downward course continued in 2010, when the real value of the GDP diminished by 1.6% from the level in 2009. In 2011, the GDP regained a slightly upward course with a 2.5% growth from the previous year.

The data published by the National Institute of Statistics (Institutul Naţional de Statistică, INS), indicate that total employment in 2008–2011 decreased by 375,700 persons, and the average number of employees dropped by 644,200 persons.

The informal economy, according to the same INS estimations, escalated its GDP share from 19.6% in 2008 to 20.3% in 2010.

The study undertaken by the National Trade Union Bloc (Blocul Naţional Sindical, BNS) in 2011 into the ‘Informal economy and its Impact on the labour market’ shows that in March 2011 informal employment totalled 2.9 million persons, which was equal to 31.4% of total employment. Of these, 75.3% were members of individual households.

Objectives

In consideration of the high rate of informal work, in June 2009 the Romanian Government (Guvernul României) signed a Memorandum of Understanding with the European Commission (EC) for the purpose of creating a ‘Mechanism to monitor, control, and reduce the rate of illegal work in Romania’.

The aims pursued by the mechanism are to:

  • measure the extent and density of illegal work in as accurate as possible terms, through improved methods of collection and processing of relevant information, and through an active and ongoing involvement of the national research capacities;
  • monitor continuously the developments in the sector, and the actions aimed at preventing and controlling black labour, through all the available means, including the better coordination and integration between the collection and statistic processing of data, and the administrative monitoring and scientific research systems;
  • channel the prevention, inspection, and control activities towards the areas of highest density of illegal work, and encourage shadow economy participants to switch from informal to formal employment;
  • combine all actions seeking to assess, monitor, prevent, and control undeclared work in an integrated approach;
  • give higher visibility to the efforts made and the results obtained for the achievement of the above aims, thereby generating a general attitude of support on the part of the business environment.

Specific measures

To reach the proposed targets, the following steps have been taken:

  • an Inter-ministerial Committee against Undeclared Work (Comitetul interministerial pentru combaterea muncii nedeclarate, CIMND) was set up by Government Decision (2010);
  • a National strategy to reduce the rate of undeclared work, and a related Plan of Action to implement the Strategy were drafted for the period 2010–2012 (approved by Government Decision in October 2010);
  • amendments were brought to the existing legislative framework, in order to raise awareness of the negative effects of illicit work. Act 40/2011 amended and supplemented the provisions of the Labour Code adopted by strength of Act 53/2003 to the effect of increasing by five times, with effect from 1 May 2011, the penalties for defaulting employers, who are now liable for fines of €2,500–5,000 for each person found to perform illegal work, but also for defaulting employees, who are now liable for fines between €100 and €220.

One of the new amendments provides criminal liability for employers found to keep in illicit employment five or more persons; depending on the severity of the breach, employers may also forfeit their right to enjoy public services or subsidies, including European funds, or may be barred from bidding for public tenders for a period of up to five years.

The most drastic measures that may be taken against employers is the shut-down of business, or temporary or permanent withdrawal of the operation licence for the working sites where the breach of law was committed.

Actors involved

The CIMND is made up of two representatives of each of the institutions below. Their rank is that of state secretary or equal to similar positions in the central administration:

  • Government's General Secretariat (Secretariatul General al Guvernului, SGG);
  • Ministry of Labour, Family and Social Protection (Ministerul Muncii, Familiei şi Protecţiei Sociale, MMFPS), including the bodies in its subordination: The National Public Pensions Agency (Casa Naţională de Pensii Publice, CNPP), the National Agency of Employment (Agenţia Naţională pentru Ocuparea Forţei de Muncă, ANOFM), the Labour Inspection (Inspecţia Muncii, IM), the National Scientific Research Institute for Labour and Social Protection (Institutul Naţional de Cercetări in domeniul Muncii şi Protecţiei Sociale, INCSMPS);
  • Ministry of Public Finance (Ministerul Finanţelor Publice, MFP), through its National Agency for Fiscal Administration (Agenţia Naţională de Administrare Fiscală, ANAF), and the Financial Guard (Garda Financiară, GF);
  • Ministry of Administration and Interior (Ministerul Administraţiei şi Internelor, MAI), through the Romanian Office for Immigration (Oficiul Român pentru Imigrări, ORI);
  • National Institute of Statistics (Institutul Naţional de Statistică, INS).

The SGG provides the coordination and general secretariat of the CIMND.

Outcome of evaluations: lessons and conclusions

Achievement of objectives

The annual reports made by the CIMND's Group of Technical Experts indicate that the number of individual inspections has increased, alongside with the joint integrated inspections run by the institutions involved, and that their efficiency has improved, all of which translates into the number of defaulting employers and employees detected, and in the value of fines.

After the enforcement of the revised Labour Code on 1 May 2011, in two months alone the number of individual employment contracts registered with the local labour inspectorates rose significantly.

Obstacles and problems

A better management of the illicit work phenomenon requires, among other things, the integration of the databases of some of the institutions concerned, which are the depositories of information regarding the number of social security contributors, length of contribution to the social security fund, etc. Among them are: the National Agency for Social Payments and Inspection (Agenţia Naţională pentru Plăţi şi Inspecţie Socială, ANPIS), IM, CNPP, ANOFM, the National Employees Register (Registrul naţional de evidenţă a salariaţilor, https://reges.inspectiamuncii.ro/Cont/Autentificare?ReturnUrl=%2fPreluariRegistre).

The ideal solution would be dedicated software enabling each agency to maintain its own database, while allowing all the other concerned institutions to access it in real time. The technical solution permitting integration is now under study. When completed, it will simplify the automatic exchange of data, and make the management of illicit work easier.

Lessons learned

While previously the issue of undeclared work was the exclusive task of the IM, the integrated approach with the aid of the CIMND has rendered more efficiency and efficacy to the system.

The addition of criminal accountability to the former administrative penalties, and the restriction from various forms of finance that defaulting employers may face resulted, in a first phase, in a significant growth of the number of new individual employment contracts.

Impact indicators

The CIMND Group of Technical Experts issues an annual progress report.

The '2011 Annual Report on inspections to control illicit work in Romania' (Raportul anual 2011 – Monitorizarea controalelor privind combaterea fenomenului muncii nedeclarate in România) expresses, in figures, some of the changes that have occurred:

  • the number of inspections grew from 86,421 in 2010 to 97,889 in 2011;
  • the number of employers found using illicit labour grew from 9,263 in 2010 to 9,731 in 2011;
  • the number of persons found working without a valid employment contract grew from 17,755 in 2010 to 29,095 in 2011;
  • the value of fines grew from €12,022,732 in 2010 to €24,846,602 in 2011.

The inspection rounds targeted the detection of illegal work in mountain and Black Sea resorts, in the services sector (car wash and maintenance shops, security services), and in the construction sector.

The result of these inspections, paralleled by the effects of the amendments to the Labour Code, was that, during the period 1 May 2011 to the end of July 2011, the number of new individual employment contracts increased by 587,000, of which more than half were made for open-ended employment (RO1107019I).

Transferability

The Mechanism to Monitor, Control, and Reduce the Rate of Undeclared Work, which was created through an agreement between Romania and the EC, may serve as a positive example of the benefits deriving from integrated work at national level, and from the regular and continuous nature of the measures and inspections made to keep the system going.

Contacts

Commentary

The crisis has caused a rising trend in the rate of undeclared work, and has generated more 'refined' methods of circumventing labour law.

Therefore we deem that the phenomenon must be addressed through concerted efforts of both national and European institutions, through continuous training, including joint training sessions at common European standards, for inspectors, and other persons involved.

Bibliography

Albu Lucian Liviu, Iorgulescu Raluca, Stanica Cristian (2010), Estimating hidden economy and hidden migration: The Case of Romania, Romanian Journal of Economic Forecasting, Vol. 2.

Albu Lucian Liviu, Iacob Andreea (2008), Problems in estimating tax evasion and hidden economy, Advances in Mathematical Finance, The 3rd General AMaMeF Conference of Pitesti, May.

Parlevliet Jante, Xenogiani Theodora, Ghinăraru Cătălin, Stănculescu Manuela (2008), Raport privind oocuparea informala in Romania, Bucharest, OCDE.

Voinea Liviu, Albu Lucian Liviu (coord.) (2011), Economia informală şi impactul ei asupra pieţe muncii, National Trade Union Bloc, Bucharest.

Comitetului interministerial pentru combaterea muncii nedeclarate (2012), Bucharest.

Luminita Chivu (2011), Drastic punishment for undeclared work, European Industrial Relations Observatory, /ef/observatories/eurwork/articles/undefined/drastic-punishment-for-undeclared-work.

Constantin Ciutacu, Institute of National Economy, Romanian Academy

 

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