Sectoral campaigns of the Labour Inspectorate, Romania

About

Country: 
Romania
Target Groups: 
workers/suppliersemployers/purchasers

The Labour Inspectorate has developed inspection and awareness-raising campaigns aimed at identifying and controlling undeclared work in economic sectors where it is prevalent. High taxation tends to encourage the grey economy, meaning that employers and employees agree on the minimum legal pay rate and the workers are then paid more in cash, off the record. Labour and tax inspectors must work in close cooperation to combat the problem.

Background

The Romanian Labour Inspectorate (Inspecţia Muncii, IM) is a specialised government agency established by law in 1999, operating under the authority of the Ministry of Labour, Family and Equality of Opportunities (Ministerul Muncii, Familiei şi Egalităţii de Şanse, MMFES). Its main aim is to verify that employers comply with their obligations in respect of labour relations, working conditions, and health and safety standards for the employees and other contributors to a labour process.

IM has broad prerogatives to ensure compliance with national and international employment regulations in all types of organisations, business or otherwise, irrespective of ownership – public, private or mixed. IM manages this responsibility through its 41 local inspection offices, one in each county of Romania.

In recent years, the fines applied by IM for undeclared work accounted for 40% to 50% of all the penalties that it enforced. It has set up sectoral inspection campaigns (c ampanii sectoriale de control ale Inspecţiei Muncii) in order to tackle the problem more effectively, by targeting specific economic sectors where undeclared work is prevalent, such as construction, textiles and clothing, and the food industry.

The main actors involved are IM and employers and employees in the sectors where illegal employment has reached particularly high rates.

Objectives

One of IM’s priorities in labour relations issues is compliance with employment regulations. Its regular inspections aim to:

  • identify employers hiring workers without observing the legal employment documentation, so that adequate measures can be taken to curtail the economic and social effects of illegal labour;
  • assess the main reasons behind undeclared labour;
  • enforce penalties and propose measures towards discouraging the illegal use of the labour force, while encouraging legal employment;
  • provide educational, information and technical assistance services to employers and employees, in order to advise both sides on the provisions of labour legislation.

Specific measures

The initiative comprises inspection and awareness-raising campaigns aiming to:

  • identify and control undeclared work in sectors where there is a high occurrence of the problem and also to prevent children’s labour;
  • render undeclared work unpopular, by publishing in the media the results of such inspections so that citizens are educated towards rejecting this form of exploitation.

Evaluation and outcome

Achievement of objectives

Over the past years, the number of penalties enforced by labour inspectors for undeclared work has slightly declined, due to the growing awareness of employers and workers that abiding by the employment regulations is advantageous for both sides.

Recent inspections reveal that the ratio of illegal workers compared with legal workers has also diminished in the companies visited by IM officials.

Obstacles and problems

Nevertheless, illegal labour continues to be one of the major problems of the Romanian labour market. According to the Inspector General and Head of IM, Mariana Basuc, this is due to the ‘complicity between the victim and their executioner’, where the employer and employee cover each other by refusing to testify in court. The high taxation rates for social security, health and unemployment contributions are divided between employers and employees, and are therefore payable by both. Often, both sides agree formally on the minimum legal pay rate, and then the worker is paid an additional balance in cash, off the record – this partial declaration of pay may be defined as the grey economy.

Lessons learnt

The practice of not declaring part of the income falls within the scope of the Financial Guard (Garda Financiară, GF) and its financial controllers. GF is a control agency under the Ministry of Finance (Ministerul Finanţelor, MF); it is responsible for preventing and investigating tax evasion and tax-related fraud. In this context, it is essential for both GF and IM – and for the labour and financial inspectors – to work in close cooperation. To enhance the efficiency of labour inspections in the flour and baking industries, for example, sudden visits were paid during the night.

Impact indicators

The initiative has involved 1,500 inspectors throughout Romania, about 500 of whom were in Bucharest. Table 1 summarises the results of the relevant IM inspections since 2000.

Table 1: Results of IM inspections regarding undeclared work
 

2000

2001

2002

2003

2004

2005

2006

2007

Inspected companies (no.)

44,269

69,889

78,322

80,289

78,529

74,109

100,200

90,677

Companies using undeclared work, of total inspected (%)

9.5

12.9

4.7

5.1

4.4

4.8

7.8

8.5

Persons detected to be working off the record (no.)

19,228

33,519

11,651

13,031

10,446

8,492

16,571

16,059

Total fines exacted (€ 000s)

947.1

2,308.6

2,021.4

2,028.9

1,713.9

2,202.6

7,167.5

7,256.6

Average fine per company using undeclared work (€)

226

256

544

495

498

625

915

942

Source: Own calculations, based on data from IM, using the annual average RON/€ exchange rate of the Central Bank of Romania (Banca Naţională a României, BNR).

In the past few years, special inspection programmes have been carried out in the economic sectors where undeclared work has reached the highest rates. Table 2 outlines the conclusions of some of these inspection rounds in 2007.

Table 2: Results of IM sectoral inspections regarding undeclared work, 2007
 

Construction (2 raids)

Textiles and clothing (1 raid)

Flour and baking industries (1 raid)

Inspected companies (no.)

2,777

2,350

1,087

Companies using undeclared work, of total inspected (%)

18.1

8.4

10.3

Average fine per company using undeclared work (€)

1,080

1,475

780

Source: Own calculations, based on data from IM, using the annual average RON/€ exchange rate of the Central Bank of Romania (Banca Naţională a României, BNR).

Transferability

IM has limited financial and human resources, and therefore prefers to concentrate its inspection rounds on economic sectors where the incidence of undeclared work is highest. It publishes its findings as a warning for all sectors of the national economy.

Commentary

Concerted inspection activities and efforts to prevent the high rate of undeclared work in particular economic sectors are one way to improve the efficiency of the government agencies vested with the power to intervene but with limited resources. A good cooperation between IM and GF may also have an improved effect.

Contacts

Labour Inspectorate (Inspecţia Muncii, IM)

Inspector General and Head of IM, Mariana Basuc

Bibliography

Labour Inspectorate (IM), Raport de activitate a Inspecţiei Muncii – 2006 [Labour Inspectorate report of activities – 2006], Bucharest, 2007, available online (in Romanian) at: http://www.inspectmun.ro/RAPORT%20ANUAL/Raport%20IM%202006%20pt%20OIM.pdf.

IM, Raport de activitate a Inspecţiei Muncii – 2007 [Labour Inspectorate report of activities –2007], Bucharest, 2008, available online (in Romanian) at: http://www.inspectmun.ro/RAPORT%20ANUAL/RAPORT%20IM%202007web.pdf.

Constantin Ciutacu, Institute of National Economy, Romanian Academy

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