Trade union study on the informal economy, Romania

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The National Trade Union Bloc carried out a study evaluating the magnitude of the informal economy and its impact on the Romanian labour market. According to the study, informal employment in Romania in March 2011 involved 2.9 million persons, 31.4% of total employment, while employment in the informal sector accounted for 1.2 million persons, 13.1% of total employment.

 

Background

The National Trade Union Bloc (Blocul Naţional Sindical, BNS), a national trade union confederation, conducted a project entitled ‘Observatory for monitoring the Labour Market and Quality of Workplaces’(Biroul pentru observarea pieţei muncii şi a calităţii locurilor de muncă) during the period 2010–2012. It was cofinanced by the European Social Fund (ESF), through the Sectoral Operational Programme for Human Resources Development (SOP HRD) 2007–2013.

The general aim of the project is to ‘improve the level of information on matters related to the labour market and the quality of workplaces’.

According to the BNS, there is no formal organisation in Romania that takes into account the workers'/trade unions' viewpoint when undertaking studies and strategies on the labour market and economic trends in Romania and therefore the Observatory was designed as a ‘platform of debate on labour market issues and economic trends in Romania, by which the social partners can voice their opinions and may benefit from the assistance of independent experts in formulating their opinions in as accurate and comprehensive terms as possible.’

In 2011, the platform initiated a report on the informal economy and its impact on the labour market, carried out by a team of researchers, some of whom are experts from the National Institute of Statistics (Institutul Naţional de Statistică, INS), coordinated by Liviu Voinea and Lucian Liviu Albu.

Objectives

The purpose of the research was to assess the extent of the informal economy strictly from the perspective of the labour market, based on two concepts of employment in the informal sector, and informal employment: employment in the informal sector covers all workplaces or people in enterprises in the informal sector; employment in the informal employment covers all informal workplaces in formal enterprises, informal enterprises and individual households sectors.

Employment in the informal sector is defined as the entirety of workplaces or persons working in enterprises operating in the informal sector, irrespective of the professional status or the type of work performed in such enterprises.

Informal employment means all informal workplaces, irrespective of whether they are in formal enterprises, in informal enterprises, or in individual households.

Specific measures

For their report, the authors used the following methodology:

  • description of the concepts used, and their scope in their area of research: employment in the informal sector, and informal employment;
  • a research method based on questionnaires (one 14-item questionnaire for households, and an individual questionnaire for the target population, consisting of 50 questions structured in four sections);
  • conducted on-site interviews in the targeted households with any person aged 15 and over, who, in the month of March, worked for at least one hour, irrespective of professional status;
  • processed and analysed the data so collected;
  • submitted their conclusions and recommendations to public debate.

Actors involved

The project brought together several partner organisations: BNS, the National Centre for Statistic Training (Centrul Naţional de Pregătire în Statistică, CNPS), an extension of the INS, the Giacomo Brodolini Foundation (Fondazione Giacomo Brodolini, Italy), and Ismeri Europa, a consultancy firm;

The authors of the report are Vergil Voineagu, Mariana Pietreanu, Viorica Duma, Monica Jifcu, Alice Sfetcu, Cătălin Curea, Nicolae Mardari, Silvia Pisică (expert), Liviu Voinea as Observatory Coordinator, Lucian Liviu Albu as Research Coordinator.

Outcome of evaluations: lessons and conclusions

Achievement of objectives

The study reveals that informal employment in Romania involves 2.9 million persons, which accounts for 31.5% of all employment. Most of these individuals are members of households (2.2 million persons, i.e. 75.2% of all informal employment).

The individuals employed in the informal sector a numbered 1.2 million persons, which is equal to 13.1% of all employment. Of these, more than half a million (42.5% of all employment in the informal sector) are employees under an employment contract with unrecorded employers.

In other words, the overall number of persons involved in informal employment or working in the informal sector is 3.4 million persons (of which 2.9 million in informal employment, and 0.5 million employees in the informal sector).

Of the 2.9 million persons that form the category of informal employment, 2.532 million, i.e. 87.3% work in agriculture, forestry, and fishing, and 368,000 persons (12.7%) perform non-agricultural work.

Lessons learned

Informal labour was found to be more frequent among: persons of low education, unskilled or poorly skilled labour (all of whom stand a 12 times higher risk of being absorbed in the informal sector); young people (whose other option is emigration); elderly and retirees.

The measures proposed are tailored to fit the various categories of informal labour.

As it was proved as a fact of life that poor people suffer from the highest exposure to being ‘trapped in informal work’, the increment of the minimum wage could be a way of reducing the density of illegal work.

Among the means proposed by the authors to reduce the occurrence of informal work among persons of high revenues are: to increase the efficacy of inspections, improve the system of taxation records, enforce the sanctions and penalties provided by law, provide economic incentives (through simplification of collection of taxes and charges, simplification of paperwork and procedures, reduction of charges and taxes that may inhibit work in the formal sector, and increment of charges and taxes that are now diminutive).

All these measures aim to stimulate work and production in the formal sector.

Impact indicators

The research was conducted on a population sample selected as representative of the country.

During the first, exploratory phase, 780 research centres, evenly distributed in the territory of Romania, were selected to contribute. These are located in all the 42 administrative units of Romania – 41 counties plus Bucharest – with 427 of them operating in urban settlements, and 353 in rural areas. The second phase was devoted to research on a target sample of 9,804 households in which at least one member was an employed persons. Of these, information was provided by 9,617.

The research method, the polling depth, and extrapolation are similar to those used for the AMIGO 'Household Labour Force Survey' run by INS every year.

Practically, the sample is representative for 9.2 million employed persons, and the study revealed that 6.3 million of them were involved in formal employment, and 2.9 million in informal employment.

Total employment in the formal sector stands at 5.84 million persons (of whom 5.82 million persons are formally employed, and 0.02 million persons are informally employed); total employment in the informal sector amounts to 1.2 million persons (0.51 million persons being in formal employment, and 0.69 million persons being in informal employment); total employment in the household sector is 2.19 million persons (with 0.002 million persons in formal employment, and 2.188 million persons in informal employment).

The authors' estimation is that, if all individuals working in the informal economy were to switch to formal occupation, the national employment rate would grow from the current 58% to 75% (which is the rate aimed at by the 'Strategy Europe 2020'). In such a scenario, the budget revenues (formed of the income tax, and the social security contributions) would augment their share in the GDP by 6%, thereby broadening the taxation base and generating funds for investment, welfare, health, etc.

Similarly, if only 20% of the workers now occupied in the informal economy shifted to the formal economy, the employment rate would reach 63% (close to the current European average of 66%), and the related extra budget revenues would account for 1.2% of the GDP.

Transferability

The authors have created a research methodology to fit the specifics of formal and informal employment in Romania, a country whose subsistence farming sector is oversized.

However, their model may be extended to generate a comparative study between the European Union (EU) Member States.

Contacts

Commentary

Prior to this report, the research into the informal economy of Romania used to focus on assessing the share of its various components in the GDP.

In broad terms, the studies conducted over the past 22 years by various institutions and experts place the magnitude of the underground economy somewhere between 20% and 40% of the country's GDP.

The analysis of the invisible economy undertaken by the authors of this study has the advantage of avoiding some of the inaccuracies of the monetary estimations in relation to the GDP.

Bibliography

  • 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.

Constantin Ciutacu, Institute of National Economy, Romanian Academy

 

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