Thematic feature - industrial relations and undeclared work
Published: 8 September 2004
This article gives a brief overview of the industrial relations aspects of undeclared work in Greece, 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.
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This article gives a brief overview of the industrial relations aspects of undeclared work in Greece, 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 Greek 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).
As a result of the inherent difficulties in identifying the real extent of and trends in undeclared work, there are only a limited number of studies examining the problem. Most attempts to assess the 'parallel economy' and undeclared work produce only approximate estimates, by means of various economic calculations based on relevant macroeconomic indicators or the application of econometric models, rather than precise measurements of the economic magnitude of tax evasion or the amount of working hours provided and wage earners employed outside the system of regulated employment. Part of this deficiency is undoubtedly related to the particularly large extent, compared with most EU countries, of Greece's parallel economy, one basic aspect of which is undeclared work. According to the empirical findings of various investigative surveys of the phenomenon, the proportion of the economy that is 'hidden' represents around 25%-40% of the official Gross Domestic Product.
In this context, one would expect undeclared or partially registered work to be equally widespread in the Greek labour market. For example, research by the Panhellenic Federation of Social Policy Organisation Staff (POPOKP) estimates the level of social security contribution evasion at the equivalent of 15%-20% of the total income of most social insurance funds, and 30% in the case of the Social Insurance Foundation (IKA).
The factors that have been internationally recognised as fostering and reinforcing the phenomenon of undeclared work not only exist in Greece but also constitute structural features of the national economy and employment. These factors include: the levels of social security contributions that employees and employers must pay; the tax rates in force; the unemployment rate; the extent of self-employment and use of family members; migrant flows into the Greek labour market; and the evolution of real pay. These factors, in conjunction with other structural factors, such as inadequate frequency and extent of controls of the observance of labour and social security legislation, appear to create the necessary incentives and opportunities for the development of undeclared work.
There is thus a combination of policies, events and orientations that favour the development of a secondary, hidden labour market. Social security contributions and unemployment levels in Greece are among the highest in Europe, while the country has the highest rate of self-employment in the EU (32.5% of all employment in Greece, compared with an average of 14.7% in the EU as a whole). At the same time, the trend is for increases in real pay to be kept down, which provides strong incentives to resort to unlawful employment. Another element of undeclared work that is of particular importance is a large-scale influx of migrants to Greece that began in the early 1990s. Greece has the highest per capita level of illegal immigration in Europe (see 'Labour markets of southern Europe and migration: structural and operational analysis', Martin Baldwin-Edwards in Labour 2002, Urban Environment and Human Resources Institute, Panteios University, 2002).
As far as the distribution of undeclared work by sector is concerned, according to recent research (The parallel economy and tax evasion in Greece, N Tatsos, Industrial Research Institute, Papazissis Publications, Athens, 2001), the sectors of economic activity with the biggest margins for growth of unlawful employment are industry, construction, commerce, hotels/restaurants and the other services. The Tatsos study assesses the development over 1990 to 1998 in a number of sectors of four key factors seen as influencing the scope for the development of undeclared work - the trends in unemployment, pay, and the proportion of foreign nationals and self-employed people in the workforce. The findings are set out in the table below
| Sector | Unemployment* | Pay** | Foreign workers*** | Self-employment |
| Primary sector | 12.20% | nd | 4.60% | -2.39% |
| Secondary sector | 11.01% | nd | 17.10% | 0.01% |
| Mining/quarrying | 22.28% | 114.1 | 0.25% | -5.18% |
| Small- and large-scale industry | 11.19% | 111.2 | 9.2% | -1.41% |
| Electricity/gas | -16.55% | 119.2 | 0.40% | 3.78% |
| Construction/public works | 12.48% | nd | 7.30% | 0% |
| Tertiary sector | 15.59% | nd | 78.30% | 2.12% |
| Commerce/hotels/restaurants | 18.30% | 71.7 | 29.40% | 0.55% |
| Transport/communications | 7.43% | nd | 14.20% | 1.75% |
| Banking/insurance | 17.77% | 111.6 | 1.90% | 4.66% |
| Other services | 15.52% | nd | 32.70% | 3.0% |
| Not defined | -9.29% | nd | 0.10% | nd |
| Totals | 8.24% | 100 | 100% | -0.35% |
* Sector's average annual rate of change in unemployment over 1990-8 period. ** Sector's employee earnings index in 1997, economy as a whole = 100. *** Distribution of employment by sector, legal foreign workers 1998.
Source: Tatsos (2001).
According to the 2002 progress report from the Labour Inspectorate (SEPE), most penalties for violations of labour and social insurance legislation are imposed in the abovementioned sectors (GR0309105F). Although the total number of Labour Inspectorate controls is not distributed equally across all the sectors, this is another indication of which sectors of economic activity have higher levels of undeclared work.
Further evidence is provided by an analysis of IKA social insurance data on employment in September 2003, which indicates that the pattern of distribution of foreign workers, who are more likely to be employed illegally, mainly involves the sectors of hotels/restaurants, retail sales/home appliance repair, construction and some branches of industry. Foreign workers insured by the IKA represent 12.98% of all insured people -15.12% of insured men and 9.77% of insured women. Albanian nationals represent 55.5% of the insured foreign workers, and 45.65% of these Albanian people are employed in construction, 16.19% in manufacturing and 14.96% in hotels and restaurants . Of other insured non-EU nationals, 20.41% work in construction, 23.48% in manufacturing and 14.64% in private households.
Almost the same conclusions on the pattern of employment of foreign workers were reached in a 2004 study using data from the 2001 census ('Immigration in Greece', G Kritikidis, in Enimerossi, No. 104, INE/GSEE-ADEDY, Athens. March 2004). Foreign immigrants are employed in the sectors that are most likely to show symptoms of undeclared work. It is concluded that, given perceived shortcomings in Greece immigration policy (the absence of infrastructure or integrated policies for foreigners to enter and remain in the labour market) and the particularly widespread entry of immigrants into Greece in recent decades, migration flows clearly have a direct effect on the extent of illegal employment.
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.
According to current labour law, specific procedures must to be followed in order to recruit and employ workers. These procedures relate mainly to timely notice of engagement to the competent local employment services - ie the branches of the Labour Force Employment Organisation (OAED). According to Article 22, paragraph 5 of the Constitution, social insurance is mandatory and the state attends to workers’ social insurance coverage on the basis of the provisions of the relevant legislation. Thus, in addition to notification of engagement to the OAED, employers must pay their own and the employees’ social security contributions, and see to it that all the necessary documentation is submitted to the relevant social insurance organisations. For example, if a worker is hired who is not already insured by the IKA social security institute for employees, the employer must notify the local IKA branch and register the worker in its 'registry of insured persons'. Failure to follow these procedures entails penal and financial sanctions.
In recent years, various measures have been taken to modernise aspects of public administration, some of which may be seen as moving in the direction of reducing the level of unlawful employment. An example is a procedure for legalising foreign immigrants, provided for in Law 2910/2001 on 'entry and residence of foreigners in the Greek state, acquisition of Greek citizenship and other provisions' and the recent computerisation of the IKA’s administrative services. Both the attempt to legalise immigrants and the computerization of the IKA’s archives have facilitated efforts to record the real number of foreign workers and insured employees in Greece.
Also worth mentioning is the relatively recent establishment of the current Labour Inspectorate (SEPE) (GR0102100F), which replaced the former labour inspectorates operating under the supervision of the prefectural authorities. Law 2639/1998 on 'regulation of labour relations, establishment of a Labour Inspectorate and other provisions' specified the competencies, staffing and other issues regarding the operation of the Inspectorate (GR9808187N). The basic objective of the Labour Inspectorate is to supervise and monitor the implementation of the provisions of labour legislation. The IKA carries out similar monitoring, though restricted to checking whether social insurance legislation is being complied with.
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.
There are no known collective agreements that refer to undeclared work or set specific objectives for reducing unlawful employment.
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 have undertaken no specific unilateral or joint initiatives in this area.
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).
Although the central trade union and employers' organisations have repeatedly pointed out the need to restrict the extent of undeclared work and called for the operation of the Labour Inspectorate to be improved, the social partners have been involved in no specific partnership actions in this area.
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?
Greece's NAPs for employment arguably reflect mainly the policies of the government in office on employment issues, rather than being the outcome of social dialogue. Proposals made in the 2003 NAP (GR0310103T) on addressing undeclared work should thus probably be seen essentially as the political orientations of the Socialist government in office before the general election in March 2004. These proposals include:
re-examining the overall national regulatory institutional framework for employment, with a view to both simplifying it and ensuring that the remaining regulations are more strictly observed;
developing modern information technology systems for the OAED and the Labour Inspectorate, allowing them to crosscheck data with each other and with the IKA;
upgrading the Labour Inspectorate and enhancing it by hiring new staff and acquiring equipment; and
create incentives for hiring and enhancing the procedures for legalising immigrants.
No significant tripartite arrangements on undeclared work have developed as a result of Greece's NAPs.
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.
As noted above, the central social partner organisations have all called for the level of undeclared work to be reduced and inspection activities to be improved. In 2004, in bargaining over a new National General Collective Agreement (GR0402101N), the importance of tackling the parallel economy, tax evasion and undeclared work has frequently been pointed out. The Greek General Confederation of Labour (GSEE) in particular believes that implementation of labour legislation and observance of collective agreements are top priorities in terms of employment and labour market policy. This view has featured in both GSEE’s general positions expressed in various social dialogue bodies (eg the National Employment Committee) and its more specific positions concerning the operation of the Labour Inspectorate, the social insurance system and immigration. With regard to the social insurance system in particular, GSEE sees combating undeclared work is a basic tool for addressing contribution evasion and deficits in social security funds.
For example, in its proposals for the 2001 NAP on employment, GSEE state that 'upgrading the Labour Inspectorate, providing it with essential staff and operating it efficiently are necessary preconditions for combating undeclared work. The increase in monitoring and in its effectiveness, in conjunction with more penalties and higher fines, are basic tools for transforming undeclared work into regular employment. At the same time information is required on stricter monitoring and penalties; at the moment, however, this refers more to tax evasion and less to contribution evasion.'
Commentary
Please give your own comments on the issue of industrial relations and undeclared work.
Undeclared work is a structural feature of the Greek labour market, which has multifaceted negative effects on the financial stability of the social security institutions. At the same time, it is a serious obstacle to workers' smooth entry into the labour market. This issue is of particular importance for certain categories of worker, such as immigrants. Reports from the Labour Inspectorate indicate that, although undeclared work has been decreasing in recent years, it is still at levels of around 18%-25% of all activity, which is markedly higher than EU averages. The relevant reports also reveal that most uninsured/unlawful employment involves the domestic labour force, and it is therefore wrong to attribute the problem exclusively to the presence of foreign immigrants.
In any event, the functioning of a parallel, secondary labour market entails serious risks for safeguarding workers’ labour and social insurance rights, and increases existing social inequalities. This is why more active policies are needed to combat the phenomenon. To a large extent, such policies should address the present inability of the mechanisms for supervision and enforcement of labour legislation to carry out their tasks effectively. (Lefteris Kretsos, INE/GSEE-ADEDY)
Eurofound recommends citing this publication in the following way.
Eurofound (2004), Thematic feature - industrial relations and undeclared work, article.
