Actions to combat use of undeclared work in companies

Chivu, Luminiţa

Overview

Article

Actions to combat use of undeclared work in companies

Published: 9 September 2007

Part of the remit of the Labour Inspection Office (Inspecţia Muncii, IM [1]) is to identify companies which use undeclared work [2] and to take measures to reduce the scale of the problem. A report (in Romanian, 402Kb PDF) [3] published in 2006 by IM investigates the types of control measures and awareness-raising campaigns organised by the office for the benefit of employers and employees, concerning the employment relationship [4] and, in particular, undeclared work.[1] http://www.inspectmun.ro/[2] www.eurofound.europa.eu/ef/observatories/eurwork/industrial-relations-dictionary/undeclared-work[3] http://www.inspectmun.ro/RAPORT ANUAL/Raport IM 2006 L544.pdf[4] www.eurofound.europa.eu/ef/observatories/eurwork/industrial-relations-dictionary/employment-relationship

A recent report by the Labour Inspection Office reveals that the proportion of companies using undeclared work has fluctuated. This proportion amounted to 9.5% in 2000, 12.9% in 2001, 4.7% in 2002 and increased again to 9.5% in 2006. The highest incidence of undeclared work was recorded in the construction sector, as well as the textiles and food industries. The report also outlines the reasons given for using this form of work and possible means of curtailing its use.

Monitoring undeclared work

Part of the remit of the Labour Inspection Office (Inspecţia Muncii, IM) is to identify companies which use undeclared work and to take measures to reduce the scale of the problem. A [report (in Romanian, 402Kb PDF)](http://www.inspectmun.ro/RAPORT ANUAL/Raport IM 2006 L544.pdf) published in 2006 by IM investigates the types of control measures and awareness-raising campaigns organised by the office for the benefit of employers and employees, concerning the employment relationship and, in particular, undeclared work.

Table 1 presents an overview of the various control activities carried out by IM during the seven-year period 2000–2006.

**Table 1: Undeclared work, 2000–2006**
The IM report on undeclared work reveals that the number of employers inspected doubled and the number of undeclared workers fluctuated during the period 2000–2006.
	2000	2001	2002	2003	2004	2005	2006
No. of companies inspected	44,629	69,889	78,322	80,289	78,346	74,109	82,586
Proportion of total registered companies (%)	5.7	8.8	9.7	9.4	8.7	8.0	n/d
Companies using undeclared work as a proportion of all companies inspected (%)	9.4	12.9	4.7	5.1	4.4	4.8	9.5
No. of undeclared workers	19,228	33,519	11,651	13,031	10,446	8,492	16,571
Proportion of total number of employees (%)	0.4	0.7	0.3	0.3	0.2	0.2	0.3

Notes: n/d = no data available.

Source: Based on data from 2006 IM report, the National Bank of Romania ( Banca Naţională a României , BNR) and the National Institute of Statistics ( Institutul Naţional de Statistică , INS)

Among its findings, the report reveals that:

the number of companies inspected has doubled;
the proportion of companies inspected that are using undeclared work has fluctuated over the last number of years, from 12.9% in 2001 to 4.4% in 2004 and rising again to 9.5% in 2006;
the number of undeclared workers has decreased from 33,519 workers in 2001 to 16,571 in 2006.

Higher penalties

The value of the penalties imposed on companies using undeclared work has increased significantly from €947,000 in 2000 to €7.3 million in 2006; on average, the penalty on individual companies inspected has increased from €225 in 2000 to €930 in 2006.

The sectors most affected by the use of undeclared work include construction, food processing, and textiles and clothing (Table 2).

**Table 2: Incidence of undeclared work, by economic sector, 2006**
In 2006, the majority of undeclared workers in the textiles and clothing industry, as well as in milling and bread-baking, were women.
	Construction	Production and conservation of poultry meat	Milling and bread-baking	Textiles and clothing
No. of inspected companies	6,444	254	1,109	1,165
No. of penalised companies	816	18	146	93
Penalised companies as a proportion of all companies inspected (%)	12.7	7.1	13.2	8.0
No. of people engaged in undeclared work	1,878	39	226	269
- of whom were women	73	17	124	232
Average penalty per company (€)	1,068	969	656	1,327

Source: Based on data from 2006 IM report and BNR data

Following the control activity carried out in 2006 in these sectors, penalties were imposed on: 13.2% of the inspected companies involved in milling and bread-baking; 12.7% of inspected companies in the construction sector; 8% of inspected enterprises in the textiles and clothing industry; and 7.1% of those inspected operating in poultry meat production and conservation.

Reasons for using undeclared work

In general, the reasons found during the inspections for the use of undeclared work were the following:

various imbalances in the labour market generated by industrial restructuring and the country’s transition to a market economy;
the high level of fiscal taxes;
the lack of development strategies, especially among newly established small and medium-sized enterprises (SMEs);
the poor system of vocational training for a developing labour market;
the low level of individual income;
penalties only being imposed on companies and not on undeclared workers.

Efforts to reduce undeclared work

According to the IM report, the following measures should help to curtail the incidence of undeclared work:

intensification of inspections, tighter controls and information activities for companies and employees;
stricter sanctions on companies that break the law, and a gradual correlation of penalties with the gravity of the cases;
stronger enforcement of labour legislation and the regulations of the employment relationship;
better incentive schemes for companies in disadvantaged areas to encourage them to employ women, young people, older workers and disabled persons;
amendment of the existing legislation, particularly with regard to the level of mandatory social insurance contributions paid by employers, and an improved income tax structure.

Luminiţa Chivu, Institute of National Economy, Romanian Academy

Eurofound recommends citing this publication in the following way.

Eurofound (2007), Actions to combat use of undeclared work in companies, article.