In July 2008, the Development Centre of the Organisation for Economic Co-operation and Development published a report on informal employment and its different forms in Romania, based on data analysis. It also looks at the characteristics of people in informal employment and the economic sectors where such employment is most prevalent. The study presents policy options and measures to deal with informal employment especially for vulnerable groups of workers.
About the study
In July 2008, the Development Centre of the Organisation for Economic Co-operation and Development (OECD) published a Report on informal employment in Romania, with contributions of researchers from the National Scientific Research Institute for Labour and Social Protection (Institutul Naţional de Cercetare Ştiinţifică în domeniul Muncii şi Protecţiei Sociale, INCSMPS).
The report describes developments in the labour market and in informal employment in Romania after 1990. It draws on data from the National Institute of Statistics (Institutul Naţional de Statistică, INS) and the National House of Pensions and Other Social Insurance Rights (Casa Naţională de Pensii şi alte Drepturi de Asigurări Sociale, CNPAS). The INS data contain estimations on those who work without an employment contract and on those who are self-employed.
The scarcity of information on informal labour made it necessary for the authors of the report to resort, in addition to INS data and information, to data collection through two types of questionnaires distributed to two distinct groups of respondents:
- 100 policy experts (with a response rate of 32.3%);
- 580 engineering contractors (with a response rate of 5%), as the construction sector is considered to have a high level of informal employment.
Main findings
Definition of informal labour and assessment methods
The International Labour Organization (ILO) defines informal labour as the ‘total number of informal jobs, whether carried out in formal sector enterprises, informal sector enterprises, or households’. Work performed outside the boundaries of law is not subject to labour and tax legislation, nor can it benefit from social protection and employment services.
Informal workers have been identified who can be grouped into the following categories of employment:
- self-employed workers without legal registration and workers from legally unregistered enterprises;
- unpaid family workers;
- illegal workers employed in enterprises in the formal or informal sectors of the economy.
The study identified two categories of informal employment: non-voluntary (subsistence agriculture) and voluntary (including undeclared salary income, employers who hire workers off the record, workers without an employment contract, as well as tax and social security evasion).
The data obtained vary with the various aims of the research. In a review of the main studies carried out on this subject, the report focuses on two main parameters: employment as a ratio of gross domestic product (GDP), and the proportion of workers without legal registration in the total economically active or employed population. The estimations for Romania of the ratio between informal employment and GDP fluctuate to a large extent ranging from a minimum of 21% to a maximum of 45%.
Magnitude of informal employment
The largest share of informal employment in Romania is concentrated in the agricultural sector, which absorbs over 30% of the country’s economically active population. In 2000, 4.2 million of the 5.6 million unregistered workers in the national economy were working in agriculture; in 2005, this number decreased significantly to 2.8 million of 4.2 million unregistered workers. Economic growth in the period 2000–2008 and the increased access of Romanian workers to the labour market of the European Union (EU) contributed to the declining rate of informal labour in the country.
Determinant factors of informal employment
The report devotes special attention to the reasons that prompt people to resort to informal employment. The main groups of determinants detected that influence informal employment in respect of numbers and ratios are:
- socioeconomic factors such as economic growth, poverty and unemployment. These factors led to the emergence and persistence of subsistence agriculture, unpaid family workers and underreporting of revenues, and favoured on-the-street trading;
- institutional factors such as economic restructuring and collective dismissals, land market developments, taxation and social security policies, labour market regulations, administrative and bureaucratic reasons, and corruption. These factors led to the emergence of non-registered businesses, with the collateral effects of tax evasion by such employers and their workers, evasion of paying social security contributions, as well as ‘envelope payments’;
- societal or behavioural factors such as lack of confidence, negative perceptions of the state and of state institutions, as well as the poor quality of public services.
In Romania, the migration of labour abroad also plays a role: a large number of Romanian workers are offering their services for seasonal work on the informal employment markets of other countries, due to difficulties in finding standard employment in Romania. They return to Romania for a period of time, accept employment in the same informal sector, which is a more flexible form of employment, and then migrate abroad once more to find work.
Main conclusions and recommendations
The European Commission (EC) Special Eurobarometer on Undeclared work in the European Union (1.1Mb PDF) (2007), which, among the reasons prompting unrecorded work in Romania, mentions the following aspects that promote the informal sector: low salaries, deficient government control, high tax and social insurance contribution rates, as well as a shortage of formal employment opportunities.
Policies that aim to deter informal employment should find the necessary incentives to motivate formal employment and the improvement of the living standard of informal workers.
The authors of the OECD study suggest a combination of policies focused on three groups of individuals:
- poor and vulnerable persons performing informal work because they do not have other options;
- informal workers who have the potential to move into formal employment;
- workers who work informally by choice.
Finally, the authors also propose social protection measures encompassing farm workers and freelancers.
Constantin Ciutacu, Institute of National Economy, Romanian Academy