Uncertainties of the informal economy: a Belgian perspective

Few things appear more typically Belgian than work in the "informal" or "shadow" economy. Compared with other north-west European countries, Belgium seems to have a very substantial informal economy, which is an important aspect of its labour market. The socio-cultural acceptance of this phenomenon is strikingly widespread, which adds to the complexity of the debate between the social partners and government about possible policies to deal with it, which has continued during 1998.

The informal economy in Belgium: some basic facts

A recent study by DGV of the European Commission on the "informal" or "shadow" economy across EU Member States reveals a number of interesting facts (Communication on undeclared work[PDF file], COM(98)219, European Commission, April 1998 - EU9804197F). The shadow economy is estimated to account for between 7% and 16% of the Gross Domestic Product (GDP) of EU Member States. Bearing in mind the sectoral distribution of this economic activity, this translates into between 10 and 28 million full-time equivalent jobs. These general findings conceal, however, striking differences between the Member States. The study distinguishes four groups of countries. In the first group we find the Scandinavian countries, Ireland, Austria and the Netherlands with a shadow economy of about 5% of GDP. A second group with an informal economy of 5%-10% consists of the UK, France and Germany. Belgium and Spain are in the third group with undeclared activity in the region of 15%-20%, while Italy and Greece are in the highest group with about 20% undeclared economic activity.

It is noteworthy that Belgium is in the company of south European countries and not in the group of its neighbours or economic peers. This atypical position has been an issue of debate in Belgium and has led the government and the social partners to question the context of the shadow economy as well as the current policy to counteract undeclared economic activity.

Further research shows that Belgium's undeclared labour force translates into between 420,000 and 560,000 full-time equivalent jobs. It is prevalent in all sectors of economic activity but seems to be more concentrated in the hotel and restaurant business, the construction industries, the transport sector and agriculture. Against a background of about 450,000 unemployed people, it is obvious that this opens the door for intense debate about the links between official and undeclared labour and between (un)employment policy and economic incentives for undeclared labour, and about the government's policy to combat undeclared economic activities.

Government's policy reaction

The government's policy against undeclared work has changed over the last few years - not so much insofar as formal rules and procedures are concerned, but rather more in relation to how intensively existing rules and sanctions have been applied. Some examples help to illustrate this development. In 1992, just under 4,000 unemployed people were sanctioned for a total of 43,000 weeks by the national unemployment services because they engaged in undeclared labour. In 1996, these numbers had increased to 9,200 for 94,000 weeks. This represents a significant increase, although recently the trend seems to have reversed a little. The government, through Minister of Labour and Employment Miet Smet, has vowed to continue to combat undeclared work by unemployed people. One of the new "weapons" in this combat will be the "social identity card" (BE9805237N). This electronic card contains social and economic data, previously dispersed over different administrative datasets, on every resident in Belgium. From January 1999, employers will have to use this card to register everyone working for them. This will most likely facilitate the work of inspectors since every employee will have to show the card containing his or her latest employment data.

It is noteworthy that the government's policy is largely focused on unemployed people and less so on other forms of undeclared work or broader, undeclared forms of economic activity.

Social partners' views on undeclared labour

The realities connected with undeclared work and the policies to fight it are a focus of controversy between the government, the unions and employers. It is obvious that no party can claim that undeclared work is a "good" thing. However, this leaves enough room for different points of view on the topic.

Both main Belgian union confederations - the Confederation of Christian Trade Unions (Confédération des Syndicats Chrétiens/Algemeen Christelijk Vakverbond, CSC/ACV) and the Belgian General Federation of Labour (Fédération Générale du Travail de Belgique/Algemeen Belgisch Vakverbond, FGTB/ABVV) - emphasise the importance of the fight against undeclared work using two main arguments. First, the eradication of undeclared work will contribute to more and better declared work, which is a preferable state of affairs for all parties concerned. Second, it is important to professionalise the operations of the inspection and monitoring services in order to make the policy more efficient and more goal-oriented. Both unions stress the fact that changes in the structures and the rules and regulations should be thoroughly discussed in the forum of the appropriate tripartite bodies.

The unions explicitly mention the fact that the efforts of the government should not be limited to the fight against undeclared work performed by unemployed people. Other forms of undeclared work (such as undeclared overtime or "false" self-employment) are also prevalent and should be scrutinised more carefully. The ACV/CSC also mentions enormous regional differences. This means in reality that certain parts of Belgium are de facto a bonanza for undeclared work, whereas others are covered by much stricter practices. According to the union, more uniform policy implementation will make for greater acceptance of the fight against undeclared work.

The views of the employers' organisations run parallel, in the sense that they oppose undeclared work and undeclared economic activity. The reasoning is based on several different arguments, however. According to the National Christian Self-employed Organisation (Nationale Christelijke Middenstandsvereniging, NCMV), undeclared work is the result of the following factors: excessive fiscal pressures on employers which makes employing people expensive; complex and unclear regulations which stimulate "wheeling and dealing" behaviour; and the lack of a coherent policy. It is obvious that NCMV is searching for solutions in policies that will take away the incentives for undeclared work practices - that is, reduced fiscal pressure and simplified regulation - and in a better policy on control and enforcement.

Mark Andries of the employers' organisation, the Flemish Economic Association (Vlaams Economisch Verbond, VEV) places the fight against undeclared work in a broader framework. He claims that "moonlighting" undermines regular policy initiatives to "activate" the labour market. More specifically the activation of long-term unemployed people and the redistribution of work are two policy paths taken by the government which suffer significantly from the existence of a thriving "under the table" circuit in certain sectors. Work in the shadow economy detracts from the opportunities of long-term unemployed and low-skilled people. Also, work redistribution can suffer from the fact that a significant part of the undeclared economy consists of employees who work less officially, but use their free time to be active in the parallel economy, thus actively competing with employers in the same sector.

Commentary

It is obvious that undeclared economic activity, whether in the financial sphere or in the sphere of the labour market, are a prevalent socio-economic reality in Belgium - indeed, more so than in most other EU countries. Recent attempts by the government to combat undeclared work have been successful only to a small degree. Monitoring and punishing the activities of greater numbers of unemployed people can hardly be called a successful policy in the larger framework of a problem that permeates the whole Belgian economy.

The fact that other aspects of the shadow economy are hardly tackled at all remains in particular an irksome point for many (and not only for the unions). White-collar activities in this sphere seem to receive much less attention than those of the easily identified and controlled unemployed people.

A second difficulty is that the cultural acceptance by Belgians of undeclared economic activities is apparently very high. It is not taken seriously or regarded as an unlawful act (within certain limits, obviously). It is seen as a part of doing business and carrying out everyday economic life for almost all economic agents involved. Fighting this will remain a major enterprise that has to involve all sectors of society - even then, the outcome seems very uncertain. (Hans Bruyninckx, WAV)

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