Thematic feature - industrial relations and undeclared work

This article gives a brief overview of the industrial relations aspects of undeclared work in Ireland, 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 Irish 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).

It is difficult to assess the precise extent of undeclared work in Ireland as of June 2004. The last estimate for the size of the underground economy Ireland, in 1998, was 5%-10% of GDP. However, as the Irish economy has expanded since 1998 - with the phenomenon of the so-called 'Celtic Tiger' economy - it seems fair to say that the extent of undeclared work has probably increased.

The main sectors that are affected by undeclared work are those that are labour-intensive, and where cost competition is pronounced, particularly construction, domestic services, hotels and catering, agriculture, retail, and the food and drink industry. The presence of numerous small and medium-sized enterprises in the Irish economy is also a factor in the growth of undeclared work.

The expansion of many of these labour-intensive sectors, and a growing demand for labour, has resulted in the growth of undeclared work. It is significant that, to a large extent, employers in these sectors have relied on immigrant labour to meet rising demand, and such workers tend to have fewer employment rights and less protection.

A key factor contributing to the rise in undeclared work is the potential cost savings available to employers, as well as workers - for instance, in relation to tax and social security contributions.

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.

As with many other countries, Ireland has in recent years attempted to strengthen legislation relating to the violation of regulations on tax avoidance and social security provisions, in order to combat undeclared work.

Inspection at various levels has also been stepped up to some extent. For instance, the current national tripartite partnership agreement, Sustaining Progress (IE0301209F and IE0304201N)., makes provision for the appointment of additional labour inspectors, to police compliance with employment regulations in workplaces (see below under 'Partnerships'). Trade unions have been lobbying for additional labour inspectors, alleging that there has been rising exploitation of foreign nationals by unscrupulous employers. However, the unions are still disappointed with the number of labour inspectors.

With the accession in May 2004 of new EU Member States - whose citizens no longer require a work permit to work in Ireland - the Irish government has introduced new rules tightening up the work permit system in relation to people who are not nationals of European Economic Area (EEA) countries.

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.

Undeclared work receives some attention in tripartite national-level bargaining in Ireland. Section 16 of the current national agreement, Sustaining Progress, includes a statement on the Hidden Economy Monitoring Group. This body, which includes representatives of the Revenue Commissioners (the tax authorities), the Department of Social and Family Affairs and the social partners, meets as appropriate to monitor developments and review the effectiveness of measures to combat tax evasion and social welfare fraud.

No relevant collective agreements are reported at lower levels.

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).

Are there cases in your country where workforce representatives have mobilised employees on the issue of undeclared work? If so, what form did this take (demonstrations, strikes etc)? Are there cases where social partners have made appeals on this issue to the public authorities (the government, elected representatives etc)? What were the results?

No specific developments are reported in these areas, though trade unions do, for example, campaign against the exploitation of foreign workers in Ireland, which can involve undeclared work.

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).

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?

As mentioned above (under 'Social dialogue'), measures designed to deal with the issue of undeclared work are contained in Ireland's tripartite national agreements, which, to a significant extent, reflect and overlap with measures contained in the country's NAPs on employment. The current national agreement contains, for example, proposals to increase the number of labour inspectors, given the perception, particularly among the unions, that the existing number of 17 is inadequate to police the whole economy.

There has been a substantial reduction in tax rates in Ireland since the 1980s, in relation to both personal income taxes and corporation taxes. This has probably had some impact on reducing the incentive to engage in undeclared work. In the 1980s, tax rates in Ireland were substantially higher than they are now, creating an incentive for the hidden economy.

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.

Perhaps the main criticisms made by Irish trade unions relating to undeclared work and the hidden economy are that more resources and personnel need to be provided to the Labour Inspectorate to police employment standards. Further, the unions also want immigrant workers to have more control over work permits. As matters stand, employers control the work permits of immigrant workers, and the unions argue, that in many instances, this state of affairs has resulted in workers being exploited by their employers, which have more power over hiring and firing. For employers, foreign nationals are in demand in many sectors as a result of labour shortages, and employers generally welcome the element of labour market flexibility they bring.

Commentary

Please give your own comments on the issue of industrial relations and undeclared work.

It is difficult to assess the precise extent of undeclared work in Ireland at present, but it seems safe to say that it has increased since the so-called 'Celtic Tiger' economic boom took off in the 1990s and the demand for labour increased dramatically. The main sectors that are affected by undeclared work are those that are labour intensive, and where cost competition is pronounced, particularly construction, domestic services, hotels and catering, agriculture, retail, and the food and drink industry. To a significant extent, many employers in these sectors have employed immigrant labour to meet rising demand, and such workers tend to have fewer employment rights and protections.

Trade unions have complained that, due to the difficulties in policing rogue employers, and the inadequate resources being channelled into the Labour Inspectorate to monitor compliance with employment standards, there has been increased exploitation of foreign nationals. The unions have to try and balance a tricky situation, in the sense of preventing exploitation of immigrant workers while also protecting the employment security of the 'indigenous' workforce. (Tony Dobbins, IRN)