Thematic feature - industrial relations and undeclared work

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

In Austria, the terms 'illicit' or 'undeclared' work describe three different areas of the 'hidden economy':

• the employment of workers who, illegally, are not registered or wrongly registered by the employer with the statutory social insurance bodies;

• business activities that firms, illegally, leave out of their accounts, thereby defrauding the tax authorities; and

• paid work carried out - without a formal business-operating licence - by and for individuals beyond an (unclear) threshold of simple 'neighbourly' help (AT0202203F).

Official empirical data or estimates on the incidence and extent of undeclared work are not available. However, an economist at the University of Linz, Friedrich Schneider, has conducted research work on this issue on a regular basis. Recent findings presented by him indicate that the informal sector accounted for about EUR 22.5 billion, or 10.9% of Austria’s official gross domestic product (GDP) in 2003. The informal economy had grown by about 3% compared with the year before, indicating that the 'hidden economy' grew about three times faster than the formal economy. In sectoral terms, the most cases of illicit employment can be detected in the construction industry (38% of the total), followed by hotels and restaurants (17%), industrial production (16%) and the entertainment sector (14%). The remaining 15% of cases are found in private services such as tuition, childcare and hairdressing. No data relating to gender aspects are available. According to estimates by Mr Schneider, the share of illicit work performed by foreign nationals amounts to about 30%. For comparison, the share of the total workforce made up by legally employed migrant workers is about 8%-9%. This is because many migrants from outside the European Economic Area (EEA) are either prohibited by law from taking up a legal job that would allow to make their living, or simply not offered such a job.

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.

The Criminal Code (Strafgesetzbuch, StGB) does not consider undeclared work a criminal offence. Accordingly, 'social fraud' (ie the non-payment of social insurance contributions and/or taxes) can be punished only by administrative fines. These arise from a series of particular penal provisions (instead of a general provision applying to the constituent facts of 'social fraud'), such as a ban on exploitation of foreign nationals (according to §105 of the Aliens Act, Fremdengesetz, FrG) and a ban on employers evading social insurance contributions in respect of their employees (according to §114 of the General Social Insurance Act, Allgemeines Sozialversicherungsgesetz, ASVG). Since 1998, there have been several initiatives to enact more effective legislation on this issue, aimed at combating organised illegal work by tightening up controls and sanctions (AT9901127N). However, these initiatives have not been realised so far due to a veto by the conservative People’s Party (Österreichische Volkspartei, ÖVP) and business associations. The most recent initiative in this respect was launched by the Minister of Justice, Dieter Böhmdorfer of the populist Freedom Party (Freiheitliche Partei Österreichs, FPÖ), in May 2003, when he proposed to extend the existing provisions of criminal law to illegal social insurance payments evasion, in particular relating to cases of fraud (according to §146 of the StGB).

Representatives of business organisations have always argued that the problem of large-scale illicit work primarily results from incentives for illegal employment provided by what is seen as a high burden of company taxation and non-wage labour costs. Accordingly, they have demanded legal improvements to the business environment, which appears to have prompted the government to plan a significant reduction in the corporate profits tax from 2005 (AT0402103F).

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.

Since undeclared work is, by definition, unlawful, this issue does not fall within the regulatory purview of the collective bargaining parties. Hence, no collective agreement is known to deal with this issue.

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?

The trade unions, in particular those representing employees particularly affected by illegal employment practices (such as in the construction industry and road-haulage sector), have repeatedly raised the problem of organised social security and tax fraud, mainly in the form of information campaigns using their own press. Unions believe that the illegal practices of fraudulent employers not only damage the national economy and the state budget, they also threaten standard wage rates and employment conditions (as laid down in collective agreements) in whole branches of the economy and may - in the case of large-scale evasion of social insurance contributions - cause considerable social damage to many employees.

The widespread incidence of such practices has prompted the social partners to take joint initiatives - though only a few - to curb organised illicit work, for the benefit of both employees and the firms complying with legal regulations. For instance, in the early 2000s, they jointly presented proposals for certifying companies providing fair working conditions with a 'seal of approval' (AT0203201N), though this scheme has not been implemented so far. Since the end of the 1990s, the social partners have repeatedly urged governments to take effective action against illicit work. However, as long as they disagree on the appropriate measures to combat the 'hidden economy', their joint appeals to the government will probably go unheard.

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).

With regard to undeclared work, there are hardly any initiatives taken jointly by public authorities and social partners, except for consultation of the social partners by the government when drafting bills aimed at combating undeclared work during recent years (AT9905145N). However, as mentioned above (under 'Law'), all these drafts were ultimately withdrawn, mainly for economic reasons.

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?

Austria’s 2003 National Action Plan (NAP) on employment does not contain any provision aimed at the establishment of a comprehensive, tripartite partnership in the context of its guideline 9 ('transform undeclared work into regular employment'). According to the 2003 NAP, the government wants to concentrate on two points in tackling the problem of undeclared work: first, substantial tax relief for employees and, in particular, companies planned for 2005 in order to reduce overall incentives for illicit work; second, the considerable enlargement of an existing special 'intervention force', monitoring only possible breaches of the Aliens Employment Act (Ausländerbeschäftigungsgesetz, AuslBG). Organised labour has criticised what it sees as a policy of favouring business instead of controlling it on the one hand, and one-sidedly enhancing law enforcement directed only against illicit employment of foreign nationals on the other. Against this background of disagreement, there does not appear to be much scope for tripartite arrangements.

Please give details of any cross-country collaborative plans involving your country with the aim of combating undeclared work? Are these inter-governmental activities (ie collaboration between two or more countries, neighbouring or otherwise) or initiatives taken by social partners, or both?

The Austrian social partners, in principle, agree on the necessity to harmonise labour and social legislation at EU level, in particular in the context of undeclared work. Moreover, both organised labour and the employers’ associations want to establish EU-wide collective agreements setting minimum standards for pay and employment conditions in especially precarious sectors, such as road haulage. However, there is no information available as to whether, or to what extent, the Austrian social partner organisations are involved in cross-country collaborations in order to tackle illicit work at international level.

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.

Although the current ÖVP-FPÖ government has already launched legal initiatives to reduce significantly overall and company taxes, business organisations, and in particular the Chamber of the Economy (Wirtschaftskammer Österreich, WKÖ), want to tackle the problem of illicit work by further reducing economic disincentives for legal employment, in particular in terms of non-wage labour costs. WKÖ rejects any plans to focus exclusively on control and sanctions on enterprises, while undeclared work arising from private, personal initiative is not tackled.

By contrast, the Austrian Trade Union Federation (Österreichischer Gewerkschaftsbund, ÖGB) and the Chamber of Labour (Arbeiterkammer, AK) urge the government to introduce a set of legislative measures to combat effectively the large-scale illegal employment practices thought to be used by a growing number of employers. These measures should comprise:

• an obligation on all employers to register employees with the social insurance institutions on the first day of their work (at present, the time allowed is three days);

• companies that subcontract work to other firms should be liable for the discharge of the subcontractor’s social insurance contribution responsibilities (AT0302202F); and

• controls and penalties should be significantly tightened up. The existing provisions of criminal law should be extended to practices of 'social fraud'. Moreover, the relevant authorities, such as the police, customs officers, labour inspectors, health insurance institutions and tax investigators, should coordinate and centralise their activities in order to uncover illegal employment practices more frequently.

Commentary

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

Fierce price competition in the EU single market, at least in sectors with traditionally precarious working conditions, appears to be causing a drift into illegality. This development points to the necessity to establish European-wide standards in terms of wages and labour conditions. In Austria, as well as organised labour, most employers have also begun to realise that some form of European-level agreement aimed at ensuring certain standards in employment relationship would meet their own interest, since the rising incidence of undeclared work substantially distorts the markets to the detriment of the majority of firms that do comply with the law. (Georg Adam, University of Vienna)