Working in the shadow economy

With decreasing opportunities in the legitimate labour market, it would seem plausible that growing numbers of unemployed workers would be willing to work informally to secure a livelihood, adding to the shadow economy. However, this undeclared economy – paid work that is legal, but not declared to the authorities for tax purposes – has shown an incremental downward trend over the past decade, one that has been largely unaffected by the economic crisis. That said, it remains substantial, estimated to be almost one-fifth of GDP in the EU. The undeclared economies in southern and eastern European Member States are estimated to be above the EU average, the largest being that of Bulgaria, at nearly one-third of GDP.

Undeclared work is not confined to the unemployed – employed workers, too, top up their incomes with informal work on the side. In fact, in the Nordic countries of Denmark, Finland and Sweden, proportionally more employed workers do undeclared work (12%) than unemployed workers (9%). In the rest of Europe, the reverse is true. In the countries of southern Europe, for instance – Cyprus, Greece, Spain, Italy, Malta and Portugal – 12% of the unemployed work undeclared, compared with 2% of the employed workforce.

(Note that the figures quoted here should be treated with some caution as they are based on indirect methods and survey responses.) 

Reinforcing marginalisation

For unemployed workers in many ways undeclared work reinforces their disadvantage. Their undeclared work is less well paid and their total annual undeclared income is lower than that of employed people engaged in such work. The average hourly undeclared wage of an unemployed worker in the EU is €8.04, for example, but that of an employed worker is 75% more at €14.08.

Workers in the undeclared sector have none of the legal protections of workers in regular work and have little recourse if things go wrong. And because they don’t contribute to social security and pension systems, their entitlement to benefits is curtailed.

Apart from creating a marginalised group of workers, the undeclared economy leads to loss of tax revenue for governments and unfair competition for legitimate businesses. Eurofound published the results of research into policy approaches across Europe to tackling undeclared work at a hearing of the European Economic and Social Committee (EESC) on 5 June, part of the EESC intervention on the issue. This work includes a knowledge bank of measures that have been implemented across the EU, which  may enable actors in the Member States to identify tried and tested initiatives and expand their repetoire of measures.

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