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This article gives a brief overview of the industrial relations aspects of undeclared work in Spain, 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 Spanish responses are set out below (along with the questions asked).
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).
There are several main areas of 'informal' employment and undeclared work:
The high percentage of small companies in the Spanish economy tends to favour informal employment.
Women clearly tend to work more in the informal economy than men, due to both their social situation (traditionally being 'secondary breadwinners') and the predominance of female employment in many of the sectors with high levels of informal employment, especially domestic services. However, subcontracting is leading to more informal employment among men, as in the construction sector.
Immigration has also reinforced the tendency towards informal employment. Though informal employment and illegal immigration are often linked, the distinctions are not clear due to the immigration legislation (and the ways in which it is applied), which often make legal workers 'illegal' or 'alegal', or sometimes mean that illegal employment is a means of achieving legalisation. Immigrants are concentrated particularly in agriculture, care of persons, hotels and catering (especially restaurants) and construction, though they are also appearing in textile manufacturing workshops (often people from China) and CD copying.
The various figures on the scale of informal employment and undeclared work are difficult to compare. Many studies evaluate it in fiscal terms, but this often does not coincide with the reality. Assessments of informal employment are also unclear because much informal employment is part time and its importance therefore tends to be overestimated. (An EU study in 2000 calculated that the underground economy in Spain represented 22% of the total.)
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.
Commentators have criticised current legislation as being ineffective in dealing with undeclared work. There are clear penalties only for people engaging in undeclared work while receiving employment benefit (they lose their benefit). When illegally employed workers are discovered in companies, it is difficult to prove how long they have been working and the penalties are therefore small. At best, the undeclared workers are put on temporary contracts. Agriculture, domestic services and restaurants are particularly problematic and there is little possibility of effective control. Tax inspection may be more effective, though some tax inspectors claim that the pressure on companies has been reduced in recent years. In many cases, it has been claimed, local authorities are highly protective of companies using undeclared workers (particularly in areas with a tradition of informal business) due to fear that a restrictive policy will destroy employment. There are many incentives for hidden economic activity to become legitimate, such as reduced taxation for companies, a differentiated social security system for domestic services, and subsidised social security contributions for new recruits. However, it appears that in many cases these incentives are insufficient to outweigh the advantages of informal employment. Furthermore, it is claimed that controls are not applied consistently. Some forms of flexible employment are thought to facilitate 'underground' employment, particularly part-time contracts that do not specify the working time and may be used to legalise employment partially. Critics also claim that the legislation on immigration favours undeclared employment.
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.
No specific collective agreements on undeclared work are reported. Some agreements on other issues may have an impact in this area. For example, in Catalonia trade unions and employers recently negotiated a plan for preventing industrial accidents in the construction sector, which includes a plan for controlling subcontracting that may lead to a reduction in illegal employment (ES0405107F and ES0212205F).
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?
In recent years, trade unions have taken up a number of issues related to undeclared work. For example, the phenomenon of subcontracting is thought to be closely linked to undeclared work and over 1998-2000 trade unions promoted a draft law (based on a 'popular legislative initiative', whereby citizens may present proposals directly to parliament if they are endorsed by a certain number of signatures) on control of subcontracting, emphasising in particular the impact that it has on industrial accidents in sectors such as construction. This initiative was defeated in parliament due to the opposition of the then governing People's Party (Partido Popular) (ES0012125N). The subject of subcontracting still forms part of trade unions' demands for regulation, but there is a great deal of resistance by employers to negotiating on the subject, because they feel that it threatens competitiveness.
The legalisation of the position of illegal immigrants is another relevant trade union demand (ES0406203N). In some cases, informal agreements have led to the legalisation of immigrants with jobs, but this has not been done openly, apparently because the government does not wish to open the door to a widespread legalisation of immigrants. Unions call for the legalisation of anyone claiming to have an informal job, but this proposal has not been accepted. In several regions, trade unions and employers' associations have jointly proposed quotas of immigrants as a way of regulating the situation, though so far their demands have not be met by the government.
Overall, the weakness of trade unions in the sectors with most undeclared employment means that they can exert little pressure on this subject.
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).
There are few clear examples of partnership initiatives, possibly because the positions of the public authorities and social partners are widely divergent on this subject (see below under 'Views' for more details). The trade unions believe primarily that the problem of undeclared work should be addressed as a means of improving employment and working conditions. The employers' organisations arguably tend to use the issue to call for tax breaks (though company tax is relatively low and has been reduced many times in recent years), reductions in social security contributions and new measures to promote labour flexibility. The public authorities often see it largely as an issue of tax and social security contribution evasion.
In some specific cases, tripartite commissions have been set up to debate the issue of undeclared work - an example is a structure set up in 1990 in Mataró, an area with many knitwear firms - but in general they have resulted only in studies that have led to no changes in practice.
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?
No specific partnership initiatives in this area based on the NAP on employment are reported.
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?
Some attempts at cross-border regulation have been made in agriculture, a sector with a high level of immigrant employment, through the conclusion of contracts for seasonal work in the countries of origin of immigrant workers. This has been the case particularly in Catalonia - through an agreement between the Small Farmers' Union (Unió de Pagesos), trade unions and the local authorities - and in Huelva, and has led to the legal recruitment of seasonal workers from Poland, Ecuador and Morocco. However, this happens in only a minority of cases and the schemes have to 'compete' with the abundant supply of illegal workers who go to these areas in the high season. In Huelva, the Trade Union of Farm Workers (Sindicato de Obreros del Campo) claimed that contracts to bring in Polish workers were signed after Moroccan workers who usually worked in the area had been legalised and were beginning to assert their labour rights, and that this was a means of placing pressure on them.
Recently, several non-governmental organisations have campaigned for the certification of the working conditions of the subcontracted firms of the main textiles manufacturers, mainly affecting factories located abroad. In some cases the companies' responses have been quite favourable (eg Inditex) and in others the companies have reportedly been very reluctant to provide information.
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.
For the trade unions, undeclared work is a way of eroding employment employment working conditions and they periodically call for measures aimed at eliminating it (see above). Their main demands are for a greater willingness by the government to deal with the problem and trade union monitoring of recruitment in companies to detect irregular employment. They have recently highlighted the role of the increasing use of subcontracting in fostering undeclared work in some sectors, and have called for legislation to control subcontracting. They unions believe that the current legislation on foreign workers (ES0310107F), and the restrictive way in which it was applied by the PP government that was in office until March 2004, favour undeclared employment. They propose the legalisation of all illegal immigrants who obtain employment.
Employers' organisations state that undeclared work is a source of unfair competition, but at the same time it is a habitual part of the functioning of some sectors, in which it is difficult to separate the formal and informal economies. The employers' organisations believe that it exists due to excessive taxation, high social security costs and the impact of certain employment regulations. They therefore argue that a reduction in taxes and social security contributions and the deregulation of the labour market is the best way to solve the problem. Like the trade unions, they criticise the application of the law on foreign workers and call for a more flexible system of recruitment from abroad.
Please give your own comments on the issue of industrial relations and undeclared work.
Illegal and undeclared work is partly linked to the specific development of the Spanish economy, its position in the world economy and structures that have been created over time (such as the predominance of small companies and the importance of tourism). There is also a long tradition, consolidated by the Franco regime, whereby the state carries out only a moderate supervision of private activities. This partly reflects major inequalities of 'social power' in Spain.
In recent years there have been contradictory forces at play. Economic difficulties and relocations of production abroad (ES0402205F) in sectors with a long tradition of informal employment - such as textiles and footwear - in addition to increased action by the authorities and trade unions have tended to reduce undeclared work. However, three main factors have arguably been operating in the opposite direction: