Undeclared employees on the increase in service sectors

The most recent annual report on social cohesion from Italy’s Ministry of Labour reveals that there was a sharp decline in the number of firms inspected between 2008 and 2012. The report summarises the situation in the labour market using social indicators from both statistical and administrative sources. It also shows there has been a shift in the type of firm suspended for serious non-compliance, from construction to the hotels, restaurant and catering sector.

Background

The Ministry of Labour has compiled information for an annual report on inspection activities each year since 2008. The findings are summarised in the Annual report on social cohesion (in Italian) in cooperation with the National Institute for Statistics (Istat). The first social cohesion report was published in 2010.

The rules covering inspections were strengthened in 2004, under the legislative decree 124/2004 (in Italian, 113 KB PDF). Seven official bodies have the power to inspect business premises: these include the Ministry of Labour, which looks at employment contracts, the National Social Security Institute (Inps) which deals with social security payments, and the National Institute for Insurance Against Accidents at Work (Inail), which regulates insurance against accidents. The 2004 decree made it obligatory for all of these bodies to keep formal administrative files recording their inspectors’ visits to companies, so that they could better coordinate their work.

The most recent report reveals that fewer firms in Italy are being inspected to ensure they comply with labour legislation. Recently published figures from the Italian Ministry of Labour also raise concerns about the numbers of undeclared workers in the country.

Decline in inspections

The number of firms inspected in Italy declined considerably between 2008 and 2012 (-22.6%). As pointed out by the Ministry of Labour 2011 report on inspection activity (in Italian, 996 KB PDF), the decline is due to several factors: the most relevant is law 183/2010, which reduced the scope of sanctioning undeclared work only to employees, by excluding self-employment which is often ‘bogus’.

Also the number of non-compliant firms also declined (-21.7%) between 2008 and 2011, while the number of employees having some irregularities in their employment contract declined by about 4% between 2008 and 2011. These trends fit with the decline of both firms (-1.7%) and employees (-4.3%) reported by Istat. Finally, the number of undeclared employees declined by 21.3% between 2008 and 2011, almost in line with the number of inspected firms.

Irregularities reported range from administrative sanctions, communications of crimes, activation of the payroll recovery procedure, or warnings with confirmation sheet credits.

Figures in detail

The report warns that these figures cannot be extrapolated to the whole private sector, because the sample of firms inspected are selected on the basis of indicators that suggest a higher likelihood of tax and payroll evasion.

Findings that suggest certain trends are worth highlighting.

In 2009, the share of inspected firms sanctioned for irregularities dropped in 2009 to 57.7%; in 2010, however, this share rose to its highest level since the publication of the first social cohesion report, at 65.6%.

The lowest number of employees with irregular employment contracts dropped to 233,000 in 2010, around 25% lower than in 2009. However, in 2010 inspectors found the highest number of undeclared workers, more than 133,000, a rise of 3.6% on 2009.

The proportion of undeclared workers over those being subject to some non-compliance in their employment contract declined from 41.4% in 2008 to 33.9% in 2012. The 2010 peak in this ratio of 57.3% was due to an inspection campaign in those southern regions displaying the highest irregularity rates.

This decline is also due to the increasing use of both vouchers for casual workers and on-call contracts for those workers having a weekly predictable basis: their number actually increased from 2009 to 2011(respectively +458% and +247%).

Table 1: Non-compliant firms 2008–2012
 

2008

2009

2010

2011

2012

Variation 2012–2008 (%)

Inspected firms

315,170

303,691

262,014

244,170

243,847

-22.6

Non-compliant firms

197,843

175,144

171,810

149,708

154,820

-21.7

Non-compliant firms (%)

62.8

57.7

65.6

61.3

63.5

 

Employees with contract irregularities

307,625

316,310

232,854

278,268

295,302

-4.0

Undeclared employees

127,349

124,476

133,366

105,279

100,193

-21.3

Undeclared/irregular (%)

41.4

39.4

57.3

37.8

33.9

 

Source: Annual report on social cohesion, 2010–2013

The social cohesion report also includes figures about temporarily closed firms because more than 20% of the total workforce were undeclared workers, or had employment contracts that contained serious irregularities, or displayed repeated or serious violations of workplace health and safety regulations.

The number of temporarily closed firms increased from 4,770 in 2009 to 7,413 in 2012. The overall increase was 55.4% having reached a peak in 2011 (8,512). A similar upward trend can be seen among those temporarily closed firms having re-started their businesses after they complied with the law and paid their fines. The number of sanctioned firms that went through this process rose from 77% in 2009 to 83% in 2012.

The share of sanctioned firms with undeclared employees increased by 52.8% in 2009 to 55.7% in 2012 – up 61.1% in absolute values – while those with a clandestine workforce declined by 22.9% from 2009 to 2012.

Table 2: Firms temporarily closed for serious non-compliance, 2009–2012
 

2009

2010

2011

2012

Variation 2009–2012 (%)

Regular employees (%)

47.2

45.1

46.0

44.3

43.3

Sanctioned firms with undeclared employees (%)

52.8

54.9

54.0

55.7

61.1

...of which with a clandestine workforce (%)

4.7

4.1

2.3

2.4

-22.9

Total employees

20,907

31,026

33,594

31,933

52.7

Firms temporarily closed

4,770

7,651

8,512

7,413

55.4

Suspension revoked (%)

77

79

87

83

 

Source: Author’s own elaboration drawing on the Annual report on social cohesion, 2010–2013

Figures showing temporarily closed firms by sector show a significant shift from manufacturing, crafts and construction towards the service sectors (Horeca, retail and services). Overall, the number of inspected firms in the service sectors that were temporarily closed increased from 44.8% in 2009 to 52.2% in 2012 (see figure). The biggest drop in closures was in construction, falling from 37.1% to 29%, and this fall is attributed to the effect of the economic crisis on the sector. In 2011 and 2012, the highest numbers of temporary closures were in the hotel, restaurant and catering (Horeca) sector.

Temporarily closed firms by sector, 2009–2012 (%)

IT1401029I.jpg

Source: Social cohesion reports 2011–2013

Commentary

Tackling the undeclared economy is a major issue in Italy, as it crucially affects both macroeconomic equilibrium and the country’s long-term competitiveness. Firms taking advantage of the ‘undeclared economy’ seem be concentrated in the less developed regions of Southern Italy. Istat estimates are that this section of the economy has accounted for around 17% of GNP over the past three decades, though in-depth quantitative analysis is not available.

The Ministry of Labour’s summary of inspection findings in its annual report on social cohesion provides an interesting contribution, although only partial, to the understanding of the Italian labour market’s transformation during the current recession.

Mario Giaccone, Ires

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