All aboard: Hauling undeclared workers onto the pandemic rescue boats
A debate has started in Italy about the support that the state should provide to undeclared workers operating in the informal economy during the COVID-19 crisis. Nunzia Catalfo, Italy’s Minister of Labour in April stated that ‘undeclared work should not exist’ but went on to acknowledge ‘it is a plague that exists’ and that the state has an obligation to provide for all those who have been left without an income in the current emergency. However, this is not an easy step for governments to take, and much is at stake in bringing undeclared workers into the social security fold.
The COVID-19 crisis has been disastrous for millions of workers, but undeclared workers are in a particularly difficult position because the irregularity of their situation means they have not been included in the mitigating packages devised as an emergency response. These are workers whose work is legal but not declared to the authorities, so payroll taxes and social insurance contributions are not paid. In normal times, it is difficult to get reliable data on this hidden phenomenon, but a 2017 study estimated that undeclared work constituted about 9.3% of total labour input in the private sector in the EU, with large variations across countries. 
After adopting the first emergency measures, many governments realised that several groups of workers would not be covered by the income guarantees. These included workers who are not paid a salary, such as the self-employed, and those without regular working hours, such as workers who work on demand or have zero-hours contracts. While some countries took more casual forms of work into consideration – Czechia and Italy included the self-employed, for instance, while Poland covered civil contract workers – very few opened their schemes to other categories of workers. One exception is Spain, which issued a decree on 31 March offering support to specific groups of vulnerable people, not just employees: domestic workers, temporary workers ineligible for unemployment benefits who have lost their jobs, people unable to pay their rent, and women who are victims of domestic violence.
A question of fairness
However, governments are facing a dilemma in the case of those whose income from work is not declared if they are, in the words of Irish prime minister Leo Varadkar, ‘to make sure that nobody [is] going to run out of cash, that people [have] a safety net’.
Most national regulations categorise non-declaration of work, working hours or pay as an offence and penalise offenders if they are caught. It seems logical therefore to exclude undeclared workers from compensation packages, as including them might be considered a step too far, a type of official laundering of illegitimate economic activity.
The counter-argument is that a compassionate society ought to protect undeclared workers as much as anyone else against poverty risk until economic activity resumes. The Italian discussion envisages assimilating undeclared workers into the category of precarious workers who have been promised an ‘emergency income’. It is considered by most as a ‘matter of fairness’, in the words of Ernesto Maria Ruffini, the Italian Director General of Public Finances.
It could also be considered a means of supporting social cohesion. Italy’s proposal has been presented as a way of calming tensions, especially between the north and the south of the country, given that the south has been impacted less by the disease itself than by the resulting economic crisis.
Extending the protection of the state to workers in the informal economy would also be a first acknowledgement that these situations are mostly involuntary for the workers involved.
Public health and economic considerations
Another consideration for governments anxious to protect their populations from the virus is that most undeclared workers, who operate almost as freelancers in a quasi-independent status, have not stopped working. With no other income source and unable to claim under the wage guarantees, they continue working irrespective of the safety behaviours requested by governments, which puts them at risk of getting and spreading the disease. It would clearly be in the interest of public health to extend income support to these workers.
The economic importance of the informal economy and the number of individuals involved in it should also be considered. In some countries, undeclared activity represents a considerable share of GDP – 12% in the case of Italy (according to country’s statistical institute, Istat), where it provides employment to 3.7 million workers. The very size of this workforce is a strong argument for protecting it.
Implementation a challenge
Biting the bullet to provide an income for undeclared workers during the pandemic is just a first step. Implementation will also pose a challenge. Whatever measures are devised, undeclared workers will need to step out of hiding and apply for income support. That will require them, at the very least, to prove the lack of an income they have not declared before – a particularly difficult move, as one of the main barriers to identifying undeclared working situations to date remains the lack of cooperation from those involved, especially the workers.
As undeclared workers are largely drawn from the ranks of those most vulnerable in the labour market – such as young workers, women and migrants – they are reluctant to come forward for fear of jeopardising potential opportunities for future work. And migrants who are not legally entitled to work are deterred by the additional threat of deportation.
- Publication: Tackling undeclared work in 27 EU Member States and Norway: Approaches and measures since 2008
Whether confirming the employment status of workers in companies claiming emergency wage support will be at all feasible is another major issue, especially with the reduced resources of enforcement bodies. Businesses that engage in unscrupulous employment practices are not keen either to be revealed. And this is an issue that applies not only to undeclared ventures that work entirely in the informal economy; at times, some legitimate companies resort to illegitimate methods, not declaring the working hours of staff or paying them ‘under the counter’. It will also be challenging to identify businesses fraudulently applying for support.
And when ‘normality’ returns
Recognition of the conundrum that an undeclared workforce poses to society during a pandemic should open the way for a redoubling of efforts to tackle the informal economy when things return to normal.
The COVID-19 pandemic has underlined the importance of a properly knitted safety net, the welfare state – the importance of not leaving holes in it (coverage of the self-employed, for instance) and not enlarging those that already exist (devising new forms of employment and contracts that are not fully covered).
The need for all workers to have access to social protection, regardless of their employment status, was identified well before the current crisis, all the while that flexibilisation, diversification and fragmentation of employment and work have been developing. This need is at the heart of the 2019 European Council Recommendation on access to social protection for workers and the self-employed, part of the roll-out of the European Pillar of Social Rights. This is also considered to be an important step to establish a level playing field for employers across Europe, thereby helping to combat fraudulent forms of contracting work. These measures, however, remain designed for legally declared activity, work and workers.
A fair economy and labour market require governments to step up their endeavours to eliminate informal working arrangements. The holistic approach, combining preventive and deterrent policies, has long been promoted as the most effective and has been adopted by most Member States. However, the coordination and cooperation of all the actors involved is still insufficient and difficult to organise.
While the social partners have actively contributed to highlight the precariousness of some workers’ situations and employment conditions, their position in respect of undeclared workers is less straightforward. Most businesses are compliant, and employer organisations speak for them, leaving the unscrupulous contingent aside and distancing themselves as much as possible from unfair competition practices. Unions too face challenges: with reduced membership, they are concentrating on their core members, who are mostly employees with permanent contracts and those with the traditional non-standard contracts, such as temporary workers and the self-employed. Several unions have tried to organise potential new members among those working in more casual forms of work.  Undeclared workers, however, are at the very end of the spectrum, even more difficult to reach and organise than on-demand workers, for instance. Moreover, unions have still to prove to most of their constituents that defending and protecting undeclared workers’ interests is their collective interest.
- Publication: Exploring the fraudulent contracting of work in the European Union
- Publication: Tackling undeclared work in the European Union
The COVID-19 pandemic has obliged the European Platform tackling undeclared work to revise the planning of its #EU4FairWork campaign on the benefits of declaring work, extending it and postponing the European week to September 2020. However, the lifting of confinement measures is the proper time for discussing the way economies will restart, and certainly an appropriate time to recall that declaring work is good for all. It extends the social protection blanket to more workers. It helps curb social dumping – the use of low-paid workers to undercut established pay rates – something from which the whole workforce gains. It reduces unfair competition for business. And it benefits society when all economic activity pays its dues and all workers receive fair treatment. Furthermore, it is the only way of ensuring that as many businesses and workers as possible are protected should a new pandemic strike.
- European Commission: European Platform tackling undeclared work
- European Commission: #EU4FairWork campaign
Image @ BERMIX STUDIO/Shutterstock
Research carried out prior to the UK’s withdrawal from the European Union on 31 January 2020, and published subsequently, may include data relating to the 28 EU Member States. Following this date, research only takes into account the 27 EU Member States (EU28 minus the UK), unless specified otherwise.