Assessing the nature and extent of undeclared work

A study carried out in 2003 in Portugal’s construction sector explored the prevalence of undeclared work. Taking national Employment Survey data and the opinions of key observers as a reference, the study estimates that non-declared work represents between 15% and 37% of total labour in the construction sector. The informal economy is particularly attractive to jobseekers with fewer skills, migrant workers and unemployed people.

In 2003, the Economic and Social Studies Society (Sociedade de Estudos Económicos e Sociais, S2E2) carried out a study on behalf of the Directorate General of Studies, Statistics and Planning – currently the Office for Strategy and Planning (Gabinete de Estratégia e Planeamento, GEP) – on undeclared work in Portugal. This study identifies different methodologies to evaluate the dimension of undeclared work in order to find the most adequate and effective way to quantify the Portuguese case. The study also looks at the approach to undeclared work in the context of the European Employment Strategy’s National Action Plans in different countries. Finally, the quantification of the problem is analysed in the construction sector using official statistics and the opinions of key observers.

Nature of undeclared work

According to the study, undeclared work is the result, in terms of labour relations, of some economic activities escaping the control mechanisms of national accounts and escaping the fulfilment of at least a part of the tax and social contribution rules of each country. The undeclared part of the economy is also known as the parallel economy, hidden economy, shadow economy, black economy, underground economy, as well as the informal or illegal economy. It refers to a number of activities that show some distinct characteristics: it is a particularly dynamic segment of economic activity that benefits from an increased competition capacity due to the non-payment of social and tax contributions, thus allowing lower operating costs for employers.

Spotlight on the construction sector

According to the study, in 2001, undeclared work – as an equivalent to full-time work – in the construction sector varied between 15% and 37% of total labour.

In Portugal, construction is traditionally a sector for integrating workers in precarious situations and newcomers into the labour market, and it is used to complement other activities. The informal sector becomes attractive to jobseekers for numerous reasons, such as the following:

  • it attracts more people with low skills;
  • working in this sector is the only alternative as a complement to agricultural activities or as an outlet to the labour market for migrant workers moving from rural areas to urban centres;
  • it provides easy access to the labour market for unemployed people.

The study collected the views of nine key observers in the construction sector, including individuals responsible for recruitment in temporary work agencies and in construction companies, representatives from the Employment and Vocational Training Institute (Instituto do Emprego e Formação Profissional, IEFP) and also employer organisation representatives. According to most participants, undeclared work assumes significant importance, albeit directly varying with economic growth – increasing in periods of economic growth and losing ground in recession periods. The participants in the study also emphasise that undeclared work is more prevalent in non-urban areas and that it is also significant in other sectors, such as hotels and restaurants.

Estimating the importance of undeclared work in the construction sector, the study used Employment Survey (Inquérito ao Emprego) data for 2001 from Statistics Portugal (Instituto Nacional de Estatistíca, INE), as well as some estimates collected from the actors involved.

Measures to tackle undeclared work

According to the study, three types of measures may strongly reduce undeclared work. Although relieving companies’ administrative and bureaucratic burden may have an important impact on reducing undeclared work, the study concludes that it should be closely followed up by some flexibility of labour relations, namely in terms of new types of employment contracts. For example, more emphasis should be given to the specificities of students’ work, creating special work contracts for them and alleviating the inherent tax burden. In addition, more favourable conditions should be created for employing workers who wish to apply new skills or initiate new occupations, having a second job or providing particular services. Finally, inspection and control actions in relation to using illegal forms of undeclared work – such as the accumulation of unemployment allowances or the exploitation of illegal migrant work – should be reinforced.

References and further information

Centeno, L.G. (coord.), O Trabalho Não Declarado em Portugal – Metodologia de Abordagem e Tentativa de Medição [Non-declared work in Portugal – Methodology of approach and measuring attempt], Cogitum Collection No. 19, DGEEP, Lisbon, 2006.

European Commission, Communication of the Commission on Undeclared Work, COM (98) – 219 (213Kb PDF), Brussels, 1998.

The European Foundation for the Improvement of Living and Working Conditions (Eurofound) is currently in the process of publishing numerous case studies on tackling undeclared work in the European Union.

Heloísa Perista and Jorge Cabrita, CESIS

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