Rise in undeclared work 2004–2009

The statistical bulletin on labour and social protection for 2009 shows that inspections by the Romanian Labour Inspection Office to detect and control undeclared work accounted for over 80% of all its inspection routines on labour matters between 2004 and 2009. The number of employers found to have hired unregistered workers rose from 3,442 in 2004 to 8,500 in 2009. The number of individuals providing unrecorded work grew during the same period by more than 67%.

About the study

For the first time, the Statistical Bulletin on Labour and Social Protection – 2009 published under the aegis of the Romanian Ministry of Labour, Family and Social Protection included a chapter on undeclared work.

According to the Additional Memorandum of Understanding between the European Commission and Romania, one of the conditions of the loan agreement entered into with the International Monetary Fund (IMF) and the Commission is that Romania should draw up a plan to intensify inspections into undeclared work. This should include action by the Romanian government to step up inspections, to increase the fines imposed for irregularities detected, and to keep a strict and transparent record of all inspection reports.

Publication of the findings of the inspections carried out by the Labour Inspection Office into undeclared work marks a first step towards building a database that allows short-term and medium-term assessments of the phenomenon.

Statistical data on undeclared work

Through its local branches, the Labour Inspection Office schedules site inspections focused on certain economic sectors or geographical areas such as hotels and restaurants on the Romanian Black Sea coast and mountain resorts, and industries such as construction and wood harvesting.

Between 2004 and 2009, the number of inspections into labour issues increased by 30%; the number of such inspections focusing on the detection and control of undeclared work rose by 22% (Table 1).

Table 1: Quantity indicators on undeclared work in Romania
  2004 2005 2006 2007 2008 2009
Inspection of labour relations 78,300 74,100 100,200 91,100 99,000 101,400
Inspection to detect and control undeclared work* 66,700 60,800 82,600 76,400 80,400 81,200
85.2% 82.1% 82.4% 83.9% 81.2% 80.1%
Employers found in breach of labour regulations 9,260 17,469 31,870 46,116 56,011 57,238
Employers found using undeclared work* 3,442 3,525 7,840 7,701 7,963 8,500
37.2% 20.2% 24.6% 16.7% 14.2% 14.9%
Individuals found providing undeclared work 10,446 8,492 16,571 16,059 16,162 17,464

Note: * Percentage as a share of overall number.

Source: Based on data from Statistical Bulletin on Labour and Social Protection – 2009

During the period 2004–2009, the number of employers found in breach of labour regulations rose from 9,260 to 57,238. Of the overall number of employers, 3,442 in 2004 and 8,500 in 2009 used undeclared work.

Other key findings were as follows.

  • The number of employers detected using undeclared work on their premises doubled between 2005 and 2006.
  • The number of people who worked without a legal contract increased by some 67% between 2004 and 2009, that is from 10,446 to 17,464 people.
  • The average number of undeclared workers per employer detected by labour inspectors was three in 2004 and two in 2009.

For better results, in July 2009 the Labour Inspection Office started to make its inspection routines more regular with a ‘one day a week’ programme aimed exclusively at discovering and discouraging undeclared work.

Range of penalties for undeclared work

The fines levied for undeclared work have also been increasing since 2004. The total value of the fines imposed for undeclared work increased from €1.7 million in 2004 to €7.3 million in 2007, and €5.9 million in 2009 (Table 2).

Table 2: Amounts of fines for undeclared work
  2004 2005 2006 2007 2008 2009
Fines for default from labour regulations €3.54 million €4.64 million €13.96 million €14.97 million €13.49 million €11.68 million
Fines for use of undeclared work* €1.72 million €2.20 million €7.25 million €7.26 million €6.17 million €5.85 million
48.4% 47.5% 51.9% 48.5% 45.8% 50.1%
Average fine for default from labour regulations Per employer €382.40 €265.60 €438.20 €324.50 €240.90 €204.00
Average fine for use of undeclared work  Per employer €497.90 €624.90 €925.10 €942.30 €775.30 €688.60
Per individual found working without legal forms €164.10 €259.40 €437.70 €451.90 €382.00 €335.20

Notes: * Percentage as a share of all fines.

Source: Based on data from Statistical Bulletin on Labour and Social Protection – 2009 and on the average annual RON/EUR exchange rates published by the National Bank of Romania (BNR)

The average fine for an individual found working without a legal employment contract was €164.10 in 2004, €451.90 in 2007 and €335.20 in 2009.

Between 2004 and 2009, the fines for undeclared work accounted for 47%–50% of all fines given as penalties for defaulting from labour relation regulations.

The average fine per employer amounted to €479.90 in 2004, €925.10 in 2006 and €688.60 in 2009.

Commentary

An interesting theme of research would be a comparison between the number of undeclared workers and the number of legal workers in those companies where the former were detected by the Labour Inspection Office. These data are not yet provided in the statistical bulletin.

The average number of illegal workers per employer detected and fined fell from three in 2004 to two in 2009. If the employer in breach of the regulations is a small company with up to 10 workers, the average of illegal labour stands at 20%–30% of all personnel. On the other hand, if the employer is a big company, the percentage of undeclared workers appears insignificant.

On the other hand, the average value of the fine per person (€335.20 in 2009) is not a significant deterrent when compared with the national average gross monthly salary of €623, and when the social security contributions and wage tax avoided by both employers and employees is taken into account, amounting to around €200 per person per month.

Luminiţa Chivu, Institute of National Economy, Romanian Academy

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