Uncovering the hidden face of undeclared work

A Portuguese study, based on a recent Eurobarometer survey, looks at the phenomenon of undeclared work. Among the issues it tackles is why people feel they need to work outside normal working regulations. The study also examines the profile of undeclared workers, the consequences of being an undeclared worker, and why undeclared workers are taken on. At least 3% of employment in Portugal is thought to be undeclared, accounting for up to 25% of the country’s gross domestic product.

About the study

The book Invisible Portugal, published in 2010 and reprinted in 2012, includes a chapter called ‘Is Undeclared Work Invisible?’ This chapter explores the relationship between regular employment and undeclared work. It identifies a range of possible motives for undeclared work, and show how they impact on several areas of Portuguese life. A new study, based on the 2007 Eurobarometer survey on Undeclared Work in the European Union (1Mb PDF), examines a number of key issues across the EU Member States and compares Portugal to other countries.

Why do people work undeclared?

When asked for the reasons for not declaring work, almost half of all undeclared workers in Portugal (44%) told the Eurobarometer survey that their work was only seasonal and not worth declaring. This was substantially higher than the corresponding proportion among the EU27 countries (23%).

However, 31% of undeclared workers in Portugal said that non-declaration was justified by the fact that both the buyer and the seller shared the savings, compared to 47% of respondents in the EU27 as a whole.

So-called ‘hard’ constraints, such as the difficulty of finding a regular job, were given a less important role as a motive for non-declaration – 18% of undeclared workers in Portugal (16% in the EU27) said they did the work because they could not find a regular job (Figure 1).

Figure 1: Main reasons for doing undeclared work (%)

Figure 1: Main reasons for doing undeclared work (%)

Source: Dornelas (2012)

In Portugal and across almost all the countries of the European Union, the further away a worker is from the ‘typical’ category of full-time employee, the more likely they are to work undeclared. Undeclared work was predominantly performed by unemployed people (57% in Portugal, 61% in the EU27) or self-employed people (25% both in Portugal and in the EU27).

Illegal immigrants also had a high probability of doing undeclared work (50% in Portugal, 47% in the EU27) (Figure 2).

Figure 2: Probability of doing undeclared work (%)

Figure 2: Probability of doing undeclared work (%)

Source: Dornelas (2012)

When asked about the non-financial negative consequences of working undeclared, nearly a quarter of all respondents (24% in Portugal, compared with 21% in the EU27) mentioned the lack of insurance against accidents. A higher risk of losing a job was also highlighted by 13% of the undeclared workers in Portugal (7% in the EU27).

Figure 3: Non-financial negative consequences of working undeclared (%)

Figure 3: Non-financial negative consequences of working undeclared (%)

Source: Dornelas (2012)

Why do people use undeclared workers?

In Portugal, as well as in the EU27 Member States, the motive for using goods and services provided by undeclared workers was predominantly economic. The lower cost of undeclared workers was the main reason, but undeclared workers could also be employed more quickly. Social motives, such as the hope of doing friends or colleagues a favour or helping someone in need of money, were only of minor importance.

More than one third (35%) of all people admitting to having purchased undeclared goods or services in Portugal said they were provided by a recognised firm or business. The corresponding percentage was much lower on average in the EU27, at 20%.

However, Figure 4 shows that in the EU27, the most people used colleagues and acquaintances (39% compared with 15% in Portugal) to provide them with the undeclared work.

Figure 4: Origin of undeclared goods and services (%)

Figure 4: Origin of undeclared goods and services (%)

Source: Dornelas (2012)

Other findings

Other findings from the survey were that:

• the extent of undeclared work in Portugal is unknown, but it is estimated that at least 3% of employees work undeclared, and the percentage of employment corresponds to 22% of GDP;

• in Portugal undeclared work occurs largely in connection with work done in the formal sector of the economy – this is in contrast to what occurs in most European countries;

• undeclared work comprises an important share (16%) of the unpaid work done in the formal sector of the economy in Portugal;

• in contrast to the EU27, the paid share of undeclared work provides higher mean hourly earnings than declared and paid work in the formal sector of the economy;

• undeclared work can be characterised and is therefore far from invisible.

Commentary

Undeclared work has been high on the political agenda in Portugal, and is an important part of public debate. State intervention has been considered a priority, and a major initiative has been launched to recover tax revenues diverted by companies from the State through undeclared work.

The Authority for Working Conditions (ACT), as a tripartite body, has taken a leading role in the fight against undeclared and irregular work, both in the framework of its inspection activity and by developing specific measures.

The study Is Undeclared Work Invisible? has estimated the extent of undeclared work in Portugal to be 22% of GDP in 2007. This can be compared with a 2012 study by the Economics and Fraud Management Observatory (OBEGEF) that concluded that this had increased from 24.8% of GDP in 2010 to 25.4% in 2011.

References

Afonso, O. and Gonçalves, N., (2012), Índice de Economia não registada em Portugal [Index of the non-registered economy in Portugal], Observatório de Economia e Gestão de Fraude, Faculdade de Economia do Porto, Porto.

Dornelas, António (2010), O trabalho não declarado é invisível? [Is undeclared work invisible?], in Dornelas, A., Oliveira, L., Veloso, L., Guerreiro, M. das Dores (eds), Portugal Invisível [Invisible Portugal], Mundos Sociais, CIES/ISCTE-IUL, Lisbon, pp. 95–107.

Heloísa Perista and Janine Nunes, CESIS

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