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Brussels, 24 October 2007

EU steps up the fight against undeclared work

Undeclared work is still a problem in Europe and is undermining the EU's ability to meet its targets for more and better jobs and stronger growth, says a new European Commission report released today. It identifies the main drivers for the informal economy, sets out successful ways to reduce it and proposes a series of concrete follow-up actions at European and national levels. New figures from Eurobarometer – which has carried out the first ever Europe-wide harmonised survey on this sensitive topic – confirm the existence of a large market for undeclared work all over the EU.

"The hidden economy undermines the financing of social security systems, hampers good economic policies and can lead to social dumping," said Employment Commissioner Vladimír Špidla. "There are no signs that the phenomenon is decreasing – indeed in certain sectors and certain forms of work it appears to be growing. While there have been some successful initiatives to combat undeclared work in national contexts, we need to step up our approach and take more decisive action across the EU."

Undeclared work is a complex phenomenon with multiple drivers and therefore calls for a balanced approach of prevention, law enforcement and sanctions. High levels of taxation and social security contributions and a heavy administrative burden are traditionally seen as the drivers of undeclared work, but there are also increasing trends towards sub-contracting and false self employment. Finally, in certain Member States, the application of transitional arrangements towards workers of the new Member States has exacerbated the recourse to undeclared work.

An analysis of recent policy measures in Member States gives a mixed picture, with both ongoing difficulties and more encouraging experiences. The tax burden on labour has for example only been marginally reduced in the EU, but more regular jobs could be created by reducing red tape and facilitating registration. Meanwhile, minimum wages can act to reduce the practice of 'envelope wages', whereas higher taxation of overtime tends to encourage them. Strengthened cooperation between tax/social security agencies and labour inspectorates also plays a key role. Specific agreements between governments and social partners have triggered innovative solutions such as the "job card" for construction workers.

As a follow-up of the present Communication, the Commission proposes to:

  • Further reduce the taxation on labour and decrease the administrative burden forming part of the EU's growth and jobs strategy;
  • Member States should review the transitional arrangements as soon as possible and in any case before the next phase due early in 2009. In context of labour market tightening in many Member States, these arrangements limiting the mobility of workers from the new Member States are a key example of red tape;
  • Facilitate exchanges of good practices, more systematic policy evaluation and better measurement of undeclared work in the context of the EU's new PROGRESS programme;
  • Investigate the feasibility of a European platform for cooperation between labour inspectorates and other enforcement bodies;
  • Integrate concerns about undeclared work in the common principles for flexicurity currently being developed;
  • Involve workers' and employers' representatives actively in the fight against undeclared work.

Today's new Eurobarometer survey reveals that undeclared work is particularly widespread in southern and eastern Europe. Across the EU, 5% of employees admit receiving cash-in-hand wages, varying from 3% or less in most continental countries, the UK and Ireland, to over 10% in some central and eastern European countries. Undeclared work is more concentrated among students, the unemployed and the self-employed, and has a higher incidence in the construction and household services sectors. The detection risk also matters: people who consider the risk to be small are more likely to be involved in undeclared work.

The upcoming Council meeting on 6 December will be a first occasion to have a policy debate on tackling undeclared work in a more effective way.

For further information:
Communication on undeclared work
Eurobarometer survey on undeclared work
VNR on labour law

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