European statistics

Undeclared work accounts even 20% of GDP(Gross Domestic Product)in some Member
States . Poland, Hungary, Lithuania, Latvia reached 5 years ago 14-23% of the GDP.
Romania fluctuated from to 9.5% in 2000, 12.9% in 2001, 4.7% in 2002 and increased
again to 9.5% in 2006.
Volume of undeclared work in Europe as % of GDP
Country Estimate
Scandinavian countries c. 5%
Ireland c. 5%
Austria c. 5%
Netherlands c. 5%
UK 10%-15%
Germany 10%-15%
France 10%-15%
Belgium 15%-20%
Spain 15%-20%
Italy + 20%
Greece + 20%
Total EU 7%-16%
Source: European Commission Communication on undeclared work, COM (1998)

Undeclared services consumption

The country perspective shows that the share of people reporting the purchase of
undeclared services and/or goods is the
largest in Denmark and the Netherlands (27% each), but is also high in Latvia
(24%)
and Sweden (23%). The lowest share is in Cyprus (2%). Comparably low values are
also found in Germany and Spain (6% each).
Undeclared work risks undermining the European social model , distorting
competition on the single market and it also leads to social dumping. Furthermore,
immigrants, particularly illegal ones, are more exposed to the risks of undeclared
work.

• Citizens aged between 25 and 54 years were slightly over-represented among

the purchasers of undeclared work. Older people aged 55 years or more were
somewhat under-represented.
• There is a lower than average demand for undeclared goods or services among
elderly people. Among retired persons, the share of those acquiring goods or
services stemming from undeclared work is the lowest (7%).
• Professional groups, with incomes that tend to be above the average, such as
managers, other white collar employees or the self-employed are overrepresented
among the purchasers of undeclared work.
• People with a lower formal education are less likely to buy undeclared goods or
services than people with a higher education. Only 6% of those who terminated
their full-time education at the age of 15 years or earlier purchased any
undeclared goods or services. The share is notably higher for those who finished
education between 16 and 19 years (11%) and is highest (17%) for those who
finished aged 20 years or later and who would often have a high-school diploma
or a university degree.
• Purchasers of undeclared work are not concentrated in either urban or rural
areas.
Weaknesses of the legal system

Undeclared work is multi-faceted. It ranges for example from occasional baby-

sitting
work in the neighbourhood to the construction of entire buildings with
professionally
organised networks of undeclared workers.
Undeclared work has various definitions in the national legal systems, so the lack
of a common definition in all Member States leads to miscellaneous actions which
are pushed to the border between legal and illegal.
For example work of a short duration (defined as work without pay lasting a
maximum of 40 hours a month ) and small jobs without contracts are no longer
considered to be undeclared work by the Slovenian Government.
In Estonia the employment contracts may also be concluded orally if the term of
the contract is less than two weeks.

Causes of undeclared work use:

· Eastern countries’ transition to a market economy as well as restructuring
in some sectors have lead to instability in the labour market.
· Moreover, the employers adopt this type of work due to the high level of
fiscal taxes and the lack of development strategies, especially among newly
established SMEs
· Another reason which has allowed this trend to grow is that penalties are
applied only on companies and not on undeclared workers.
· Two other elements which contributed to the expansion of illegal labour are
poor information and low income, especially in developing countries.
Measures:
Formal work can be enhanced by:
§ Legalizing contracts for small work in all EU member states(less than 20 h a
week, max 40h a month, less than 50%of the min wage)
§ Applying lower taxes on income and personalizing contributions
§ Relating social insurance benefits to individual contributions
§ Reducing legislative and administrative burdens for firms and individuals
with the help of e-services, as many proceed to employing workers without
providing them with any contract due to formalities and taxes which have to be
paid.
§ Promoting stronger and more efficient coordination and administrative
cooperation between government enforcement agencies, labour inspectorates and the
social partners, social security administrations and tax authorities to ensure
that legislation is respected;
§ Offering a wider range of atypical contracts which to cover more of the work
market services.(e.g. people who work for short periods of time don’t receive any
recognition of their work and therefore they won’t receive any pension for that)

Social dumping- the process of exporting goods (in this case human capital) into a
country and selling them(the services they provide) at a lower price, even lower
than it would be in the origin country.

Gross Domestic Product- The gross domestic product (GDP) or gross domestic income
(GDI) is one of the measures of national income and output for a given country's
economy. GDP is defined as the total market value of all final goods and services
produced within the country in a given period of time (usually a calendar year).
It is also considered the sum of a value added at every stage of production (the
intermediate stages) of all final goods and services produced within a country in
a given period of time, and it is given a money value.
GDP = consumption + gross investment + government spending + (exports − imports