Tackling Undeclared Work in the European Union: An Evaluation of Government Policy Approaches

By Williams, Colin C. | UTMS Journal of Economics, December 2019 | Go to article overview

Tackling Undeclared Work in the European Union: An Evaluation of Government Policy Approaches


Williams, Colin C., UTMS Journal of Economics


INTRODUCTION

It is now widely accepted that undeclared work remains a persistent and often extensive feature of European Union (EU) economies (Dotti et al. 2015; Medina and Schneider 2017; Williams 2014b; Williams and Schneider 2016). Indeed, a recent European Commission report estimates that 9.3% of labour input in the private sector in the EU is undeclared work (Williams et al. 2017). This has negative implications for the workers involved, who have poorer working conditions, lower wages, infringements of their labour rights and reduced protection under labour and social protection law, depriving them of adequate social benefits, pension rights and access to healthcare, as well as skills development and lifelong learning opportunities (European Commission 2016; ILO 2015). It also results in unfair competition for businesses operating legitimately, and decreases tax and social security revenues for member states, undermining the financial sustainability of their social protection systems (European Commission 2016; Williams 2014a, 2018).

Tackling undeclared work is therefore high on the agenda in the EU (European Commission 1998, 2007, 2016). Indeed, in 2016, the European Parliament passed legislation establishing the European Platform Tackling Undeclared Work (henceforth referred to as 'the Platform') to improve the cooperation and effectiveness of Member States in tackling undeclared work (European Commission 2016). This recognised the need for a more holistic approach to be adopted, which the first Platform meeting of the member states and social partners defined as a whole government strategic approach which joins-up the fields of labour, tax and social security law, and which uses the full range of direct and indirect policy measures available to enhance the power of, and trust in, authorities respectively (Williams 2016). The aim of this paper is to evaluate the degree to which EU member states currently adopt such a holistic approach towards tackling undeclared work. This is one of the first known assessments of how governments are addressing undeclared work.

To do this, the first section will set the context by briefly reviewing the extant literature which recognises that a more joined-up coordinated approach towards tackling undeclared work is needed if it is to be effectively tackled, followed by how a holistic policy approach is widely recognised as required in order to effectively tackle undeclared work both in the scholarly and practitioner literature. The second section then reports the methodology used to evaluate the degree to which European national governments have adopted this holistic approach, whilst the third section will report the findings. Revealing that most governments do not have a joined-up strategy and only a limited range of measures are used in most member states, with deterrence measures the most commonly used, the fourth and final section will then draw some conclusions about the implications and discuss the future research required.

1.REVIEWING POLICY APPROACHES TOWARDS UNDECLARED WORK IN THE EUROPEAN UNION

Undeclared work is known by many names, with some 45 different nouns and 10 adjectives used to denote this realm, including the 'cash-in-hand', 'shadow', 'informal', 'black' and 'underground' economy/sector/work (Williams 2004). However, despite this array of names, a strong consensus exists over how to define it in both the scholarly and policy-making community. What is here termed 'undeclared work' is defined in terms of what is absent from, or insufficient about, it compared with declared work, and the consensus is that the only absence from, or insufficiency about, undeclared work is that this paid work is not declared to the authorities for tax, social security and/or labour law purposes when it should be declared (European Commission 1998, 2007; OECD 2002; Williams 2004; Williams and Windebank 1998).

Given this definition of undeclared work as paid work not declared to the authorities for tax, social security and/or labour law purposes when it should be declared, three key reasons can be identified why these otherwise lawful activities are not declared:

* To evade payment of income, value added or other taxes;

* To evade payment of social security contributions; and

* To evade certain legal labour standards, such as minimum wages, maximum hours, safety standards, etc. …

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