Employment, Social Affairs & Inclusion

News 09/06/2020

COVID-19: the impact on undeclared work and key challenges

The European Platform tackling undeclared work has been quick to respond to the immediate challenges from the COVID-19 outbreak and is looking into solutions on how this transition could be achieved.

© Shutterstock / Alexandros Michailidis

The COVID-19 pandemic has had a profound impact on businesses and workers across the EU. While the EU and its Member States have put in place financial support mechanisms for workers who have temporarily lost their jobs during this time, those engaged in undeclared work find themselves in an even more precarious position. However, the pandemic may also offer an opportunity to encourage the transition from undeclared to declared work. The European Platform tackling undeclared work has been quick to respond to the immediate challenges and is looking into solutions on how this transition could be achieved.

Immediate impacts

Due to the closure of businesses classed as non-essential, travel restrictions and the introduction of strict social distancing measures, many undeclared workers across Europe will be experiencing significant reductions in their working hours and pay. Many will have lost their jobs and be unable to access healthcare and government financial support.

Sectoral impacts

The pandemic has had a major impact on the majority of economic sectors across the EU. Sectors with relatively high proportions of undeclared workers have been particularly hard hit. This includes the tourism and hospitality sectors, due to the closure of bars, restaurants and cafes and restrictions on free movement. In the tourism sector, for example, unregistered enterprises and workers might include beach sellers, unlicensed tour guides, private accommodation providers, online food services, home restaurants and pop-up shops, all of which will be excluded from accessing short-term financial support. Other sectors with significant numbers of undeclared workers include personal and household services, construction, agriculture, and some industry and manufacturing.

Impacts on individuals

The extent of the impact on individuals will depend on the type of worker. Those who are wholly unregistered and rely entirely on undeclared income are most at risk. Those who receive part of their salary as undeclared envelope wages will feel the impact on this proportion of their pay. Bogus self-employed workers will be excluded from the financial support for employees, but will be able to access financial support for the self-employed.

Consequences of the pandemic

COVID-19 has had many consequences for those individuals engaged in undeclared work. Firstly, if they have no other source of income, they may be continuing to work out of economic necessity, potentially putting themselves at risk of contracting and spreading the virus. Secondly, as large numbers of undeclared workers are falling through the financial support safety net, many may be engaging in illegal activities to obtain food and other necessities.

There are also reports of a new form of undeclared work emerging, whereby employees have their contracts suspended and receive state financial compensation, then the same employers hire them illegally during their suspension. This raises new challenges for labour inspectorates, which have had to adapt their work practices and priorities in light of the pandemic. For example, labour inspectors are considered ‘frontline’ workers or an ‘essential service’ in some Member States and inspections are being conducted to ensure the health and safety of inspectors, such as respecting social distancing rules. In other Member States, inspections have temporarily ceased.

Member State actions to protect those in undeclared work

However, due to the numbers involved in the informal economy and the public health interest, many Member States have taken measures to protect those engaged in undeclared work. Many undeclared workers are eligible to non-contributory benefits such as minimum income schemes. Besides, some national governments have strengthened their welfare safety net by temporarily enhancing unemployment insurance and relaxing eligibility rules. For example, Italy’s Minister of Labour and Social Policies, Nunzia Catalfo, stressed that ‘the state has an obligation to provide for all those who have been left without an income in the current emergency’.

Many organisations, including social partners, have also urged national governments and public authorities to step up safety guidance, personal protective equipment, and job and income security, and extend economic assistance packages, social protection coverage and healthcare access to workers in the informal economy.

Preparing for the future

Looking at the longer term, there is concern that the pandemic will spark a trend towards declared work shifting into the undeclared economy, as an increased number of businesses operate in survival mode during the aftermath. It is therefore necessary to ensure that national rescue packages are effective in preventing such a shift in the immediate recovery period. Understanding what has worked in terms of preventing undeclared work during the first stage of the crisis will be crucial to knowing what support and schemes should be used in any repeat lockdowns, should these be necessary. Careful phasing of the withdrawal of financial support will also be essential to ensure that legitimate businesses and jobs can survive.

The lifting of lockdown measures therefore represents an opportunity to further tackle undeclared work and reinforce the message that declaring work brings advantages for all involved.

This article is part of the #EU4FairWork campaign launched by the European Platform tackling undeclared work, together with the European Labour Authority.

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