Region struggles with shadow economy


Poor economic conditions lead to large numbers of undocumented workers.

By Katica Djurovic for Southeast European Times in Belgrade -- 21/01/13


Seasonal jobs like construction draw significant numbers of undocumented workers. [Katica Djurovic/SETimes]

Milijana Bozic has worked as a bartender for nearly 10 years, but the 33-year-old Belgrade resident doesn't have a single day recorded in her employment record.

She is among the estimated hundreds of thousands of people in Serbia and nearby countries who work without documentation -- an unregulated segment of the economy that annually costs governments across the region billions of euros.

"It is very hard to get a contract job in this field," Bozic told SETimes. "It is cheaper for my employer to pay us daily wages in cash instead of registering us. I tried to get a contract but they always say there are other people willing to work without registration, so I have no other choice but to work like this."

The so-called shadow economy is a critical issue in the Balkans, preventing economies from properly developing and competing in the global economy. A World Bank report released last year notes that the shadow economy of eastern European states ranges from 17 percent to 33 percent of GDP.

Because undocumented workers do not pay tax or have their wages recognised by the government, in many cases they cannot prove they have enough income to purchase homes, automobiles or land. And because neither they nor their employers pay tax on the wages, the state is deprived of tax money needed for infrastructure, environmental reclamation or programmes to help veterans or the needy.

The Balkan Network for Decent Work, a group of NGOs from the region, researches the number of people involved in any kind of unregulated work and fights against it. Underground employment costs Serbia 1 billion euros per year, according to the group.

In Serbia, their campaign Crno na Belo (Black on White) began 10 months ago. The group reaches out to people affected by this trend, helping them know their rights and report the employers.

"At this moment, there are between 300,000 and 1 million workers on the black market [in Serbia]. It is a magic circle because citizens want any kind of job, employers want minimum [costs to do] business, and the state wants social peace. It is a three-sided treaty," Andjelka Markovic from the Crno na Belo campaign told SETimes.

The growing shadow economy is most common in seasonal sectors such as construction, transport, trade, agriculture and domestic services. It is fueled by high unemployment rates and an increasing number of poor people who have no choice but to work, regardless of the circumstances.

Draguljub Peuraca, director of the Work Inspectorate of the Serbian Ministry of Work, Employment and Social Politics, said black market work is a common problem in Serbia and other transition countries.

"Citizens should have a more active role in the fight against unregulated work," Peuraca told SETimes. "The employees have to report black market work while they are still at work, and not wait until after they've lost their job. Otherwise, we have no possibilities to determine their accusations since there is no evidence that they ever worked."

In Montenegro, seasonal jobs during peak tourist seasons are havens for unregistered workers. Most of the employees are from other countries from the region and do not have work permits in Montenegro.

A Montenegrin Free Trade Union 2008 survey of 178 companies found that about 35,000 employees (22.6 percent) were undocumented.

The situation is no better in Greece, where Sonja Maras, a 25-year-old Serbian-born Greek, works as a restaurant hostess in Thessaloniki. She receives one-third of her salary in cash and rest on the books.

"Now I can't get a loan because my salary on paper is so low," Maras told SETimes.


Greece's recession has raised unemployment across the board, but the shadow economy remains 24 percent of the country's GDP. [AFP]

According to a Reuters report, informal work in Greece is rising as job-seekers become desperate and cash-strapped businesses try to save on contributions to the state. In the first half of 2012, informal workers accounted for 35 percent of about 30,000 employees during checks by Greece's Labour Inspectorate. A European Commission report indicated that Greece's recession contributed to a 4 percent reduction of the shadow economy between 2003 and 2012.

Turkey’s Social Security Institution has several initiatives to fight unregistered employment. Since the adoption of Social Security Reform in 2008, the share of unregistered workers dropped from 45.6 to 37 percent.

"Turkey has been gaining strong and sustainable growth and job creation, and it has come a long way in its struggle against unregistered employment, but further reforms in the labor market will enhance this momentum by incorporating much more labor force into the formal sector," Turkan Dagoglu, vice-chairman of parliamentary Employment Commission, told SETimes.

The informal economy in Bulgaria exceeds 30 percent, said Kamen Kolev, deputy chair of the Bulgarian Industrial Association. He added that the rate of undeclared employment was even higher.

"Workers prefer to keep as much as possible of the little money they get, so they generally do not think about potential future social risks, such as unemployment or sickness." Nadezhda Daskalova, deputy director of the Institute for Trade Union and Social Research under the Confederation of Independent Trade Unions in Bulgaria (CITUB), told SETimes.

In the past decade, Bulgaria has started compulsory registration of individual labor contracts, obligatory social security thresholds, and flat taxes on incomes and corporate profits. One of the latest measures aimed at reducing the number of unregulated workers was the introduction of a legal obligation for all trade companies to connect their cash registers to the National Revenue Agency's system.

Ilir Berisha, director of the Department of Economic Statistics of Kosovo Agency of Statistics, told SETimes the agency does not have any methods of measuring the informality in Kosovo’s economy. A project to gather such information is planned for 2014 or 2015, pending available funds, Berisha said.

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According to a study published in April 2012 in the Journal of Knowledge Management, Economics and Information Technology, written by Florentina Krasniqi and Rahmije Topxhiu of the faculty of Economics in the University of Pristina, "the estimates of the ILO and the World Bank indicate that over half of total employment in Kosovo is in the informal economy."

Nicolae Vacaroiu, the chairman of Romania's Court of Accounts, revealed late last year that Romania loses about 7 billion euros a year due to VAT returned to phantom companies or on the basis of fake invoices.

Romania’s underground economy is assessed at about 41 billion euros, which is a little less than 30 percent of the country’s GDP, according to European Commission’s latest statistics which cover 2011. Romania ranks second among the 27 communitarian states in terms of extension of informal economy, Bulgaria coming first with its underground economy assessed at more than 32 percent of the GDP, according to the same figures.

SETimes correspondents Paul Ciocoiu in Bucharest, Svetla Dimitrova in Sofia, Menekse Tokyay in Istanbul and Linda Karadaku in Pristina contributed to this report.

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