Thematic feature - industrial relations and undeclared work

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This article gives a brief overview of the industrial relations aspects of undeclared work in Italy, as of June 2004. It looks at: the nature and extent of undeclared work; the regulatory framework; the role, activities and views of the social partners; and partnerships between social partners and public authorities to tackle undeclared work.

The phenomenon of undeclared work - defined as 'any paid activities that are lawful as regards their nature but not declared to the public authorities'- is an issue which has been preoccupying the EU institutions for a number of years. In 1998, the European Commission issued a Communication on undeclared work, which was designed to launch a debate on the causes of such work and the policy options for combating it (EU9804197F). It suggested that there was a need to clarify the causes and extent, and concluded that combating undeclared work should be part of the overall European employment strategy.

According to the Communication on undeclared work, the main motivation for employers, employees and self-employed people to participate in the undeclared economy is economic. Working in the informal economy offers the opportunity to increase earnings and to evade taxation on income and social contributions. For employers, the incentive is to reduce costs. The same document mentions three factors contributing to undeclared work: i) demand for 'personalised services' to households; ii) reorganisation/restructuring of industry and firms; and iii) the impact of new technologies. Undeclared work has impacts on the social security systems, public finances, competition and industrial relations. At that time, studies estimated the average size of the informal economy at between 7% and 16% of the GDP of the then 15 EU Member States. The Commission has launched a number of studies on the topic, covering issues such as 'Measuring undeclared work' (the latter in collaboration with Eurostat). In July 2004, the Commission issued a new report on Undeclared work in an enlarged Union (EU0407204F). It looks at the incidence in each Member State, including the 10 new Member States that joined in May 2004, and examines the reasons behind the growth in undeclared work.

Since 2001, the issue of undeclared work has been included in the EU employment guidelines. The current version includes a specific guideline entitled 'transform undeclared work into regular employment'. This provides that Member States should develop and implement broad actions and measures to eliminate undeclared work, which combine simplification of the business environment, removing disincentives and providing appropriate incentives in the tax and benefits system, improved law enforcement and the application of sanctions. They should undertake the necessary efforts at national and EU level to measure the extent of the problem and progress achieved at national level.

Finally, in October 2003, the Council of the European Union adopted a Resolution on undeclared work (EU0311206F), calling on Member States to address this issue and to work together to improve the situation. Suggested actions include preventative measures and sanctions aimed at eliminating undeclared work. The Resolution also invites the social partners at European level to address this issue within the context of their current multiannual work programme (EU0212206F) - indeed, the partners plan a seminar on the issue in 2005, with the aim of reaching a joint opinion - and to deal with it in the context of the sectoral social dialogue committees. The Council calls on the social partners at national level to promote the declaration of economic activity, to engage in awareness-raising and to promote the simplification of the business environment, particularly in relation to small and medium-sized enterprises.

Given this high level of interest in the subject, in June 2004 the EIRO national centres in 23 European countries were asked, in response to a questionnaire, to give a brief overview of the industrial relations aspects of undeclared work, looking at: the nature and extent of undeclared work; the regulatory framework; the role, activities and views of the social partners; and partnerships between social partners and public authorities to tackle undeclared work. The Italian responses are set out below (along with the questions asked).

Nature and extent

Please describe briefly the nature and extent of undeclared work (ie 'any paid activities that are lawful as regards their nature but not declared to the public authorities') in your country. The aim here is not to provide very detailed statistical information or go into concrete calculation methods, but only to give what overall figures are available, plus broad estimates and indications where such figures are lacking. This should cover matters such as: the overall amount of undeclared work; gender aspects (ie are women more or less affected, and why?); the relationship between undeclared work and migration (please distinguish between legal and illegal migration); and sectoral aspects (ie which sectors are most involved).

The Italian economic system is characterised by the major importance of activity that eludes observation by either the tax authorities or the social security bodies. This distinctive feature can in part be explained by the country’s extremely large number of small and medium-sized enterprises (SMEs), the majority of which are so small that they can employ workers on conditions that flout the regulations.

The following four types of 'irregular work' can be identified:

• continuous work activities not in compliance with the relevant regulations. This is irregular work in the strict sense, in that it involves workers employed in accordance with minimum regular standards but a large part of whose earnings are not declared to the tax or social security authorities (a proportion of actual pay, overtime, bonuses etc), entirely irregular employees (undeclared and paid totally 'off the books'), and irregular self-employed workers and professionals;
• occasional work activities carried out by people who declare themselves non-active in that they are students, housewives or pensioners;
• work by non-resident and non-regular immigrants; and
• sundry work activities not declared to the tax authorities (this concerns second, irregular jobs undertaken in addition to the main regular ones).

Various surveys published in 2003 estimated trends in Italy’s hidden economy. A Central Statistics Office (Istituto Centrale di Statistica, Istat) report analysed the period from 1992 to 2000 (L’occupazione non regolare nelle nuove stime di contabilità nazionale, Anni 1992-2002); a study by the Association for Development in the South of Italy (Associazione per lo sviluppo dell’industria nel Mezzogiorno, Svimez) considered the years from 1995 to 2001; and a study by the Social Investments Studies Centre (Centro Studi Investimenti Sociali, Censis) covered the period 1998-2002 (Tendenze generali e recenti dinamiche dell’economia sommersa in Italia, 1998-2002). All these studies highlight a slow but steady increase in irregular work in Italy over the past few years. Surveys report a decrease in so-called 'grey' or semi-illegal jobs (undeclared double-job holding, undeclared overtime, 'off the books' pay etc) and an increase in entirely illegal work.

According to the most recent Istat data, in 2003 out of a total of 23,452,000 full-time equivalent jobs, some 3.5 million, or 15%, were irregular, with the level rising to 5.5 million if actual jobs are considered (18.6% of all employed people). According to Istat figures for 2002, around a third of these irregular jobs were found in dependent employment and around two-thirds in self-employment. Corresponding to the growth in irregular work (with Italian levels among the highest in the EU) has been the mounting weight of the 'hidden' economy. Istat estimated the worth of the hidden economy as oscillating between 15.2% and 16.9% of GDP in 2000, this being equivalent to between EUR 177 billion and EUR 197 billion. However, the weight of the hidden economy is not evenly distributed either geographically or sectorally.

The sectors most affected by irregular work, both in absolute and percentage terms, are those in which it is possible for inefficient production units to survive, or in which work activities are of low complexity, such as domestic or personal care services, building, agriculture, catering, tourism, and retailing - see table 1 below.

Source: Censis, 2002.

With regard to the geographical distribution of irregular employment, the figures show that the phenomenon is especially widespread in southern Italy, where one in every five workers is irregular, and which accounts for the entire national increase in the hidden economy with a year-on-year rise of 0.5%. In the South, the hidden economy provides work for more than 1.5 million people, representing 23% of the working population, while in the Centre-North, where irregular workers number around 2 million, the percentage falls by half to 11.9%. The most evident differences are to be found in industry, where 19.5% of southern workers are employed 'off the books', compared with only 5.3% in the northern regions of the country.

Undeclared employment strongly involves non-EU nationals who have immigrated into Italy either illegally or legally and who work in low-skilled sectors. Some 21.9% of legal immigrants are employed irregularly - see figure 2 below. According to Istat, there are 516,000 irregular immigrant workers in the agricultural and construction sectors alone. In total, more than 700,000 foreign workers - of whom 360,000 are in subordinate employment and 340,000 in domestic work - applied for stay permits following recent new legal provisions on regularising illegal work (see below under 'Law').

Source: Censis, 2003.

Finally, the employment of minors is another feature of the clandestine economy. A recent survey by Istat has estimated the number of economically active children - ie those who perform some sort of undeclared work - at 144,000 (IT0206107F). However, according to another recent survey by the Institute of Economic and Social Research (Istituto di Ricerche Economiche e Sociali, Ires), 10% of irregular workers, or around 400,000 people, are minors, including the children of immigrants and unaccompanied minors who have entered the country illegally.

Law

What is the legislative framework in your country concerning undeclared work? Please include here: definition; incentives for transformation of undeclared work into regular work; sanctions and penalties; connection with the tax system and benefits; any attempts at administrative or fiscal simplifications; and any recent legislative changes.

'Alignment agreements' (contratti di riallineamento) were the main policy strategy for combating the hidden economy in Italy between the end of the 1980s and the early 2000s (see below under 'Social dialogue'). These agreements enabled businesses which formerly operated in the irregular, clandestine economy to adjust gradually to the wage rates set out by sectoral collective agreements and to the social security contributions stipulated by the law.

However, the period since 2001 has seen the devising of new strategies centred on fiscal measures, intended to induce firms to regularise their position by offering temporary relief from labour costs, enacted by law 383 of 2001 (IT0205105F). This law, with subsequent amendments, has been the template for new rules on regularisation. It aims to encourage the regularisation of undeclared work - ie of employment relationships that breach the tax laws and social security regulations - by offering employers and workers an opportunity to legalise their situations. Those employers and workers that join the regularisation programme and thus legalise their positions benefit from relief on taxes and social security contributions over the period 2002-4 and retrospective regularisation of their position in previous years (2001 and before). Regularisation must lead to the hiring of the irregular worker on a contract of employment or, if the regularisation concerns sums paid off the books (ie 'grey' work) it may concern only dependent employees (excluding 'employer-coordinated freelance work', a common form of 'semi-subordinate' work - IT0308304F). In order to be covered by the law's provisions, employers had to submit a 'declaration of regularisation' by 15 May 2003.

Judging from the number of declarations submitted in the two years or so after its adoption, the law seems to have had limited impact. As of May 2003 only 1,029 regularisation plans had been submitted by firms, covering a total of 3,854 workers (according to Ministry of Labour figures).

Much more significant has been the impact of measures to regularise the position of immigrant workers (law 189/2002 covering domestic work and law 222/2002 covering subordinate work), which offer non-EU nationals in Italy without stay permits, and engaged in subordinate or domestic work, an opportunity to regularise their positions (IT0209103F).

Employers found by the public authorities to have used irregular labour are subject to fines. Moreover, the competent public authorities initiate proceedings to recover the taxes and contributions evaded and interest thereon.

An important recent development is legislative decree no. 124 of 23 April 2004 which, in implementation of Article 8 of law 30/2003 (the 'Biagi law' on labour market reform - IT0307204F), reforms the labour inspection services. The decree has created a specific section at the Ministry of Labour responsible for the coordination of inspectors (including those working for the social security institutes and social insurance agencies). The decree also allows labour inspectors to provide preventive consultancy on labour law through contracts with businesses and associations, paid for by the latter. Also envisaged is a conciliation phase prior to inspections of companies to ascertain possible irregularities.

Social dialogue

Please provide an overview of any collective agreements dealing with the issue of undeclared work (at any level - eg intersectoral, sectoral, company, regional). If there are any such agreements, please outline their content and, if possible, their impact, giving examples. Where possible, please provide details on collective agreements in sectors particularly affected by undeclared work, such as hotels/restaurants/catering, agriculture, domestic/personal services, retail or construction.

Please give details of any joint or unilateral initiatives on undeclared work taken by trade unions and employers’ organisations (such as information campaigns, providing training for their members responsible for negotiations, or adopting codes of conduct/ethics).

Are there cases in your country where workforce representatives have mobilised employees on the issue of undeclared work? If so, what form did this take (demonstrations, strikes etc)? Are there cases where social partners have made appeals on this issue to the public authorities (the government, elected representatives etc)? What were the results?

Collective bargaining began to deal with undeclared work in 1989, when the first law was enacted to introduce 'alignment agreements' (see above under 'Law') (IT9706207F and IT9903244F). These were provincial-level agreements between the social partners that provided for companies which had not previously complied - wholly or in part - with the provisions of relevant sectoral collective agreements to move to the pay rates set in these agreements. The resulting pay increases were introduced in stages over three years (though the non-pay provisions of the sectoral agreement applied immediately). This gradual alignment was encouraged by the simultaneous granting of relief on taxes and social security contributions.

However, this regularisation procedure, whereby the legislator (acting as guarantor) deferred to the autonomy of the negotiating parties, did not obtain the results hoped for: by December 2000, 12 years after the first alignment agreements were signed, the total number of workers who had been involved was little more than 210,000, of whom 199,000 were in the agricultural sector.

Since the end of the alignment agreement campaign and in light of the substantial failure of law 383/2001 on regularising irregular work (see above under 'Law'), the social partners have adopted a strategy to combat irregular work based on 'joint undertakings' (avvisi comuni). These are agreements between employers’ associations and trade unions, signed in the presence of government representatives, that seek to promote the regularisation of undeclared work by means of 'good practice' and proposals for operational measures, that the government subsequently implements through legislation. So far, such joint undertakings to fight undeclared work have been signed for the construction industry in 2003 (IT0405101N) and for the agricultural sector in 2004. Both deals cover monitoring the phenomenon, stabilising employment, complying with rules on workplace safety and calling for relief on taxes and social security contributions in order to encourage the regularisation of certain categories of workers (such as non-EU immigrants). Since this is a very recent initiative, and the legislation to implement the social partners' joint undertakings is not yet in place, it is too early to make an assessment.

With regard to commitments to combating undeclared work set out in national sectoral collective agreements, to date only declarations of principle and generic pledges have been included in these agreements.

Following the publication in 2003 of research highlighting the extent of undeclared work (see above under 'Nature and extent'), the trade unions launched an information campaign against illegal employment, However, this initiative did not seem to have a particular impact on the government, The campaign conducted by the General Confederation of Italian Workers (Confederazione Generale Italiana del Lavoro, Cgil) gave rise, in autumn 2003, to a 15-point proposal addressed to the public institutions and the other social partners, aimed at combating the phenomenon by means of specific legislative measures. The main points include: the creation of a national fund to support local 'emergence' plans - providing bonuses for workers who regularise their positions and pay off the contributions evaded - and financed out of the resources yielded by amnesties (according to the principle that the revenues from regularised illegalities should be used to prevent illegalities in the future); the expansion of inspection services; more stringent rules for contract procurement, subcontracting and the agricultural sector; and an inclusive strategy for immigration.

Partnerships

Please outline any initiatives taken jointly by public authorities and social partners in order to address undeclared work, and their results. What types of partnerships exist in your country (eg involving local authorities or NGOs) and what tools or measures have been used to address the problem? Please refer to good and bad practices, indicating which policies have proved to be successful in the national context and why (such as a good mix of actors, cultural traditions or flexible tools).

To date, joint initiatives by the public institutions and the social partners (with the exception of the 'joint undertakings' discussed above under 'Social dialogue') have been sporadic and largely ineffective. Such initiatives include 'committees for the regularisation of undeclared work' (Comitati per l’Emersione del Lavoro Sommerso, Cles), local bodies provided for by law 383/2001 (see above under 'Law') to assist in its application, which are also open to employer and trade union representatives for the purposes of negotiation.

More effective, though not everywhere, have been experimental policies introduced by regional administrations, but without the involvement - except in rare cases - of the social partners. The measures most widely adopted at local level by the regional administrations include the creation of: centres providing information (and the relevant tax concessions) to firms and workers wishing to regularise their positions; tutoring services for unemployed people, women and young people in search of their first job; policies to support self-employment; and actions to consolidate crafts firms and increase the size of companies.

Has a comprehensive partnership on undeclared work developed in the context of your country’s National Action Plans (NAPs) on employment (in response to the EU employment guidelines)? Have there been significant tripartite arrangements on undeclared work as a result or in the context of the NAPs? How have the social partners at various levels implemented the aspects of EU employment guidelines on the issue of undeclared work that are under their responsibility?

Employers’ associations and especially the trade unions criticised the government’s decision to draw up the 2003 NAP for employment without their extensive involvement (IT0310210T). This decision means that joint strategies against undeclared work have not been defined. The philosophy behind the NAP is an employment policy that views the reduction of firms’ labour costs through relief on taxes and social security contributions, and the increased bargaining flexibility introduced by the 2003 'Biagi' law reforming the labour market (IT0307204F), as the main means for encouraging the regularisation of undeclared work. Critics argue that this philosophy is not consistent with the EU employment guidelines, which stress extension of the employment base and simultaneously the good quality of the jobs created. For this reason, the social partners have complained about the failure to include in the NAP the proposals set out in a 'pact for development' signed in June 2003 (IT0307105F) by Confindustria, Italy’s largest employers’ organisation, and the three main union confederations - Cgil, the Italian Confederation of Workers’ Unions (Confederazione Italiana Sindacati Lavoratori, Cisl) and the Union of Italian Workers (Unione Italiana del Lavoro, Uil) - and intended to strengthen the economic system through investments in innovation and research.

Views

Please summarise the views of trade unions and employers’ organisations on the issue of undeclared work. Please include their positions on the role of the administrative, tax system and social welfare regime, and their view/assessment of government initiatives.

A concern shared by all social partners is the sheer scale of undeclared work (and therefore the hidden economy). In Italy, this phenomenon is more extensive than in most other EU Member States, with a tendency to increase slightly in recent years. The Confindustria employers' confederation has declared itself in favour of the regularisation of undeclared work, to ensure that all firms comply with the law and collective agreements. The main concern of employers is to eliminate the 'social dumping' caused by the clandestine economy, whereby illegal firms compete unfairly against legal ones.

As regards the policies adopted by the government to combat undeclared work, these have caused a split among the three main trade union confederations, In 2002 Cisl and Uil signed together with Confindustria (and various other social partner organisations) a joint undertaking that endorsed law 383/2001 (see above under 'Law') (IT0208103N). Cgil, however, criticised the legislation, arguing that it worked entirely in favour of regularising firms while 'blackmailing' workers with the threat of curtailing their previous entitlements. Cgil has been equally critical of the achievements of the law, which it termed a 'complete failure', and of the 2003 reform of labour inspection services. The latter was described as 'a debasement of services operating on the ground and a drastic reduction in all repressive and investigative action'.

Commentary

Please give your own comments on the issue of industrial relations and undeclared work.

Italy’s hidden economy increased substantially in the first half of the 1990s and has generally remained steady since, but not in all sectors: it has continued to grow in agriculture and in many branches of services - commerce and tourism in particular. Irregular employment varies markedly across the country, increasing as one moves southwards. Moreover, one-sixth of the workers concerned are non-EU immigrants, and the proportion is growing.

Reducing the weight of the hidden economy and undeclared work should be a priority goal of economic policy, with a view to supporting regular firms by eliminating forms of unfair competition and encouraging partly irregular ones to regularise their positions.

The introduction by legislation over the past 10 years of various forms of work flexibility does not seem to have halted the spread of undeclared work, an outcome that contradicts those who argued that a more flexible labour market would be the best way to combat the hidden economy.

Regularisation measures consisting solely of relief on tax and social security contribution do nothing to stem the phenomenon. On the contrary, they encourage undeclared work and the underground economy because employers can count on the probability of legislation providing further relief in the future.

It is not by relying on one-off measures that effective and enduring results will be obtained. Instead, structural actions are requited to tackle a phenomenon rooted in Italy’s deepest-lying dynamics of development. New strategies against undeclared work are possible, a positive example being the recent joint undertakings by the social partners. (Livio Muratore, Ires Lombardia)