Tackling Undeclared Work in Southeast Europe

What is it about?

Participation in undeclared work (UDW) is a widespread and accepted practice in the economic and social life of Southeast Europe (SEE). The region’s prolonged transition from central planning to market economy, entangled by ethnic wars and autocratic tendencies, and further complicated by the great recession, the migration crisis and resurgent geopolitical rivalries in recent years, have all contributed to considerable asymmetries between formal and informal institutions, low trust in society and towards the authorities, and systemic corruption and state capture . This has resulted in some of the highest and most sustained levels of undeclared work in Europe, with some estimates putting more than one-third of some SEE countries’ GDP in the undeclared economy and one in four citizens engaged in some form of undeclared work . As some of the countries from SEE have joined the EU while others have embarked on a path to accession, designing policies to tackle the problems of undeclared work has become priority for most governments in the region. As they do not have the needed expertise and policy processes in place to properly understand the different characteristics and forms of these complex phenomena, most administrations have resorted to increasing sanctions and surveillance, whose effectiveness has decreased with time. The current policy brief provides an overview of the findings, lessons learnt, and recommendations for tackling undeclared work from four years of data gathering and research in three SEE countries, namely Bulgaria and Croatia (EU Members from 2007 and 2013 respectively) and FYR of Macedonia (EU Candidate).

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Why is it important?

 Undeclared work is socially accepted and widely practiced in Bulgaria, Croatia, and the FYR of Macedonia.  More than 1 in 5 adults in these countries acknowledge that they have bought goods and services on the undeclared economy in the prior year. More than 1 in 12 report that they have undertaken undeclared work, and more than 1 in 10 declared employees report that they receive from their employer in addition to their declared salary an additional undeclared ‘envelope’ wage.  But undeclared work differs across and within the three countries. For every one working undeclared due to their exclusion from the formal economy, there are three that have chosen to exit the formal economy, and this varies across countries.  Policy makers need to prioritise policy measures to improve vertical (in institutions) and horizontal (among people) trust, complementing measures to improve detection and deterrence.

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