Undeclared labour doesn’t work - Business brief
Rather than clinging desperately to “old” values such as jobs for life and rigid pension schemes, labour market policy needs to reflect and anticipate today’s new reality.
The world is undergoing fundamental shifts, such as globalisation, political and economic volatility, an ageing population, and new technologies. Attitudes to work have also changed. As a result, the labour market is faced with a new set of challenges, including a high level of unemployment, an increasing mismatch between supply of and demand for skills, increasing global migration flows and new forms of labour relations.
Take the undeclared economy, where businesses and workers operate outside the catchment of tax, social insurance, health and safety norms, or other formal legislative frameworks. It is widely recognised that the undeclared economy is prevalent in many regions of the world. In fact, out of a global working population of some 3 billion, almost two-thirds work in the undeclared economy. It is also generally acknowledged that the undeclared economy lowers the quality of work and working conditions, undermines the business environment through unfair competition, and puts the financial sustainability of social protection systems at risk. Clearly, undeclared activities should not merely be discouraged, but should be transformed into regular work.
There are two root causes of undeclared work. On the one hand, the open-market school argues that the undeclared economy is a direct result of high taxes, state corruption and burdensome regulations. On the other hand, there is the “structuralist” school, which argues that undeclared work is the by-product of inefficient regulation, combined with a lack of labour market intervention and social protection.
A recent study commissioned by Randstad, showed that in advanced economies the size of the undeclared economy varies widely–from less than 10% in countries such as Japan, the Netherlands, the UK and the US to more than 25% in parts of southern and eastern Europe. The study also revealed that countries with a smaller undeclared economy are those in which it is easier for companies to resort to temporary employment opportunities to meet labour demands and in which, at the same time, there is greater social protection (in the form of labour market policies that protect and support vulnerable groups of workers). In short, undeclared work does not mean more flexibility. On the contrary, successful economies reduce the supply and demand of undeclared work by providing workers and employers with flexible alternatives.
Certainly, if policy makes it easier for businesses to obtain temporary employment to meet their labour demands, undeclared work will diminish. Workers will also benefit from more flexible job opportunities, giving them a chance to develop and grow, and to achieve the work/life balance that best suits their circumstances.
In order for businesses, and indeed economies, to remain innovative and competitive in today’s environment, flexibility – and, therefore, flexible labour – will be imperative. The debate about whether or not to allow flexible labour and temporary work is misplaced. Rather, the discussion should centre on how best to regulate work to create a win-win situation for both businesses and labour.
A well-regulated flexible labour market is one that is inclusive. It allows and encourages all people of working age to participate and provides a framework for their development. Currently, groups such as women, youth, older workers and low-skilled workers are under-employed and tend to disappear into the undeclared economy. In a labour market where flexibility and security are combined, it is much easier to create more and better jobs for these groups, while safeguarding well-being and jobs too. This leads to greater worker commitment, which in turn enhances productivity and economic growth.
There is clearly a need for labour market policy to be approached much more actively, with unjustified restrictions on temporary work being lifted and relevant interventions stepped up. Governments should be encouraged to create a social protection system that not only supports workers who are ill or temporarily out of work, but also encourages an accessible, well-regulated market for temporary employment and temporary employment agencies.
Jacques van den Broek,