BUSINESS

Rate of undeclared labor soaring as recession bites harder

Another negative aspect of the deep recession that the Greek economy has been stuck in since 2008 is the rapid growth in undeclared labor.

The rise of unemployment to 26 percent, according to the Hellenic Statistical Authority’s figures for September, creates favorable conditions for the expansion of undeclared labor as enterprises try to avoid the taxes and social security contributions they would normally have to pay, a study by the Foundation for Economic and Industrial Research (IOBE) indicated on Friday.

Although it is relatively difficult to quantify the actual extent of undeclared labor, the Labor Inspection Squad estimates that it accounts for 30 percent of the Greek economy, surpassing the equivalent rate in other European countries by far.

IOBE associates the phenomenon with the development of the illegal economy, which accounts for no less than 25 percent of gross domestic product. Undeclared labor contributes toward aggravating social inequalities as it destroys the equilibrium between the payment of social security contributions by employers and the provision of social benefits by the state. It also constitutes a form of illegal competition in entrepreneurship because companies that adhere to labor laws are having difficulty in expanding or even maintaining their business activities, unlike those who resort to practices linked to the black economy.

The increase of the phenomenon combined with the economic recession is putting heavy downward pressure on the course of social security contributions, which in 2011 showed a decline of 7.6 percent compared with 2010, when there had been an annual increase of 1 percent.

The study attributes the rise in undeclared labor to a series of social, political, economic and institutional factors, led by low confidence in the state and the political system, strong family ties and the generally favorable trend toward not declaring one’s employment to the authorities.

The IOBE study also links undeclared labor to the level of self-employment in an economy. Greece’s self-employment rate of one in three is more than twice the eurozone average, which is almost one in seven. Trade, construction and food catering are the sectors with the highest self-employment rate in Greece.

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