Informal Employment

Informal employment — that is, work that in itself is legal but not declared to the authorities for tax, social security and/or labour law purposes — plays an important role in virtually all economies, including the SEE economies. Enforcing the law in cases of undeclared work remains highly problematic in practice. Due to fiscal losses resulting from undeclared economic activities and negative economic and social effects of informality, but also the rights of workers, many economies are trying to enhance formal employment.

The Economic Reform Programmes 2017-2019, prepared by the Western Balkan economies, recognize that informal economy is large and a comprehensive reform is required. More specifically, informal and undeclared work constitute serious concerns in the region and have been strongly highlighted in the EC assessment of the 2017-2019 ERPs of the Western Balkan economies:

  • Albania needs to step up current efforts to achieve a comprehensive approach to reducing undeclared work. Currently, there is widespread engagement in informal work, which remains a challenge and there is no strategic approach to increasing formal employment. Low labour market participation is linked with widespread informal work, particularly in construction and agriculture, the latter being the main employer in the economy.
  • In BiH, there are high inactivity levels and widespread informal work. The tax wedge is high, labour market regulations rigid and disincentives to take up formal work are exacerbated by weak employment support and non-targeted social assistance.
  • Kosovo* has a very large informal economy (estimated at 39% of GDP) and has committed to fully implement the strategy for the fight against informal economy.
  • In Serbia, stronger inspection have contributed in addressing the issues of informal work, however structural problems in the labour market need to be addressed through other systemic reforms, in areas such as reform are the high tax wedge on labour at the lower end of the earning scale and the level of the minimum social security contribution applicable to all formal jobs, irrespective of whether they are full or part time.
  • In Montenegro, informal economy is high and undeclared work contributes to high inactivity. Financial and non-financial support to SMEs is envisaged to address informality. The new labour law will also introduce more stringent sanctions for unregistered work, while stronger active labour market measures will also contribute to the reduction of undeclared work.
  • In the Former Yugoslav Republic of Macedonia, informal employment, although on a declining trend, accounts for 20% of total employment. Annual action plans are implemented with activities aimed at strengthening inspections and preventive measures (education, legislative amendments etc.), and strengthening the cooperation between institutions on the labour market.

RCC has recently produced 6 diagnostic reports for the Western Balkan economies that look at drivers of undeclared work, the institutional framework and current policy approaches. The diagnostic reports reveal that informal economy is being tackled to some extent by fighting tax evasion and promoting tax compliance, but both informal economy and informal employment are not being addressed in a holistic manner. Hence, fundamental efforts should be paid to building a holistic strategic approach to tackling informality. In this regard, the diagnostic reports are complemented by a list of key recommendations on tackling undeclared work prepared by the RCC experts.

In order to consult with the main national stakeholders on the results of the analysis, ESAP will organize 6 national workshops on informal employment in the Western Balkan capitals.

* This designation is without prejudice to positions on status, and is in line with UNSCR 1244 and ICJ Advisory opinion on the Kosovo Declaration of independence