Informal work in Europe -New Member States and Candidate Countries - International Conference October 2005 Sofia, Bulgaria Dr. Piet Renooy Regioplan Policy Research Amsterdam

2 Outline  The research – backgrounds  Questions  Methods  Results  Size, chracteristics, shaping factors,  Policy

3 Our study for the EU  Undeclared work in an enlarged Union  Study for European Commission  Inregia (SE)/Regioplan (NL)  27 countries  May 2004  Productive activities that are lawful as regards to their nature, but are not declared to the public authorities

4 Research questions  Size  Characteristics  Shaping factors  Policy options

5 Methods in NMS and CC’s  Network of specialists  Questionnaire  Country studies  Consolidating study

6 Size in NMS and CC 1 First group  Relatively low level and decreasing  8 – 13% GDP  Czech Republic  Estonia  Slovak Republic

7 Size in NMS and CC 2 Second group  Medium level and decreasing  14 – 23% GDP  Poland  Slovenia  Hungary  Lithuania  Latvia

8 Size in NMS and CC 3 Third group  High level and not decreasing  23+ % GDP  Romania  Bulgaria

9 Characteristics IE Bulgaria  INFORMAL ECONOMY: Household production and the like. Also small scale agriculture. Legal but not registred.  GREY ECONOMY: non household production of lawful goods in illegal ways. (contraband-trade)  BLACK (CRIMINAL) ECONOMY: Unlawfull, illegal

10 Characteristics IE Bulgaria  Deeply rooted; 30% of the workforce engaged (CSD)  Sectors: –Construction –Agriculture –Trade (related to contraband)  Participants:  - 40% of the households  - 30% of all companies completely grey  Corruption - Contraband

11 Shaping factors NMS and CC  Socio economic/ market factors  Institutional factors  Societal factors

12 Socio-economic factors NMS and CC  Rapid structural change - deformations of markets  Unemployment  Privatisation public enterprises  Socio demographic characteristics  Poverty  Presence of foreign capital

13 FDI stock per capita NMS and CC 2003 Source: The Vienna Institute for Comparative Economic Studies, July 2003

14 Institutional factors NMS and CC  Underdeveloped institutional infrastructure  Overregulation and bureaucracy  Instability of state and public administration  Tax burden  Tolerance towards undeclared labour

15 Societal factors NMS and CC Legacy of socialism:  Negative perception role of state  Opposition to established norms  No trust in public institutions  Primitive understanding of capitalism

16 Bulgaria in particular  Weak pre communist democratic and civic traditions  Tolerated grey sector during communist times  No knowledge how to operate in a “free market”  Bureacracy  Lack of coherence and predictability in policy  No trust in government  Culture

17 Policy  Strenghtening trust in government (institutions)  Personal examples at all level of government  Incentives to transform informal work (links with insurance and pensions, simple schemes for entry)  Make visible the benefits of taxation  General econ.development – foreign investments  Combat crime and criminal economic behavior