Appendix 19
ICFTU ILO-ACTRAV
CEE Informal Economy Programme:
The Informalisation of Work in Central and Eastern Europe
A Trade Union Discussion Document
by
Professor Charles Woolfson
Marie Curie Chair
University of Latvia
Raina Blvd 19
LV 1586 Riga
Latvia
Contents
Chapter 1 The ‘informalisation’ of labour
3
Chapter II The Scale of the Problem
13
Chapter 111 Latvia: A case study of informalisation
17
Chapter IV Legal Enforcement and the Informal Economy
21
Chapter V European Policy: De-regulation / ‘Better Regulation’ 28
Chapter VI Organising informalised work: Role of trade unions
34
2
Diena (Latvia) 12 August 2005.
A man's corpse dressed in a construction worker's uniform was found under
baton block at a construction site in Riga centre. Since the managers of the
new project and the building company deny that the deceased was their
employee, police were engaged to find out his identity. The tragedy at Cesu
street 31 occurred a week ago, where a complex of new offices commissioned
by company Latvijas nami is being built. According to police, the deceased
has been identified and they did not find that any criminal offence had been
committed in this case.
Employees and the managers of the construction company, insist that the man
crawled into construction site occasionally; some people say - the man asked
permission to pick up scrap metal. Diena contacted owners both of the general
contractor SIA Toms RC and the construction company UK Būve, and their
answers were unanimous. ‘He was not employed by us’, reported Aigars
Tomsons, owner of Toms RC. Uldis Kļaviņš, owner of UK Būve, explained to
Diena that ‘everybody in our company works legally and all are registered’.
By contrast, one worker at the construction site claimed the ‘deceased was
illegally employed here as an auxiliary worker’. UK Būve came to the notice
of the State Labor Inspectorate in March of 2005, when an auxiliary worker
fell down from operating platform and broke his arm.
As Jeļena Vasiļevska, head of receiving room of Hospital No.2, reported to
Diena, ’every week we receive five or six people with injuries from
construction sites. Half of them work without work contracts and therefore can
not claim state guaranteed compensation.’
3
Chapter 1 The ‘informalisation’ of labour
Flexibility and insecurity
Today, much is heard about the need for ‘labour flexibility’ and for necessary
employee ‘adaptability’ to the demands of the increasingly globalised economy.
‘Flexibility’ is often seen as a ‘good thing’ in itself, and is to be compared
unfavourably with ‘rigidity’ and the ‘inability’ of workforces to cope with changing
demands of the modern economy. To ordinary workers in many Central and Eastern
Europe countries such debates sound strange, and with good reason. They have
experienced flexibility as a deeply disruptive process of personal dislocation and
disadvantage.
What is certain is that the world of work is changing, and changing fast. Nowhere has
the change been more dramatic, even cataclysmic, than in Eastern Europe. Here a
profound transition has occurred, from state planned economies to the market
economies. And here, ‘flexibility’ is experienced coercively in ways in which workers
could not previously have considered possible; as a scramble for jobs, as a
compulsion to do the bosses’ bidding without complaint, as a lack of permanent
employment contract, as the necessity to continue working despite poor or even
hazardous health and safety, as the requirement to put in long hours often without
extra pay, as unpaid wages for work already done, as work speed-up, as the need to
tolerate personal abuse and lack of respect from workplace superiors, as the deliberate
violation of labour rights, as the stubborn denial of a participating ‘voice’ at work, as
the profound absence of decent standards of employment, as gratuitous victimisation.
Such ‘flexibility’, for many workers, means little more than an ability to accept (or
what is the same thing) to endure multiple indignities and personal humiliation on a
daily basis without any form of recourse. This is the reality of ‘flexibility’ as
experienced by many in the new market economies. It is the imposition of a new and
effective form of labour discipline – the discipline of fear.
Market forces have reconfigured the working lives of the citizens of the former
socialist world in ways that were simply unimaginable a decade and a half ago. In
some respects, workers in the new market economies are still coming to terms with
and adjusting to the sheer scale of the changes that have occurred in little more than a
generation. What is clear is that the rapid and even uncontrolled release of ‘market
forces’, in a virtually unrestricted manner has resulted in social and economic
consequences for ordinary workers which were not thought through in any systematic
way. Many of these formerly socialist societies are still struggling to regain previous
levels of economic development. For example, in 1989 Georgia collected 600
thousand tons of tea leaves, 120 thousand people were employed in the sector, and 30
thousand tons were collected and processed. In 2004, 57% the GDP level of 1989 was
achieved (similar statistics apply to the other NIS and the South East European states).
In Lithuania in 1989 there were 5 million pigs raised, in 2005 (after fifteen years of
economic growth) - 1million (Glovakas, 2005).
4
The most enduring economic consequence of transition has been the process of
privatization and restructuring of state enterprises and the break-up of formerly largescale units of production. A journey through any of the current East European former
communist states will reveal the derelict and decaying road-side factories of the
Soviet-era and the abandoned collective farms buildings littering the countryside.
There is an awful ‘sameness’ about the once naively optimistic, variously productive,
often inefficient, but now utterly ruined industrial establishments that were the sixties
and seventies-built factories and installations. Here, people worked, in their hundreds,
sometimes even in their thousands. Here, a massive and complex interconnected
economic system functioned, albeit imperfectly, and admittedly for some, much better
and more rewardingly, than for others.
Yet, while most workers may not have received high wages, and while there may not
have been the variety of material goods on which to spend what wages they did
receive, they had something which was lost, almost overnight, given away (actually
taken from them) without a second thought, and which today seems like a distant
memory, in a word, security.
A direct function of labour ‘flexibility’ is new workforce insecurity created by the
threat, or actuality, of both unemployment, and for those ‘lucky’ enough to find some
form of employment in the niches of the new market economy, systematic labour
abuse and denial of basic rights at work. The notion of insecurity is sometimes
described as ‘precarious’ employment to signal that it is not simply an internal
psychological state, but an actual erosion of a labour conditions which is objectively
determined by the demands of the new market economy seeking to dispose of human
labour power under certain very specific and detrimental conditions of employment.
A new definition of informality
The ILO has defined informal employment as employment without secure contracts,
worker benefits, or social protection. It is comprised of two basic components: selfemployment in informal enterprises and paid employment in informal jobs. The idea
is that both informal self-employed and informal paid workers do not have secure
contracts, worker benefits, or social protection and, on average, earn less than their
formal counterparts. The informal self-employed are included because they are
responsible for their own working conditions and social protection. They also are not
often organized and, therefore, have little ‘voice’ (Chen, 2002).
This focus on the nature of the employment relations is an important advance in terms
developing a more comprehensive and inclusive notion of informalisation.
The old concept of the ‘informal sector’ included the self-employed in informal enterprises
and paid employees in informal enterprises. But it did not include casual labourers with no
fixed employer, domestic workers who work for households, home-workers and other
industrial outworkers who work under sub-contracts for either formal or informal firms,
undeclared workers for either formal or informal firms. Paid employment in informal jobs,
under the new concept, includes all of these categories. Also the old concept of the ‘informal
sector’ was defined in terms of the characteristics of the enterprise (small, unregistered)
whereas the new concept of ‘informal employment’ is defined in terms of the characteristics
of employment relations (without secure contracts, worker benefits, and social protection)
(Chen, 2002).
5
Thus, previous definitions adopted by ILO and other international agencies often
tended to view work in informal conditions from the point of view of enterprises or
persons seeking to avoid tax or other authorities. For example, the UN Development
Programme spoke of the informal economy as:
Those economic activities, transactions and assets, often illegal, which are not registered or
otherwise acknowledged by respective state authorities, and which thus avoid taxation or other
direct accounting in state economic statistics, sometimes synonymous with ‘shadow’,
‘underground’, or ‘grey economy’ (UNDP, 1996).
The new concept, with its focus on employment relations, is as Chen says, ‘a major
conceptual shift in the right direction. By defining ‘informality in terms of
employment status or relations..(it) shifts the responsibility for informality from the
informal workforce to the formal structures (public and private)’.
The old thinking associated with the old concept of the informal sector assumed that the
informals were avoiding formality, namely registration and taxation. The new thinking
associated with the new concept of the informal economy assumes that the informals would
like the benefits of formality: namely, secure work, worker benefits, social protection, and
voice through organization (Chen, 2002).
Personal survival strategies
Viewed from the other side, or more precisely, from below, the consequences of
replacing a planned economy with a market economy have been almost limitless
forms of economic hardship and social degradation for a significant proportion of the
community. For example, by 2000, 53% of Georgia’s population was estimated to be
living below the official poverty line according to the World-Bank. Elsewhere in
Central and Eastern Europe, the gap between the ‘haves’ and ‘have-nots’ is increasing
(Dennis and Guio, 2003).
Mass impoverishment might be described as the ‘forcible collective victimisation’ of
the majority of the population. In this situation, what we have described as a
prevailing resort to labour abuse, which is the growing or even dominant form of
employment relation, has as its sociological corollary: faced with such poverty
conditions, workers must elaborate personal survival strategies. In the words of ILO,
‘the informal sector is not a stepping stone to improvement but a strategy for survival’
(ILO, 2001).
The alternative to a viable personal survival strategy in societies without the
protection of social welfare systems and without effective labour market regulations is
quite simply, personal oblivion. If you are old, if you are sick, if you are unemployed,
if you are young, if you are disabled, in such societies largely devoid of institutional
means for shielding its weaker members from the harshness of raw market forces,
survival chances are only as strong as personal instincts for self-preservation. This is
truly a neo-Darwinian world in which only the strongest survive.
Informalisation: A Soviet legacy?
It is true that various forms of ‘informal’ economic activity existed in the former
Soviet era. A major ILO report on the informal economy notes for example:
6
The informal economy did exist in the form of undeclared labour, for example in the
construction and maintenance of family houses or flats, the provision of household and
personal services, and production and sale of agricultural products, in addition to illegal
activities such as illegal exchange of foreign currency, sale of drugs, etc. With the transition to
a market economy, the informal economy has expanded rapidly, building at least in part on
those segments that already existed (ILO, 2002a: 19)
While an extensive informal ‘second economy’ existed in the Soviet era, this does not
explain the failure of formal economic policies of capitalist reconstruction, nor does
this acknowledge the wholesale transformation of labour conditions which has
accompanied the shift to the market economy. Again, how much of this process of
informalisation can be directly attributed to the ‘costs of transition’ and how much is
bound up with more global processes of outsourcing in extended supply chains,
flexibilisation and informalisation of labour is debateable.
Today, any possibility of effective labour rights is being undermined through the
pivotal role of the ‘informalisation of work’ in the new capitalism of Eastern Europe.
As a result, in the really existing post-communist world, significant numbers of the
labour force have fallen below any threshold of regulatory protection. These workers
are literally ‘hard to see’, or even ‘invisible’. They subsist and are submerged in the
variously described ‘shadow’ ‘grey’ or ‘black’ economy of casual, contingent, fixedterm or temporary forms of employment of a legal or semi-legal nature. This economy
of employment impermanence is as a major factor in nearly all of Central and Eastern
Europe, although by definition difficult to quantify. It accounts for perhaps up to
between a third and a half, and in some cases up to two-thirds of total GDP of these
states according to official estimates and probably significantly higher levels in
reality. The view of an ICFTU officer in the region suggests:
The informal economy has deep roots in various sectors of the economy including the State
one. There is a wide spread opinion that it is prevailing only in agriculture, in trade and in the
service sectors. But that is far from the reality. For example, the informal economy in our
region is most wide spread in the construction sector (in Lithuania 35 percent of all
undocumented workers are employed in construction), in forestry, trade, services, tourism,
transport, agriculture. Obviously, each country has its own specific features. For example, in
the Ukraine coal mining accounts for a high percentage (there are 3,000 illegal mines in the
Donets region alone), in Lithuania it is the wood processing industry, in Moldova the food
industry; in Georgia in agriculture (900 thousand are employed in agriculture and the official f
igure is 13 thousand) (Glovakas, 2005).
However, even in the so-called formal economy, employers will resort to ‘envelope
wages’ and under-the- table payments to minimise tax and social security liabilities.
In Lithuania, for example, it is estimated that one in five employees receive envelope
wages and 40% of those who are paid minimum wages receive payment in this form,
particularly in the meat, brewing and construction industries. In Bulgaria, where the
informalised sectors have grown from 20% in 1996 to 30% of GDP in 2004, and
where most workers do not have labour contracts, a law on obligatory registration of
labour contracts was passed. State Labour Inspection visited enterprises and fined
employers who rushed to register contracts knowing the fine was 1000 Levs (over 500
Euros). Prior to the new law in 2002, there were 1.7 million registered contacts but
after the law was passed this number increased to 2.5 million. However, in the words
of the chief Labour Inspector, ‘employers became cleverer’ – they started concluding
civil contracts and avoided paying social insurance taxes, by making employees
officially work for 4 hours per day when in reality the working day was 8 hours (ILO7
ICFTU, 2005). Thus, even ‘legitimate’ businesses will often keep a second set of
accounting books, or conduct ‘off-book’ or ‘direct’ payment transactions with their
employees and customers to avoid tax, thus oscillating between criminal and noncriminal behaviour on a regular basis, and increasingly blurring regulatory avoidance
with outright criminality. In the words of one Bulgarian trade union leader, ‘For some
it is big money, for others – the only way to survive’ (ILO-ICFTU, 2005).
Structures of vulnerability
It is difficult to form a picture of the informal economy in any one country, far less to
generalise about a region as a whole. Such is the dynamism and variety of forms of
‘infomalisation’ in the post-communist labour market. Workers can be in ‘both’
economies at the same time, or to varying degrees, and/or at different times. Like any
simple categorisation, the real complexity and changing nature of employment abuse
cannot be parcelled up in one or other simple and neat definitional package, or
consigned to one area of the economy alone.
Thus, for present purposes, precise conceptual distinctions between ‘informal’ and
‘formal’ economies are difficult to make and not helpful, what has been called by
ICFTU ‘a failed dichotomous concept’ (Justice, 2001:9). What really matters is that in
any discussion of informalisation the key focus should be on the ‘structures of
vulnerability’ within which workers are embedded by virtue of the societal failure to
regulate the conditions of their employment
Where the problems and vulnerabilities of workers are considered, we should begin to use
terms that get at the underlying problem and that suggest solutions. Instead of spending time
identifying workers or work considered ‘informal’, we should be considering workers and
work that are ‘unprotected’, ‘excluded’, ‘unrecognized’ or ‘unrepresented’ (Justice,
2001:9).
A study of unpaid wages in Belarus conducted for ILO again underlines the
dimensions of vulnerability:
Different groups have been termed ‘informal’ because they share one important
characteristic: they are not recognized or protected under the legal and regulatory
frameworks. This is not, however, the only defining feature of informality. Informal
workers and entrepreneurs are characterized by a high degree of vulnerability. They are
not recognized under the law and therefore receive little or no legal or social protection
and are unable to enforce contracts or have security of property rights. They are rarely
able to organize for effective representation and have little or no voice to make their work
recognized and protected. They are excluded from or have limited access to public
infrastructure and benefits. They have to rely as best they can on informal, often
exploitative institutional arrangements, whether for information, markets, credit, training
or social security (Haiduk and Parchevskaya, 2002: 3).
What is being described therefore is not simply an end point in the reconfiguration of
working conditions in the new market economies. It is a process which is undergoing
continuous renewal and accelerated development under the pressure to compete in a
European and even global arena. For many workers the centre of economic gravity
swings between different forms of more or less adequately regulated employment,
blurring the lines of division. ‘Informalisation’ is like a virus, it spreads to even
formerly ‘healthy’ regulated employment, undermining previously healthy working
8
conditions and contractual arrangements. What happens in the informalised economy,
how people are treated in the workplace there, conditions employment in the
previously formal economy and vice versa in a reinforcing downwards spiral.
The fact is that there are no ‘natural limits’ to informalisation. Findings from Georgia,
admittedly a ‘worst case example’, would seem to suggest that ‘there is almost no
formal private sector employment in Georgia’ (Bernabè, 2002: 34). The findings of
this study for ILO show that 70% of private sector employment is informal, and
consists almost exclusively of own-account and contributing family workers, while if
agricultural workers are excluded, 34% are informally employed.
Thus Georgian employment seems to be reduced to paid employees in state-owned health,
education, and public administration; own-account workers in registered small-plot
agriculture; and informal employment. These findings seriously question the success of the
transition process and of labour market models, which predicted that privatisation and
restructuring would result in the creation of a private sector labour market similar to that of
Western market economies (Bernabè, 2002: 34 emphasis added).
Bernabè suggests that the lack of formal employment opportunities and a functioning
social safety net may be’ pushing workers into informal employment’ and that, as
such, ‘informal employment could be a coping strategy in response to unemployment
or falls in income’ (Bernabè, 2002: 35).
The varieties of abuse: ‘the reserve army’
What we can say with certainty is that whether or not we characterise informalisation
as a ‘coping strategy’, significant multiple forms of employment abuse exist
throughout Central and Eastern Europe. They are documented on an ongoing basis by
among others, by ILO and the International Confederation of Free Trade Unions.
Such employment abuse undermines the possibility of secure regulated employment
and inhibits the possibility of collective forms of labour protection. What is
interesting is that where one form of employment abuse is discovered, it often subsists
with a whole bundle of other labour abuses. Labour abuse is the illegitimate exercise
of employer power and it would appear to be increasing year on year in the new
market economies of the post-communist world.
The varieties of abuse are testament to the inventiveness and capacity of human
beings to exploit each other in a vacuum of regulated standards of control and in an
environment of officially tolerated violations. In some of the countries discussed here,
such as Latvia, the imposition of ‘self-employed’ or successive short term contracts is
a rapidly growing feature of the restructuring of the labour market. Employees, afraid
of losing their jobs, will even characteristically collude to hide such contract abuses.
Yet, while there may be individual employers for whom resort to exploitative forms
of labour relations is a last resort or the least preferred route, this does not apply to the
majority of small and medium sized enterprise owners in the new market economies
who are dominated by their own struggle for profits and economic survival. Indeed,
the informalisation of labour provides a helpful ‘framing’ of the regular employment
relationship from the point of view of these employers. To paraphrase Marx’s
observation: if capitalism requires a ‘reserve army of unemployed’, then the new
capitalism of Central and Eastern Europe requires a ‘reserve army of informalised
9
labour’. It is this which provides deadweight with which to drag down organised
labour’s collective aspirations and confidence, and its ability to fight for workers’
rights.
The societal costs of informalisation
The practices of employee abuse may benefit individual employers but from the
standpoint of society’s human resources, it is not ‘costless’. For Latvia as a new
member state, the accession to the European Union has opened doors which were
once closed The recent period has seen a significant outflow of labour seeking higher
wages and working conditions in other member states. Latvian analysts estimate that
perhaps 50,000 to 100,000 people have emigrated over the last 18 months alone, as
many as 25,000 to 50,000 of them to Ireland (EUbusiness, 2006). These figures
amount to a staggering total of between 4% and 10% of the entire workforce. If
worker outflow and economic growth continue at their current rate, unemployment
will continue to fall but Latvia could be faced with a labour shortage. In the words of
one observer, Ilmars Mezs, head of the International Migration office in Riga,
‘Workforce emigration has taken from Latvia almost the same number of people as
deportations under Soviet occupation’, (quoted in EUbusiness, 2006).
The social consequences of this new exodus for Latvia are eloquently recorded in a
book, The Mushroom Covenant, by Laima Muktupavela a Latvian woman migrant
worker to Ireland, which has achieved some international profile. The following
excerpts from an article in the International Herald Tribune give some of the flavour
of this:
When Laima Muktupavela left more than three years ago, she moved into a dusty three-room
house near Dublin with 11 other Latvians and picked mushrooms from 6 a.m. to sundown.
The farm's owner forbade the Latvians to
wear gloves and the mushrooms quickly turned
her fingers black. She sautéed mushrooms for breakfast, lunch and dinner. She earned about
215 Euros, or $250, a week - more than one and a half times the monthly minimum wage back
home - and splurged on a new gray wool coat.
Back in Latvia, her four children felt abandoned. Her 16-year-old daughter, Anna, sent angry
letters in envelopes filled with her baby pictures. Her partner, who is now her husband, met
someone else.
In the Latgale farming region here in eastern Latvia, parents who emigrate to Ireland to pick
mushrooms often leave their children behind, creating a new generation of ‘mushroom
orphans.’ The children live with their grandparents or are shuffled back and forth from
Latvia to Ireland. On the mushroom farm where Muktupavela worked, several Latvians
started families with Irish spouses, leaving their Latvian families.
Muktupavela, who has been documenting the migration in a collection of short stories,
recently visited Turki, a small village in Latgale, where residents said they were counting
the days until the village disappeared from the map. Faced with a new loneliness, a group
of Latgalians meet regularly at Turki's public library - a log cabin lit by candles - to
discuss how the exodus is affecting their town.
Valiya Vecele, 62, a retired pensioner, said she was becoming nostalgic for the Russian
occupation. ‘At least then, everyone had work and we went to parties,’ she said. ‘Now we sit
around - we sit and we wait.’ She said she was lonesome for her son, who left for Dublin five
years ago to work in a frozen food factory, leaving her grandson behind.
10
Marcis Nikolajevs, managing director of an association of Latvian construction contractors,
said that companies were being forced to import workers from nearby Ukraine and
Belarus. The association also is considering flying in temporary construction workers
from Ghana. ‘We used to be a proud people,’ he said. ‘This migration is a national
tragedy.’ (Bilefsky, 2005)
But the shortages of labour are not only in construction and other trades but in
medical and allied professions too with damaging consequences for the development
of Latvia’s economy. As Laima Muktupavela’s experiences suggest however, life for
the emigrant is not necessarily free from the kind of gross exploitation that workers
suffered back home, especially for those working in informal areas of the economy
like horticulture, evidence confirmed by the Irish authorities themselves (Labour
Relations Commission, 2005).
The transnationalisation of informality
In the current post-enlargement context labour migration has less to do with an
orderly process of the ‘free movement of labour’. More often it represents the
trasnantionalisation of informality. This is an issue for trade unions at an international
level which is returned to in the final chapter of this report. Yet the adoption of an
‘exit strategy’ by tens of thousands of workers from the new member states is both
understandable and an inevitable consequence of the desire to find a better working
life. A survey of nationals now living and working in Ireland was recently carried out
by Strategic Analysis Commission of Latvia in response to concerns over the outflow
of labour to other EU states. A couple of brief quotes go to the heart of the difference
that workers have found in moving abroad: ‘I am not afraid to talk with my supervisor
which was the case in Latvia. Here (in Ireland) there is trust, and confidence in the
employee. And so the work is better done in such an atmosphere’, and one more - ‘In
Ireland we live a life which is ‘human worthy’- we can afford not always to be
thinking of prices, about unpaid wages etc.’
Traditionally, the general policy approach advocated by the ILO has been a
compromise solution that attempted ‘to preserve the income-generating potential’ of
the so-called informal sector, ‘while removing exploitation and gradually raising
employment standards’ (ILO, 2001). The logic behind this position – a strategy of
‘gradual formalisation’ – suggests that for many micro-enterprises, own-account
workers, providers of personal services, home workers etc in the developing world,
the informal economy does at least offer some way out of the abyss of poverty, with
the eventual prospect of regularising and controlling the worst forms of labour abuse
and poor working conditions.
However, the forces of globalisation, and the growth of the informal economy on an
international scale have already led to a critical reappraisal of the previous ILO policy
perspectives towards the informal economy. With the emergence of the Central and
East European new market economies, such ‘logic of optimism’ is manifestly now no
longer appropriate as a basis for future trade union strategies. There is little
indication, if any, of an identifiable process of ‘normalisation’ of labour markets.
Indeed, where the norm for employment conditions will ultimately lie, rests very
much in the balance at this time.
11
Trade unions, therefore, attempting to organise informalised work have to deal with
profound challenges at a national and international level, as well as at an economic,
political, regulatory, administrative, fiscal, social, and ultimately personal level. These
present a formidable task. The purpose of this report is to try to assess these issues by
looking at the available empirical evidence and to offer some pointers towards
possible ways forward.
12
Chapter II The Scale of the Problem
Mapping the scale of the problem of informalisation in quantitative terms is extremely
difficult by virtue of the phenomenon itself and by the oversimplifications created by
the need to measure the phenomenon. Many studies exclude work in the ‘grey’ or
‘black’ economies on the grounds of illegality, others seek to exclude the agricultural
sector. There is no internationally agreed definition for the statistical measurement of
informal employment and there are doubts about the adequacy of much national level
data (Renooy et al. 2004). One of the most comprehensive conventional studies is that
of Schneider (2002). Schneider provides evidence of the informal economy in a
survey of ‘23 European Transformation Countries’ which can be compared to 16
OECD West European countries. Informalisation of labour is not a problem which is
unique to Central and Eastern Europe of course. It has been an issue of long-standing
concern in the Western European countries of the EU for many years. Belgium, Italy,
Portugal, Spain and Greece all have high levels of economic activity that are informal,
accounting for more than 20% of GDP as can be seen from Table 1 and Figure 1
below.
Table1 Europe - OECD-West European Countries: Shadow Economy in % of GNP
1999/2000
F. Schneider Size and Measurement of the Informal Economy in 110 Countries around the World,
World Bank, July 2002 p.16
13
Figure 1, Europe - OECD-West European Countries: Shadow Economy in % of GNP
1999/2000
F. Schneider Size and Measurement of the Informal Economy in 110 Countries around the World,
World Bank, July 2002 p.17.
While informalisation is significant in Western Europe, it is of a much lesser scale
than in Central and Eastern Europe. From Table 2 and Figure 2 below we can see that
roughly three groups of countries can be identified in the so-called ‘Transformation
Countries’:
1. Countries in which the majority of economic activity is ‘informalised’ (>50%) ie,
Azerbaijan, Georgia, Ukraine. In Georgia for example and ILO study found that there
was almost no ‘formal’ private sector employment (Bernabè, 2002).
2. Countries in which one third to one half of economic activity is ‘informalised’
(33%-50%) ie, Albania, Armenia, Belarus, Bosnia-Herzegovina, Bulgaria, Croatia,
Kazakhstan, Kyrgyz Republic, Latvia, Moldova, Romania, Russian Federation,
Uzbekistan.
3. Countries in which less than one third of economic activity is ‘informalised’
(<33%) Czech Republic, Hungary, Lithuania, Poland, Slovak Republic, Slovenia,
(Yugolsavia).
14
Table 2. The size of the informal (and official) economy of 23 European Transformation
Countries
F. Schneider Size and Measurement of the Informal Economy in 110 Countries around the World,
World Bank, July 2002, p.13.
Figure 2. Europe - Transformation Countries: Shadow Economy in % of GNP 1999/2000
F. Schneider Size and Measurement of the Informal Economy in 110 Countries around the World,
World Bank, July 2002 p.14
It can be seen that in 13 out of 23 countries one third to one half of economic activity
is informalised, while in six (or seven depending on how one interprets Yugoslavia),
less than one third of economic activity is informalised, and at the other extreme,
there are three countries where more than two thirds of economic activity is
informalised. The average size of the shadow economy for 23 transitional economies
listed above, in percentage GDP terms, is more than twice the average of the 16
15
OECD West European countries (38% as against 18% of GDP). As can be seen in
Table 2 and Figure 2 the ‘worst’ Western European performer which is Greece (28.6
of GDP), outranks only four of the total of 23 transitional economies (Slovenia,
Hungary Czech Republic and Slovakia, and the first two of these, by less than 2%
GDP). The ‘best’ transitional economy performer, Slovakia (18.9% of GDP) is
equivalent to the overall average of the West European countries.
Slovakia can be compared to the ‘best’ West European country, Switzerland (8.8%
GDP). Again, the estimated informal economy here is more than double the
percentage of GDP in the west. It must be emphasised that such data provide only
rough estimates and need to be treated with caution. For example, from Table 3 below
based on OECD data, it can be seen that Slovakia, for example, previously identified
as a ‘best’ performer in CEE, has one of the highest percentages (23.0%) of total
employment in informal work of selected CEE countries. In Slovakia, a new law
recently came into force introducing changes in detecting undeclared work coupled
with a massive inspection campaign, during which a high number of new jobs were
registered, revealing a much greater share of undeclared work in Slovakia than
previously believed (European Employment Observatory Newsletter Issue 24 (June
2005) http://www.eu-employment-observatory.net/en/news/2005archive.asp).
Table 3. Persons employed in the informal sector (selected CEE countries)
From International Labour Conference, 90th Session 2002, Report VI, Decent work and the informal
economy, p.14.
Problems of exact measurement aside, in terms of assessing the relative scale of the
problem, the factor of two in the overall difference of GDP proportions between CEE
and Western countries from Schneider’s data, would suggest that there is a
qualitatively different dynamic underlying informalisation in the new market
economies compared to Western European countries. What is more, anecdotal
evidence and qualitative testimony would seem to point to an increasing divergence
between the new market economies and the OECD Western European countries in the
scale of this informalisation. It is the task of the next chapter to identify what evidence
exists to map these realities.
16
Chapter 111 Latvia: A case study of informalisation
In this chapter we present a case study of labour informalisation from Latvia, a former
Soviet republic in the Baltic region of just 2.3 million people. Latvia has a ‘registered’
employed population of 1 million. In terms of the previous data on informal economic
activity, at 39.9% of GDP created by the informal economy Latvia comes close to the
overall average of 38% for the 23 CEE economies ranked above. Like all case studies,
however, care must be taken not to over-generalize on the basis of a single example.
Nevertheless, it is felt that by ‘going deeper’ into one national case study we can in
some way begin to ‘get the feel’ of the specific dynamics of informalisation which lie
behind the aggregate statistics presented in the previous chapter.
The living dimensions of inequality are examined in the Latvia Human Development
Report – Human Security (UNDP, 2003). One of the most striking findings of this
report is that in relation to ‘human security concerns’ some 83% of the respondents,
both men and women, indicated that their greatest fear was health-related concerns ie
being unable to pay for medical care, not receiving adequate care and falling seriously
ill (UNDP, 2003:29). These ranked respectively as the first three concerns. Ranking
at fourth equal on a twenty-eight point scale were ‘being unable to support oneself’
and ‘being involved in an accident’ UNDP, 2003: 30). What lies behind this ordering
is perhaps the recognition that loss of health means a loss of any earning capacity, and
the ability to meet high out of pocket expenses for medical care (39% of the costs) as
well as necessary hidden payments to medical staff. In other words loss of health is
understood as the short road to real poverty and hardship. It also suggests that
workplace safety and health hazards, for example, posed by poor working conditions,
can touch people’s personal well-being concerns directly. For trade unions seeking to
organise workers, the issue of working environment therefore offers significant
opportunities for intervention. Central and Eastern Europe has considerably higher
rates of workplace accidents than the older EU member states (ILO, 2002b). In the
next chapter we will see that there are indeed objective grounds for concern regarding
the level of safety and health in workplaces, particularly in Latvia.
In many CEE states the main strategy for building the market economy has been to try
to encourage massive foreign direct investment, for example, though low levels of
corporate taxation and favourable regulatory regimes. As a result, GDP growth rates
of 8% or more for example in Latvia, have been among the highest in the EU.
However, economic benefits of this growth have been largely concentrated in the
region around the capital city, Riga, and other large towns. A growing division
between the countryside and the urban areas has emerged, reflected along most of the
dimensions of social inequality. The National Action Plan for Employment 2004
(NAPE) for Latvia admits that ‘polarisation in material welfare is on the rise’
(Latvia, 2004: 8 emphasis added). The Gini index (a measure of income inequality
between the top and bottom of society) has gone up from 0.30 in 1996 to 0.34 in
2003. The number of poor residents is relatively high in the country and wage rates
are the lowest in the EU 25 even after a recent and long-awaited rise in the minimum
wage from January 2006 to 130 Euros (90 Lats). The very low level of the minimum
wage (barely enough upon which to survive) has been one of the main factors in
encouraging the growth of ‘undeclared wages’ allowing employers to take advantage
of opportunities to evade social insurance contributions.
17
The National Action Plan for Employment (NAPE) notes illegal and ‘undeclared
work as a matter of concern:
There still is a serious problem related to illegal and undeclared employment in Latvia.
Employing people without an employment contract and paying wage in ‘envelopes’ is still
common practice. In many cases the trend appears as partly declared employment, when
employees are contracted and paid contractually fixed salaries while still receiving
supplementary ‘black’ payments that are not subject to taxation (Latvia, 2004: 10).
The focus on ‘undeclared work’ is a rather narrow and incomplete way of gauging the
full extent and social costs of labour informalisation in Latvia. However, this
approach serves as one way of assessing the scale of the problem. Sectoral analysis
performed by the Central Bureau of Statistics (CBS) of Latvia suggests that the share
of the ‘shadow’ economy in Latvia is evaluated to approximately 16-18% of the GDP,
which is one of the highest indicators both in the EU-15 and new member states.
Indirect evidence of the prevalence of undeclared work is provided by the significant
difference between wages in the public and private sectors. One indication of the scale
of this phenomenon is the relatively low level of declared pay in the private sector in
Latvia compared with the public sector - private sector pay is 21.4% lower on
average, while in sectors where undeclared work is traditionally found, such as the
construction industry the disparity is even greater (32.5%). (EIROnline, 2004).
Undeclared work in public sector healthcare institutions is connected with the
inability of the state to provide funding for healthcare. Undeclared work is more
common in small companies, and this helps to determine the prevalence of undeclared
work in the various sectors. The highest rates of undeclared work in Latvia are
identified in such sectors as construction, agriculture, wholesale and retail, excise
goods manufacturing, forestry and wood-processing, commercial services (real-estate
agents etc.), personal services (hair-dressers, beauty services, cleaning services) and
transport. In a number of the above employment fields the proportion of undeclared
work is even as high as 25-30%.
The CSB estimates that about 23% of the employed workforce is in unregistered
employment. By far the biggest share of undeclared income/work arises from
enterprises that are registered and is undertaken by workers that are also registered.
The typical form of undeclared work is a worker who gets a small wage (subject to
minimum taxes) and the rest in an ‘envelope’. Firms have little motivation to seek
fully unregistered labour since that may arouse the suspicions of the tax office (too
few workers relative to turnover) and become subject to tax audit. Rather, it is
underreporting of income that is prevalent. The Latvian Academy of Science’s
Economic Institute has estimated that one third of employees in Latvia are working
without labour contract or at least get part of their wage in ‘envelope’. In addition, it
is noteworthy that Latvia has one of the highest percentages of employees (23%) in
the EU on fixed-term contracts which may or may not include payment in envelope
wages.
The Free Trade Union Confederation of Latvia (LBAS) has also made calculations
about undeclared work, based on the principle that private sector employees who
receive wages that are lower than the statutory minimum wage receive the difference
up to the minimum under the table. It states that there are 137,100 such employees or
18
22.4% of the total number of employed people (114,000 in the private sector and
23,100 in the state and local government sector). This calculation is not exact, but
trades unions believe that 25% of total employment is undeclared work.
The policy and legislative framework
The legislative framework for undeclared work is provided by the Labour Law, the
main legislation regulating individual and collective relations at work. The Labour
Law states that employment contracts are the basis of all lawful work. This means that
working without an employment contract is a labour law infringement and is
considered to be undeclared work. The Labour Law sets out norms for the observance
of employment contracts and penalties for infringements of employment contracts.
Tax laws and the Administrative Infringements Code are also applied to cases of
undeclared work. For workers, working without an employment contract means that
they do not benefit from the guarantees provided for in employment law, such as
sickness benefits, unemployment benefits, benefits in the event of work-related injury
or industrial illness, pensions and maternity benefits.
Undeclared work has a direct connection with the tax system and benefits, because
people’ incomes are the basis of personal income tax and social contributions, and tax
revenues are used to fund education, healthcare and social benefits. From the point of
view of the State it is a negative phenomenon therefore.
In January 2004, the Ministry of Welfare submitted guidelines for elimination of
undeclared employment to the cabinet, and stated that it was drawing up an action
plan on the issue for the period 2005-9. In its new guidelines, the Ministry of Welfare
plans to develop activities in several directions, notably: informing employees about
their rights and the effects of undeclared work; holding a dialogue with the social
partners and mass media; and increasing the number of labour inspectors and thus
improving control at workplaces. These measures are spelled out in the National
Lisbon Programme of Latvia for 2005-2008 (National Lisbon Programme, 2005).
This document takes forwards the previous National Action Plan for Employment and
charges the Ministry of Finance and the Ministry of Welfare as being responsible for
reducing undeclared employment inter alia:
–
–
–
–
By increasing the minimum wage and the untaxed minimum in order to reduce the tax
burden for low pay wages
By raising administrative capacities of the State Labour Inspectorate, recruiting additional
staff, improving control over observance of the labour law norms, increasing level of
society’s awareness about the issues of labour law, as well as developing a model of coordination mechanisms for effective exchange of information with the corresponding
public administration bodies and other institutions (2005-2008);
By strengthening the role of the trade and employer unions in entrepreneurship, fostering
the consolidation of entrepreneurs in business organizations, in order to create a
favourable environment for an increase of socially responsible entrepreneurship
reputations;
By strengthening the role of trade unions in business activity, encouraging entrepreneurs’
uniting in employer organisations.
Taking each of these policy recommendations in turn. Minimum wages have been
increased as mentioned above, but only with much employer reluctance and by a
19
miserly 10 Lats per month (14.2 Euros). It is doubtful if the increase is sufficient to
address the problem of undeclared work or stem the outlflow of labour suggested in
the first chapter. Before looking at the role of the trade unions and employers in the
final chapter, we now examine the second recommendation, in particular the
likelihood of successfully ‘raising administrative capacities of the State Labour
Inspectorate, recruiting additional staff, improving control over observance of the
labour law norms, increasing level of society’s awareness about the issues of labour
law’.
20
Chapter IV Legal Enforcement and the Informal Economy
Low administrative capacity
Latvia provides an illustration of the problems of effective enforcement of labour
legislation to protect employees at work in the new market economies. There is low
administrative capacity in its Labour Inspection. This manifests itself both in the
failure to combat undeclared work and in the high level of workplace injuries and
fatalities - typically the highest in the EU 25 member states. These problems are
recognised in official policy documents:
Labour protection system in Latvia has to be improved. Total number of accidents at work has
not changed in the last years and the trend decrease it is small. Unlike other EU Member
States, Latvia still does not have a national work environment institute, which would provide
consultative, scientific and technical support (e.g., training of State Labour Inspectorate
inspectors on specific issues of work environment issues) to policy builders and
implementation supervisors in the field of labour protection. (National Lisbon Programme of
Latvia for 2005-2008: 39)
Latvia developed a new national labour inspectorate the post-independence period in
1993 (Berzins 2002: 8). The building of new institutional structures has proved a
difficult task. Nevertheless, international bodies such as ILO have provided technical
cooperation in the Baltic States since the mid-1990s, followed by other programs of
support (UNDP, France, EU-PHARE and the Nordic Countries) (von Richthofen
2003: 43). Since the early 2000’s, efforts have been made to bring Latvian health and
safety legislation into line with European Union norms. The EU’s key Framework
Directive on safety and health was introduced into Latvian law in 2001, and an EU
twinning project to assist in the application of EU occupational health and safety law
was carried out the following year (Latvia-Spain Twinning Covenant 2002).
Administrative and regulatory fragmentation in the Soviet era was matched by a
fragmentation of inspection control functions between the inspectorates and the labour
force in the enterprises. In the Soviet period, trade unions held a privileged position in
the ‘labour protection’ of the workforce. In theory at least, the unions served as a
vehicle for the articulation of workforce views, often in the absence of a participatory
role in the collective bargaining process. The trade unions were given relatively wide
powers in inspection and control; they had the right to legislative initiative, including
drawing up labour protection laws, input on questions related to training, the right to
interrupt the operation of industrial processes, machines or equipment and, in case of
existing imminent risks to employees’ safety or health, prohibition of the activity.
With the collapse of communism in the early 1990s, the trade unions quickly lost
whatever protection function they might have had in matters of health and safety,
especially at enterprise level, creating a rupture in enforcement and control functions
and a vacuum was created which has still to be completely filled. New enterprise
managements were often hostile to what they regarded as any form of worker
oversight that harked back to the previous regime.
At the same time, regulatory controls of all kinds were being widely disregarded by
employers, accident rates were spiralling and trade unions in post-communist
societies began to undergo a catastrophic decline from which they have yet to recover
(Vaughan-Whitehead, 2003). Trade union membership continues to decline year on
21
year in Latvia today and is currently about 15.5 percent of the labour force (European
Foundation, 2006). While representing a higher density than some post-communist
states that joined the EU, this is still not a sufficient proportion for the trade unions to
provide the necessary impetus for securing regulated employment secure relations in
major sectors of the economy, especially in the private sector. In short, the function of
labour inspection has been required to achieve an administrative competence, at a
time when previous systems of regulation and control had broken down. At a political
and societal level, the general social protection function of national governments was
also undergoing radical reappraisal, as a new set of market-driven priorities was being
implemented (Deacon and Hulse 1997). This left unresolved the problem of securing
a legitimized role for labour inspection, independent of both employers and
employees. The result has been a continuing ‘enforcement gap’ in the area of safety
crime, as the following case study of Latvia suggests.
Anticipating enlargement: A new law on Labour Protection
From 2002, with the prospect of EU accession imminent, and mindful of negative
evaluations of the Labour Inspectorate in pre-accession progress reports to the
European Commission, the Latvian parliament (Saeima) enacted a new law clarifying
the functions of the State Labour Inspectorate (Republic of Latvia 2001a). A new Law
‘On Labour Protection’, requiring significant changes in the organization of labour
protection at enterprise level was also enacted (Republic of Latvia 2001b). This
strengthened the legal responsibility of company managers with respect to the
observation of health and safety legislation, and provided for the establishment of an
organizational labour protection structure within companies, including the
appointment of ‘labour protection specialists’. In addition, new procedures for the
investigation and registration of accidents at work were also introduced (European
Foundation 2004b).
The ‘non-controversial’ response by employers to new health and safety law
requirements, given the significant legal obligations which it imposes, provides
insight into current compliance perspectives in Latvia:
The Labour Protection Law is one of the few recent pieces of legislation which has not caused
intense discussion and protests either at the time of adoption, or later on implementation.
There has also been no controversy over the adoption of additional and supplementary
legislative acts on health and safety and the modernization of existing ones. There are several
reasons for this lack of controversy. Employers appear to understand the importance of labour
protection and make efforts to ensure the health and safety of their employees. However, an
‘ideal’ health and safety system which complies fully with all the relevant legislation is
expensive, and therefore regarded as impossible to provide by almost all companies in Latvia.
Many employers thus implement the law only incompletely, in order not to damage the
operation of the company. Their employees, in whose interests the health and safety system
operates, agree to their rights being violated in order to maintain their jobs (European
Foundation 2004b).
The proliferation of new businesses, mostly in the small and medium sized category,
(reaching 41 percent of those under the Inspectorate’s responsibility) has faced the
Inspectorate with a further problem of adequate surveillance (State Labour
Inspectorate 2004: 3). Approximately 15 percent of enterprises in Latvia are said to
have received an inspection visit in 2004, admittedly an improvement on previous
years. Non-compliance is also present in the widespread concealment of industrial
22
accidents, noted in the reports of the Labour Inspectorate (State Labour Inspectorate
2001). Added to this, is the low level of investigation of even those accidents which
are reported (approximately 36 per cent of the total), although it is asserted that all
fatal accidents are ‘investigated’. This process of investigation does not however
include the involvement of police authorities in the surveillance of a potential ‘crime
scene’, or further engagement with the criminal justice system. Violations of law in
this sphere are matters of administrative sanction only.
Health and safety at work: An improving picture?
More recently, it has been suggested that there has been an improving safety
performance in Latvia (European Foundation 2004c). Despite earlier admissions of
extensive underreporting, the State Labour Inspectorate supports this view with a
graph in its most recent annual report. This purports to illustrate that ‘when analyzing
the dynamics of the number of accident victims per 100,000 employees (1995-2004)
the conclusions are that accidents tend to decline’ (State Labour Inspectorate 2004: 5).
Based on aggregate reported injuries, this assertion is superficially supportable.
However the all-injury data are a vast underestimate. The Inspectorate’s own figures
for 2004 record a total of 1296 employees suffering accidents at work. Figures for
fatalities (57) and serious injuries (233) give a combined figure of 290. Thus, just over
1000 less serious accidents were reported in Latvia during the period. ILO estimates
put the ratio of less serious accidents to every fatality at about 1,200:1. Applying this
ratio to Latvian figures would give an expected total of 68,400 (ILO 2005: 12 Table
5).
Yet, the Labour Inspectorate has claimed: ‘in comparison with the data of 2003, the
total number of victims of accidents has decreased for 67 cases (4.9%)’ (State Labour
Inspectorate 2004: 5). Even were the reported figures to be accepted as an accurate
representation of the real situation, the claim of improvement would still stand
rejected. This is due to a point previously made, the complete non-reporting in official
accident data of injuries and fatalities in the so-called ‘self-employed’ sector which in
Latvia is a significant and expanding area of often hazardous employment. As has
been pointed out, Latvia is the poorest safety performer in the EU twenty-five as
measured by even by under-recorded workplace fatalities. By the end of 2004, 57
employees had been killed at work, an increase of 16 cases (39 percent) on the
previous year (State Labour Inspectorate 2004: 5). Current employee fatality rates
would appear to be something in the order of 50 per cent above EU member state
averages.
The pattern of labour law violations
Violations of labour legal regulations mainly refer to contract and payment issues,
with up to a third of these specifically relating to contact violations. These typically
include failure to conclude employment contracts (no written contract, or absence of
formal contract of employment), failures in remunerations of work done (nonpayment of wages to employees, unpaid overtime, unpaid holidays and delays in wage
payments).
In addition to violations of industrial relations regulations, violations of labour
protection regulation refer specifically to safety and health infringements. Here, there
23
is a preponderance of offences classified as ‘organizational’ violations (companies
without health and safety systems; failure to develop introductory instructions in the
workplace; employees not being properly instructed; and failure to evaluate work risk
factors). In addition, there are ‘technical’ violations (use of workbenches without
protective fencing; lack of local ventilation systems with dust and sawdust gatherers
(cyclones); no electrical measurements of the earth-electrode resistance carried out).
This pattern of non-compliance with safety regulation raises the question of the
character of sanctions available to the regulatory agency. Imposed penalties for
violations of industrial relations and safety and health law violations resulted in a total
gross amount of fines of 74,500 Euros (52,381 Lats). Total fines for breach of
industrial relations regulations amounted to 53,650 Euros (37,708 Lats), while fines
for labour protection offences amounted to less than half that amount, at 20,800 Euros
(14,673 Lats). This disparity in proportions seems to suggest that penalization of
labour regulation violations is treated much more seriously by the Inspectorate than
health and safety violations. This is despite the overwhelming predominance of health
and safety offences (four-fifths).
Penalties and compliance incentives
The level of individual penalties imposed cannot be seen as offering a realistic
incentive to stimulate ongoing compliance behaviours on the part of employers. A
recent increase was instituted in the upper limit of administrative penalties which can
be imposed by the Inspectorate, under clause 41 of the Administrative Violations
Code. However, this increase in the maximum (by a factor of four) to 1,422 Euros
(1000 Lats) hardly constitutes a realistic level of deterrence. Nor is this new
maximum commensurate with the scale of harm and suffering caused to victims and
their families. Strikingly absent from the compliance equation, is the application of
sanctions of the criminal justice system. Further, an adequate system of personal
injury litigation which might impact on employers’ profits in a material way has not
yet developed. Finally, ironically, the very ability by the Inspectorate to impose
summary fines ‘on the spot’, further shields employer offences from consideration
with regard to due process under criminal law, creating instead a new and relatively
minor category of ongoing ‘business expense’.
In spite of the introduction of a new law on labour protection, in the course of
enterprise visits during the first half of 2004, the Labour Inspectorate found that
approximately one third did not have an appointed labour protection specialist, and
almost three quarters did not have a list of occupations exposed to risk (Hazans 2005).
Moreover, labour protection specialists were under employer pressure not to include
all existing risks on the list, while in 70 percent of patients with diagnosed
occupational diseases, the legal requirement for regular medical examination of
employees was had not been met. The Labour Inspectorate reports that of 9,759
companies visited in 2004, only one third (37 percent) had performed required and
compulsory risk assessments. Failures to observe regulation can be explained by the
fact that ‘employers do not pay enough attention for the establishment of labour
protection system at the enterprises’ and ‘not all employers are familiar with the new
labour legislation acts and their implementation is at an early stage’ (SLI 2004: 5).
Summing up, the report noted:
24
occupational accidents have not been investigated, personnel has not received the necessary
training and instructions, mandatory health examinations, working environment internal
surveillance as well as the technical inspection of dangerous equipment have not been carried
out (State Labour Inspectorate 2004: 5).
The Latvian example suggests, as in many of the new member states, regulators have
often been deprived of key underpinning material and political supports for their
activities. The low political priority assigned to enforcement and control is reflected
in chronic under-funding of Inspectorate’s activities, leading to a lack of resources
including transportation, communication and IT resources, reduced staffing levels,
low wages, unfilled posts and high staff turnover. Thus the latest report of the
Inspectorate notes the loss of 28 out of 186 members of staff due to low salaries, and
an ongoing 10 percent of posts unfilled (State Labour Inspectorate 2004: 1). While lip
service has been paid to the need to harmonize national practices with international
norms, labour inspectorates have found themselves acting as auxiliaries to the State
Revenue Service, in periodic campaigns to hunt out clandestine employees engaged in
undeclared work in order to strengthen the tax revenue base of the state. Reduction of
illegal employment has been made a priority task of the Inspectorate and remains a
stated priority for 2005.
An issue of social justice
What is true of safety and health in the workplace therefore applies to the protection
of labour rights in general by the authorities in Latvia. At first glance it is surprising
that the issue of human rights in the workplace has not hitherto received much
attention. It has been suggested that Latvia presents a labour market context in which
‘many employers are still not aware of the existence of regulations and their
responsibility to implement them, while employees lack information about their
responsibilities and rights in terms of industrial relations’ (European Foundation
2004c). Employment and labour regulations are observed most closely in large
companies and companies with strong trade unions, often former state enterprises and
enterprises with state capital although one or two larger private enterprises are
attempting to eliminate poor employment practices.
However, even when labour inspectors do uncover illegal contract imposition or,
more frequently, the total absence of labour contracts, or other regulatory labour
violations, it remains difficult to secure convictions because of the ‘purchase’ of
judicial decisions by employers. Widespread business involvement in the corruption
of the judiciary and of state officials serves to intensify popular feelings of alienation
from adherence to legal norms in many Central and East European countries.
Corruption creates a ‘low trust’ environment in which civic commitment to the legal
norms of the state among the general populations is weak.
Some ‘blitz’ campaigns have been initiated by the Labour Inspectorate and other
authorities, but more often than not, simply to crack down on tax evaders among
workers, rather than the employers who benefit from avoidance. Any notion of
criminalising those involved in sustaining systems of abuse is generally limited to
occasional exemplary prosecutions of the organisers of the more flagrant forms of
abuse, such as human trafficking and child labour, which attract adverse international
attention.
25
Ultimately, how people are treated in the workplace is an issue of social justice
Opinion polls consistently show that popular concerns over human rights violations in
labour relations have been at the top of the list since 1996 (in 1996-38%, in 199845%, in 2000-47%). The authors of a recent study observe that ‘the increase in
proportions of violations in this area is especially worrying. This may indicate that
people understand their rights better which is a positive fact. However, it may also be
an alarming indicator of underregulated labour conditions’ (Rajevska and Vanags
2005: 65). Such concerns over the social justice implications of continuing nonadherence to acceptable working conditions is also identified in the observations of
external human rights surveys. The US State Department in its Country Report on
Latvia notes that while ‘the laws establish minimum occupational health and safety
standards in the workplace’ the first six months of 2005 saw 27 fatal workplace
accidents. The Report goes on to comment that ‘workers have the legal right to
remove themselves from hazardous work situations without endangering their
continued employment; however, authorities did not enforce this right’ (US State
Department, 2005).
A hostile framework of political assumptions
Yet, despite these concerns, the hostile framework of political assumptions regarding
the legitimacy of their regulatory activities as enforcement agencies is a profoundly
inhibiting factor in achieving secure and equitable employment conditions.
Increasingly, as in other jurisdictions, employers are given extensive rights of appeal
against inspectorial enforcement decisions. Thus, contextual support for the policing
role of the agency is absent. The expectations of the political and business elites with
respect to issues of enforcement are that regulators should take into account, indeed
prioritize, business needs for profitability.
Latvia has seen a significant attempt to ‘improve the climate for business’ and reduce
the ‘burden of red tape’. This has taken the form of an intensive program of
inspectorate ‘reform’ of Latvian agencies of regulatory oversight, including the
Labour Inspectorate. These reforms have been spearheaded in a Government Action
Plan to Reduce Administrative Barriers, primarily to stimulate incoming foreign
investment. Thus, the Labour Inspectorate has been encouraged to reform itself in
order to concentrate on achieving a shift in focus of activities from ‘punishment’ for
violations, to ‘compliance-based activities aimed at meaningful observance of health
and safety rules’, in which inspectors take on the role of “advisor” to business
“clients”, who should be “encouraged and helped to comply with requirements’
(Coolidge et al 2003: 11).
One recent commentary on the Inspectorate notes the shift away from control and
policing functions: ‘due to a lack of financial resources and insufficiently developed
legislation’. Thus, the activities of the Labour Inspectorate are mainly concentrated
‘on resolving disagreements and objections and providing consultancy’. It is noted
that the Inspectorate is ‘not at present trying to achieve full observation of all health
and safety standards, due to the limited financial resources of many companies and
the generally low interest of employees in their own protection’ (European
Foundation 2004b, emphasis added). As a statement of ‘regulatory capture’ in which
the ‘target’ body imposes its perspectives on the policing authority, this observation
26
would be hard to better. As champions of neo-liberalism, Eastern European countries,
offer little in the way of encouragement for regulatory compliance with either labour
law or health and safety requirements in line with European norms.
The alternative strategy would be to criminalize those who profit from labour abuses.
However, there is little support for such measures at either domestic or European
level. To compound these problems, at the level of European Union policy, there is a
parallel retreat from effective regulatory controls which we examine in the following
chapter.
27
Chapter V European Policy: De-regulation and ‘Better Regulation’
Policy ‘veto points’
In the run-up to European enlargement, significant momentum for ‘regulatory
renewal’ and ‘getting rid of old Soviet regulations’ in the new Member States has
come from external pressures to conform to the requirements of the European acquis.
The trajectory of reform has been imposed: acceding states were required to meet
externally imposed regulatory formal frameworks and standards. Implementation
theory suggests, however, that ‘internal constraints’ may emerge which might inhibit
successful implementation.
The notion of policy ‘veto points’, or points of resistance, which may compromise
further policy innovation, points to problematic aspects of this process. Such ‘veto
points’, whether de facto or institutionalized, exist where the policies underpinning
the proposed institutional rules are not clear enough to offer a coherent institutional
model, or where domestic preferences do not converge towards reform (Dimitrova,
2002, p. 2). ‘Conditionality’ and ‘asymmetry’ in the enlargement process has made
the consolidation of institutionalized veto points unlikely, as acceding countries were
essentially compelled to comply with EU conditions regarding the adoption of the
acquis (Dimitrova, 2002, p.6).
Yet, while the absence of formal institutional veto points has made EU-led institutionbuilding relatively successful, ‘there is still the question of whether major political
actors, particularly at Member State level, are united around ideas about the new
institutions, so that the new rules have the chance to endure without being
immediately contested’ (Dimitrova, 2002, p. 6). It is suggested, for example, that if
the EU requirements fail to correspond with ‘the domestic reform fit’, for example,
because the domestic consensus is inspired by different ideas, or because there is no
consensus on reform, then the newly ‘imported’ rules are likely to be contested or
even changed.
The neo-liberal agenda
A further force undermining ‘reform fit’ has been the vigorous promotion of neoliberal ideas and programmes by external agencies of economic reconstruction.
Typically, for the International Monetary Fund, such ideas are encapsulated in the
goal of ‘reducing labour market rigidities’ in order to stimulate the goal of economic
growth. IMF staff reports for individual new Member States, based on policy
‘dialogue’ with national governments, admonish key economic and political actors in
terms of ‘further removing red tape and other regulatory obstacles to private sector
activity [which] would encourage the development of small and medium-sized
companies and hence job creation’ (IMF, 2003b, p. 28; see also IMF, 2003c).
In its more radical variants, an agenda of outright deregulation has been promoted by
influential neo-liberal policy ‘think tanks’. A case in point is the Washington-based
Cato Institute, which has close ties with the current US administration. In a report
originally posted, it should be noted, on the website of DG Enlargement, it is argued
that ‘excessive regulation’ emanating from within the EU, will reduce flexibility and
impose an ‘economic burden’ on business, producing ‘sub-optimal’ growth (Tupy,
28
2003). The argument classically asserts that ‘overregulation of conditions of
employment will diminish the comparative advantage that central and east European
workers enjoy over their more highly paid western counterparts’ (Tupy, 2003, p. 7).
Particular concern is expressed over attempts by EU policy-makers to introduce
common standards in terms of working conditions, in order to act as a barrier against
‘social dumping’.
The EU is criticized by the Cato Institute for explicitly rejecting ‘the possibility of
different levels of safety and health protection of labour within the Union’ and for
advocating ‘the need to harmonize health and safety standards irrespective of the
different needs of the Member States’ (emphasis added). Adopting the somewhat
improbable role of champion of labour, the Cato Institute suggests that such
regulatory impositions ‘do not contribute to alleviation, but to a worsening of the
workers’ lot’ (Tupy, 2003, p. 8). Such arguments have found a ready audience in the
post-communist new market economies, where they are amplified for domestic
consumption by ‘home-grown’ free market institutes and employers’ federations. The
Baltic States are among the most neoliberal of all the new entrants from central and
eastern Europe.
A ‘business-friendly’ environment
The extent to which CEE countries, with the Baltic States as perhaps the leading
example, have succeeded in creating a ‘business-friendly’ environment can be judged
by the accolade bestowed in a World Bank report, which for the first time provides a
global ranking of 155 nations on key business regulations and reforms. Eastern
Europe in general is noted for having achieved the highest rate of reform of any
region in the world, and Latvia in particular, is ranked along with Serbia and
Montenegro, Slovakia and Romania, as having ‘topped the global rankings for most
reforms enacted’. The three Baltic States of Latvia (26), together with Lithuania (15)
and Estonia (16), come within the top thirty, outstripping their new member state
rivals such as Slovakia (37), the Czech Republic (41), Hungary (52), and Poland (54).
This is noted as ‘a remarkable achievement, as only a decade has passed since they
first began reforms’ (World Bank, 2005).
Approaches to the regulation of employee labour protection in the workplace are
being reformulated in the interests of promoting economic competitiveness. In key
policy areas, the European Commission in its desire to create a competitive economic
environment, has accepted the assumptions of the neo-liberals that formal regulation
is ‘a bad thing’. Aiming to remove ‘outdated’ and ‘unnecessary’ regulation, the
Commission has embarked upon a drive to ‘free business from the regulatory burden’.
Promoted by key neo-liberal-leaning member states such as the UK, which have
already undergone similar campaigns aiming at ‘better regulation’, the Commission
has embarked upon a programme of ‘updating’ and ‘simplifying’ the existing acquis
(European Commission, 2005a). More regulation in the sphere of safety and health is
seen as a hindrance to business growth and a new philosophy of minimal
‘interference’ is being actively promoted at European and by member states such as
the UK. Notions of ‘Better Regulation’ provide a pointer to the future likely direction
of EU policy.
29
The European Commission - ‘Better Regulation’
The adoption of a profound anti-regulatory bias, based on the conventional wisdom
that ‘all regulation is bad’, may decisively alter whatever balance previously existed
in the regulatory mix, in favour of an ‘even softer’ future European strategy for
working environment. In the UK, a ‘Regulatory Impact Unit’ assesses whether
proposed regulations are likely to impose a ‘burden’ on business, therefore requiring
clearance from a ‘Panel for Regulatory Accountability’, personally chaired by the
Prime Minister. Likewise, at European level, in its ‘Better Regulation Priorities’, the
current Barosso Commission has intimated that all major items included in the
Commission's annual legislative and work program would now be ‘subject to impact
assessment’ and accordingly, ‘new guidelines’ were published under the banner ‘Less
red tape = more growth: Commission package for better regulation’ (European
Commission, 2005b).
Meanwhile, the EU’s ‘Competitiveness Council’ has made the promotion of ‘better
regulation’ and ‘simplification’ its key objectives. On health and safety at work, the
Competitiveness Council has said, regarding the obligation to report on the
implementation of the Framework Directive, that ‘yearly information requirements
with regard to all of the individual measures impose a disproportionate burden on the
Member States. Information requirements should be minimised, harmonised and
reverted to a 6 year cycle. Reporting should be shaped as one summary report for all
measures’ (Council of the European Union, 2004,13). Following these initiatives,
European Commission President Manuel Barosso, in an exercise in online ‘interactive
policy making’ or ‘IPM’, launched a dedicated website designed to enable disgruntled
employers to ‘indicate which policy area is causing you problems’, with topic reply
buttons, inter alia, ‘health and safety in the workplace’. This online questionnaire
survey, offering - ‘Ten minutes to improve the business environment in the EU’- is
being conducted in anticipation of yet another major simplification initiative in the
autumn of 2005. As President Barosso has put it:
In order to ensure that the programme responds to real concerns, the European
Commission is keen to hear from businesses …which rules need to be
simplified because they stand in the way of sustainable growth, deter business
investment or hinder job creation. Your views are important to us. They will
be compiled and examined in the Commission’s ‘Red Tape Observatory’ and
will also be examined by the responsible Commission services (Barosso,
2005).
UNICE supports
This policy thrust is actively supported by the European employers’ organization
UNICE, which constitutes a powerful lobbying voice within the Commission in
Brussels. Indeed, UNICE has made a open call for a ‘legislative moratorium’ on
occupational health and safety since 2000, welcoming the Commission’s 1998
statement initiating a process of ‘revision of existing directives with a view to their
modernization and rationalization where necessary’. UNICE has also counselled that
‘serious consideration to be given to the economic and social impact’ of occupational
health and safety legislation so that it ‘forms part of an economically realistic
framework, notably with regard to employment’ (UNICE, 2005a, 5,9). More recently,
30
as a contribution to the processes of European social dialogue, UNICE has stressed
‘that what is mostly needed is a genuine simplification of the complex regulatory
environment for companies, alongside a true commitment to better regulation’
(UNICE, 2005b). In the wider environment of Europe’s declining economic
competitiveness, it would appear that anti-regulation ‘shock therapy’ is seen as
essential to any future process of recovery. This makes the context for the elaboration
of any effective European strategy of enforcement of protective labour regulation
even less secure.
EU Policy on Undeclared work
Against this emerging policy background of de-regulation we can assess the
Commission proposals for ‘combating undeclared work’. In 1998, the European
Commission adopted a Communication on Undeclared Work which is defined as
‘paid activities that are lawful as regards their nature but not declared to the public
authorities’ (European Commission, 1998: 2). It was estimated then that such activity
accounted for between 7 and 16 per cent of the European Union’s GDP – an
equivalent of 10 to 28 million jobs or 7 to 19 per cent of total declared employment.
The Commission identified the factors contributing to the existence of undeclared
work as high taxes and social security contributions; legislation poorly adapted to new
types of work; the weight of administrative procedures for registering certain jobs or
restrictions on access to certain occupations; the presence of a large number of small
and medium-sized enterprises in the industrial fabric; firms in declining sectors using
undeclared labour as a means to survive in a competitive market; and cultural
acceptance – participation in the informal economy is often perceived as an exchange
of services that need not be declared. Undeclared work is viewed negatively because
it risks undermining the financing and delivery of social protection and public
services. The curtailment of receipts means a reduction in the level of services the
State can offer, and this creates a vicious circle, as the government raises taxes to
continue to provide the services, thus creating more incentives to undeclared work.
More recently in a resolution adopted on 20 October 2003 the Council of Ministers
called on the Member States to:
work together to reduce undeclared work and to implement policies suited to their specific
national requirements. It set out guidelines advocating preventive actions and sanctions aimed
at eliminating undeclared work.
As regards prevention, the Council wanted to create a legal and administrative environment
conducive to the declaration of economic activity, which, without destabilising public finances
and social protection systems, would encompass simplified administrative procedures,
reduced costs and constraints affecting the creation and development of small businesses,
removal of disincentives to declare work on both the demand and supply sides, reduction of
high marginal effective tax rates and the tax burden on low-paid workers, and implementation
of suitable employment policies vis-à-vis beneficiaries of social-protection measures to help
them to participate in the regular labour market.
As far as sanctions were concerned, the Council called for increased surveillance, where
appropriate, with the active support of the social partners, especially in respect of those who
organise or benefit from clandestine labour, whilst ensuring appropriate protection for the
victims of undeclared work. Moreover, the Council invited the social partners to address the
31
issue of undeclared work in the context of their multiannual work programme and within the
sectoral social dialogue committees. (See OJ c 260, 29.10.2003)
Here, in classical EU style there is a clear attempt to ‘have it all ways at the same
time’. On the one hand, there is the attempt at promoting a business-friendly agenda
that calls for ‘simplified administrative procedures, reduced costs and constraints
affecting the creation and development of small businesses’. On the other hand, there
is the call for labour market measures to protect workers that will remove
‘disincentives to declare work’. In terms of the application of sanctions, the trade
unions are offered an invitation to become involved in labour market ‘surveillance’
along with the employers, particularly within sectoral social dialogue committees. It is
also noteworthy that in more recent declarations, combating undeclared work is not
mentioned as a goal in itself, but as part of a strategy to promote entrepreneurship and
job creation, Thus the European Employment Guidelines’ Pillar II: Developing
entrepreneurship and job creation, calls as below for:
combating undeclared work and encouraging the transformations of such work into
regular employment, making use of all relevant means of action, including regulatory
measures, incentives and tax and benefit reform, in partnership with the Social Partners
(European Council, 2005).
The current Guideline No 21 aims to ‘promote flexibility combined with employment
security and reduce labour market segmentation, having due regard to the role of the
social partners’, through:
— the adaptation of employment legislation, reviewing where necessary the different
contractual and working time arrangements,
— addressing the issue of undeclared work,
— better anticipation and positive management of change, including economic
restructuring, notably changes linked to trade opening, so as to minimise their social
costs and facilitate adaptation,
— the promotion and dissemination of innovative and adaptable forms of work
organisation, with a view to improving quality and productivity at work, including
health and safety,
Flexicurity – an impossible dream in CEE
The European Commission continues to promote simplistic notions of ‘flexicurity’, as
part of its Lisbon strategy in order to enhance European competitiveness. The
contradictions posed by ‘undeclared work’ for any managed process of labour
deployment seem not to be recognised. Workers can ‘flexible’, albeit within
protective structures which promote effective labour market measures for workers
involved. In response to the Commission, the ETUC has criticized what is call the
‘blind individualization and deregulation, the proliferation of non-standard contracts,
[…] attempts to weaken the role of collective bargaining and reduce workers’ rights’.
These new types of work organization have not helped to strike ‘the right balance
between flexibility and security’, the European trade unions argue. Rather, they have
contributed to the growth of undeclared employment.
How coherent this Commission’s ‘policy mix’ to tackle ‘undeclared work’ is can be
debated. What is apparent is that current Commission policy takes no account of the
special circumstances of the new market economies of Eastern Europe. Here policy is
32
piecemeal and contradictory. More importantly, it is still locked within a perspective
which sees informalisation as an aberration rather than the developing employment
norm. In Central and Eastern Europe there is indeed the promotion of ‘flexibility’, but
little in terms of notions of ‘security’ as implied, for example, in a European ‘social
model’. Here the pursuit of ‘flexcurity’ is the pursuit of an impossible dream.
In the next chapter we discuss what has been and could be the appropriate realistic
trade union response to issues of informalisation of work.
33
Chapter VI Organising informalised work: Role of trade unions
Visible and invisible worlds
It is difficult to envisage a clear role for trade unions in CEE in the fight against
informalisation as such. A precondition for successful intervention in this area is that
trade union movements are able to regenerate their defensive capacities at enterprise
level in order, in the first instance, to protect those employee’s rights who are in
employment but are being abused. Only when trade unions have developed the
capacity and confidence to confront labour abuse as credible class bargainers in the
visible world of work, can they go on to deal with the invisible or shadow world of
informalised work.
To date social dialogue arrangements in CEE have been largely ineffectual as regards
combating informalised work. Employer resistance to unionization, especially but not
exclusively, on the part of incoming foreign investors, has proved a major barrier to
building effective trade unions in many industries. Thus, at sectoral and enterprise
level, effective ‘autonomous’ social dialogue structures around collective bargaining
have failed to take root. Those employers who do participate in such arrangements are
usually the minority of mainly larger companies, afraid of unfair competition. They
are anyway unable to properly represent employer ‘social partner’ organisations
which are generally weak.
Re-inventing trade unions in CEE
After the collapse of the Soviet Union, trade unions in Central and Eastern Europe,
were faced with a major strategic dilemma – how to ‘re-invent’ themselves in the
changed conditions of the market economy. This challenge came in the face of
plummeting membership, requisition of trade union properties, the fracturing of
previously unified confederations and the appearance of ‘unregulated’ rival
organizations as well as state and employer hostility to trade unionism on a scale not
experienced before by these unions. In the new member states, a single unified trade
union confederation is the exception rather than the rule. Many of the previous
communist trade unions structures became locked in a decade long battle over
resources, members and property with rival newly formed independent trade union
confederations.
What occurred at national level was also replicated for individual trade unions which
often suddenly found themselves confronted by ‘upstart’ independent organizations,
owing no allegiance to the past, or the preservation of even the best parts of the
former structures. Lack of unity, hitherto, has been one of the most damaging
consequences of the transition process. Added to this has been official state hostility,
first in the form of property requisitions of trade union premises as part of former
‘regime organisations’. Full restoration of trade union property is still a matter of
contention.
Second, as part of the ‘remodelling’ of labour relations, under foreign ‘expert’
guidance, a number of Eastern European countries while constitutionally recognizing
the role of trade unions in society, introduced a raft of hostile legislation. This has
made the exercise of basic trade union rights, for example, through effective rights to
34
strike or taking industrial action, a legally complex and difficult process. A recent
report from the ICFTU on labour standards in the EU 25 notes ‘in particular in the
new member countries violations of trade union rights take place, and labour
legislation does not always conform to the ILO Conventions’ (ICFTU, 2004). Thus
for example, until this year, (2005) Latvian labour law required a 75 % majority for
strike action, while Lithuanian law still requires a two-thirds majority. In Estonia,
civil servants are denied the right to strike, while in Poland their rights are restricted.
Again in Poland, workers on individual contracts do not have the right to form or join
unions.
Re-modelling labour rights
Across the whole of post-communist Eastern Europe, objective legal rights of
employees have been successively curtailed, and protections for employees under
previous communist-era labour codes have been removed, in favour of new labour
codes more ‘in keeping with the needs of the market economy’. Thus, for example,
redundancy pay has been reduced, guarantees of trade union consultation in dismissal
cases removed, and the rights of trade unions to represent members in labour courts
curtailed. These are matters which have been drawn to the attention of the Council of
Europe and the ILO Committee on Freedom of Association. The core ILO
conventions no 87 and no. 98 are endorsed by these states, but the issues of violation
of labour rights in practice remain unresolved. Thus, while union recognition
provisions exist, in reality private and public sector restrictions on the right to trade
union activity, have been sufficient to cause the ILO to express a number of concerns
to governments in the region. Such concerns have been met with only partial
responses by signatory governments in many cases.
At the same time as repressive anti-labour enactments have been passed, an attempt
has been made to persuade the various trade union leaderships at national level to
participate in national ‘social dialogue’ structures, seemingly modeled along
Scandinavian ‘corporatist’ lines. In fact, national ‘social dialogue’ arrangements have
resulted in something of a trap for trade union leaderships, whereby they have been
persuaded to endorse some of the most damaging features of the ‘reform’ process as
necessary for market economies, in exchange for ‘a seat at the national policy table’.
While this has provided trade union leaderships with some kind of ‘voice’ in the
transition process, its real effect has been to make the trade unions complicit in many
anti-labour policies, in exchange for a rather shallow legitimacy as national policy
actors. Thus, when the most extreme liberalization measures have been adopted by
government, trade union consultation has proved to be purely formal in nature at best,
and absent at worst. If anything, participation in national social dialogue structures by
union leaderships has served to underscore their divorce from the declining base of
their memberships and has soaked up energies and resources which could have been
devoted to rebuilding some form of effective workplace unionism. This places trade
unions in a paradoxical position when it comes to the issue of informalised labour.
Trade unions may inform the state authorities where they discover problems, but
because the workers involved do not want to reveal their actual work relationship out
of fear of losing their jobs, often the result of attempting to ‘police’ the labour market
in this way ends in failure. In any event, it is not the job of trade unions to police the
workforce. If one believes that fraud and corruption are endemic to the system, what
35
scale of values requires that workers should adopt a higher set of values in their
personal struggle for survival? Such questions are not comfortable, but they both
recognise and go to the core of the mainspring of much economic activity in the new
market economies.
For those individual workers foolish enough to speak out on behalf of their own
rights, far less the rights of fellow workers, there is the quick road to unemployment,
blacklisting and the causal thuggery of physical intimidation. While formal provisions
exist against the harassment of trade unionists in most of the labour codes of Eastern
Europe, in practice, like the right to strike or to union recognition, they are not
observed or enforced. Yet it is precisely these grass-roots activists who can rebuild the
confidence in collective organisation, necessary to make trade unionism a credible
and effective voice in the workplace. They need first of all to be identified, supported
with training and organisational resources, and where necessary, to be defended
through due legal process. For trade union officials, working with a new generation of
activists ‘at the sharp end’ may necessitate a difficult change in attitudes and styles of
work.
New strategies emerging?
Yet in spite of all the difficulties, new strategies are slowly emerging in trade unions
movements, and new alliances with NGO groups, prepared to fight for civic and
social rights, for example of female domestic workers, are often important catalysing
forces. Notable successes claimed by mainstream trade unions include organising
groups of minibus drivers and street vendors in Moldova; truck and taxi drivers in
Serbia; security guards, hairdressers’ and beauticians, market salesmen, pharmacists’
and farmers’ in Lithuania; parking fee collectors, sweatshop and home-based (sewing)
workers in Bulgaria; workers in tourism companies in Croatia; street vendors, market
salesmen and migrants in the Ukraine. The underlying reasons for such successes do
not necessarily represent the growth of wider collectivist trade union perspectives
however. Rather, they have to do with sectional accreditation or professional status
demands that are not concerned with wages and conditions.
For example, one of impetus for hairdressers is that being the members of the trade union that
belongs to the Uni (trade union) Hair and Beauty sector they can receive the European
hairdressing certificate and this is a professional recognition valid all over Europe.
Pharmacists need the organization representing them in negotiations with the institutions
providing certificates, individual taxi drivers must unite to be able to compete with the big
companies in negotiations with the city administrations on distribution of the taxi stops, on
requirements for the cars, etc.. Trade unions help the market and street vendors oppose the
corruption of officials and market administrations and fight for market places. These struggles
lead to the establishment of loan-societies or small credit unions.
It should be noted that in many places people start to organize after the authorities try to
regulate their activities by introducing cash registers, patents, certificates, to bring some order
into the sector. In many cases the small sellers are employers themselves and hire several
people, but the majority of them are self-employed, the interests of these people are rather
specific, having no classical economic demand as increase of wages or working time
(Glovakas, 2005).
Again, how permanent such advances are remains to be seen, and indeed whether it is
the role of trade unions to take the lead in organising what are often small employers
in their own right, is itself a matter for debate.
36
However, as high profile incidents of labour abuse, especially of health and safety,
reach the national and international media, as in the widely reported employee
fatalities and illnesses in Greek-owned textile plants in Bulgaria, the climate for trade
union activity in this sphere becomes more favourable. Thus, until now, the primary
task of organising or ‘formalising’ the informalised economy has fallen to national
trade union organisations, albeit with considerable support from international trade
union bodies. Here, the challenge in Central and Eastern Europe has been to
overcome the hostility to trade unions in general, in part, a legacy of the pervious era,
although increasingly less pronounced as time goes by.
Informalisation and migration
The problems created by informalisation are now playing out not only within the CEE
region, but in the older EU member states, as migrant labour from Eastern Europe is
seen to offer their labour at wages and under conditions that erode the collectively
bargained standards of the labour forces of Western European countries. As issues of
the control of labour migration and the preservation of labour standards come to
dominate political and national agendas at a regional level within the enlarged
European Community, trade unions potentially could be in a position to advance their
demands for regulated employment conditions for workers, irrespective of nationality
or country of origin. Failure to do so will leave open the door to dangerous division
and even xenophobia.
In this respect, it is encouraging to note that Lithuanian trade unions have reached
agreement on protecting migrants with Denmark and Ireland. Similarly, the Latvian
and Swedish trade unions have developed new bilateral agreements following the
debacle over the Laval and Partners construction workers episode now before the
European Court of Justice. Likewise, agreements Kaliningrad and Georgian trade
unions have been signed to cover workers coming into the new member states from
elsewhere in the former Soviet bloc. UK trade unions are educating Lithuanian
workers, and in construction have taken up the challenge of protecting incoming
Polish workers from employer exploitation through illegal deductions from wages.
Theses are the first perhaps overdue steps in forging international co-operation to
tackle what is essentially and internationalising problem. Such steps need to be
monitored, built upon and developed by independent trade union action in the first
instance, and perhaps, secondarily, through sectoral social dialogue with the
employers.
To conclude it is important to realise the scale of the threat which faces European
trade unionism. The high and growing levels of labour informalisation in the new
member states may permanently consign these countries to providing a low-wage
high-hazard environment in the enlarged European Union. This will inevitably
exercise a gravitational pull on existing labour standards throughout Europe. That is,
and will remain, the reality until the international trade union movement recognises,
even in its own interests, that the time has now come for a massive intervention in
training, organisation and support on an entirely new scale in Central and Eastern
Europe.
37
The necessary formalisation is ‘labour rights’
Strong pro-active unions can defeat the scourge of informalisation, but this will
require a wholly new level of resourcing and training. However, we should also
recognise that the ongoing dislocation of the new member states from the mainstream
of European social democracy, and from the protective regulatory standards of a
European ‘social model’, is not accidental. Informalisation reveals the true
criminogenic face of ‘new’ capitalism in which the sustained abuses in the sphere of
work are central to its modus operandi.
Where the rule of law is weak, where the criminal justice system operates at best in a
selective, sporadic and ineffectual manner, where the political process is dominated
by business interests which are themselves often ‘criminalistic’, (if not as yet
‘criminalized’) and where the legitimacy of regulatory enforcement agencies is under
continuous challenge, the pursuit of social dialogue with the employers may not be
the appropriate strategy for trade unions to adopt.
This is a capitalism which no voluntary codes of ‘Corporate Social Responsibility’ on
the part of business, or sectoral social dialogue agreements can alter, in either its
intentions or behaviours. The new capitalism of the East is not a pathological variant
of some ‘normal’ ordered state. It is the face of a perfectly viable economic system
that is sustained ideologically on the basis of justifications of the ‘needs of the
market’ and economically, on the active suppression of trade union rights. Profits are
to be made, if necessary, by cutting corners on safety and health in the workplace and
by imposing abusive labour conditions. Recognising this unpleasant reality serves as
the starting point for action.
The enforcement of labour rights could provide a ‘ratchet effect’ with which to resist
the current informalisation of labour standards. For such a ratchet effect to be created
there are certain preconditions:
 This requires a campaign of solidarity at an international level in which bodies
such as ILO and ICFTU, together with NGOs, can play a much more proactive role in exposing labour abuses and pressurising national governments.
 Awareness raising campaigns are important. Previous valuable work in
identifying labour abuses in the CEE, for example, in the newsletters, country
reports and bulletins of ICFTU needs to be intensified in keeping with the
growing scale of the problems and its changing dimensions.
 Likewise, the spotlight must now be thrown on employers who sustain labour
abuses and take advantage in order to lower working conditions, especially
those with supply chain links to supposedly ‘responsible’ companies based in
Western Europe. This means both ‘naming’ and ‘shaming’.
 It also means pressurising national governments to create effective
enforcement agencies and to criminalise offenders, by creating realistic
penalty structures for violators of labour rights.
 Finally, it implies an end to the pro-business ‘anti-regulation’ bias which
prevails at both domestic CEE and European Union level as a necessary
precondition for further advances.
38
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