UNDECLARED STUDENT WORK IN SLOVENIA

 

1. INTRODUCTION

 

Undeclared work is just one integrative part of a much larger issue called non observed economy. According to the Komisija Vlade Republike Slovenije za odkrivanje in preprečevanje dela in zaposlovanja na črno (2006, 2) non observed economy is a phenomenon found in every state, economy and political system. It is present with a varying range and power in all phases of social development. It presents a negative influence for the employers, the employees, the state, social insurance, wealth and safety of people and environment. Non observed economy appeared in Slovenia in the 1980s. Its emergence was connected with a major economic crisis which caused a drop in the standard of living. A research done back then showed that the proportion of non observed economy in the gross domestic product is 38%. Since April 2000 the Law on prevention of shadow economy and employment has been in force. The law defines work and undeclared employment. These are activities that can be performed legally by our legislation but the law does not interfere with those areas which can not be performed legally such as pirate copying of software, prostitution and drug trade.

In our research we will focus on undeclared work in Slovenia as a part of non observed economy. We will examine some literature providing facts on such type of work, explore the mechanisms of control and undeclared work among students who are quite often involved in such type of employment. We will try to find solutions of this problem on the basis of two interviews, one with a student who works undeclared and one with an employer providing undeclared jobs to students. In that way, we hope to find some reasons why people agree to do undeclared work and why the employers offer it. We will also think of some possible solutions and give our opinion on the current solutions that take action as we examine.

 

 

 

2. LITERATURE REVIEW

 

2.1. WHAT IS UNDECLARED WORK?

 

According to the Official Gazette of the Republic of Slovenia (2007, online) there are many different types of undeclared work, specified by three acts (3-, 4-, 5-). Undeclared work by way of example is:

1. if a legal person performs activities that are not registered in the register of companies, or if a business man performs activities in spite of a temporary ban of conducting business (the third act).

2. if a legal person and/or an entrepreneur and/or an individual concludes a contract with a person, and is at that time aware of that persons conducting undeclared work (the fourth act).

3. if a legal person/entrepreneur did not conduct a contract of employment, and did not report the employee for the health, pension and disability insurance. If a legal person takes on an individual without a Slovenian citizenship contrary to the legal provisions.

4. if a legal person/entrepreneur permits a student to work without a student referral or enables a student to work through another students’ referral (the fifth act).

 

2.2. UNDECLARED WORK IN SLOVENIA

 

Undeclared work in Slovenia was in full swing in mid-1990s. Changes were happening since 1980s when our country was transforming from the socialist to the market economy. The first wave of mushrooming effect happened in the first half of the 1990s when many decided to start their own business, many small enterprises appeared – the mushrooming effect was at it's peak. Characteristics of this small enterprises were: they worked fast, they were efficient and inexpensive. In the second half of the 1990s when VAT appeared and with inspections, the number of illegal enterprises was reduced. The second wave of mushrooming effect took place from 1998 until 2002. (European Commission, 2004b, on-line).

2.2.1. SHAPING FACTORS

 

The factors that made these two waves of mushrooming effect possible were: many potential entrepreneurs, many people were unemployed or retired very young (during the transition many people lost their jobs), high costs of labour in legal segments of employment, the employment procedures were long and complicated also the procedures of gaining permissions in construction were long and complicated. (European Commission, 2004b, on-line).

Many researches were made and they show that the share of undeclared work in the Slovenian economy is between 17% and 25% of GDP. In some sectors undeclared work is more present than in the others. Such sectors in Slovenia are: construction, transport, catering, retail and services such as cleaning, hairdressing and tailoring. In sectors like construction, transport,…men are dominating undeclared workers while on the other hand women prevail in services. One of the matters still remaining is that although the immigrants represent a big share of undeclared workers, the relationship between undeclared work and migration is still not recognized as significant. (European foundation for the improvement of living and working conditions, 2004, on-line).

 

 

2.2.2. POLICY

 

The Slovenian government is struggling with undeclared work since 1996. The government is collaborating with different organizations and inspections to prevent undeclared work. A special Committee for the Exposure of Undeclared Work (Komisija za odkrivanje in preprečevanje dela in zaposlovanja na črno) has been established. The committee policy against undeclared work is discouraging undeclared work and encouraging formal work. These measures are centralized and have a nation-state character, they include tax incentives on labour cost and changes in labour legislation. The Ministry of Work, Family and Social Affairs and the Inland Revenue Service are trying to achieve transformation from the informal to the formal economy. In 2000 the law on undeclared work was accepted: “Law on prevention of black labour and employment”(Zakon o preprečevanju dela in zaposlovanja na črno). The government policy mentioned above and the law mentioned above made a big difference in preventing undeclared work. But the problem of undeclared work is still present, especially in eastern part of the country, in rural areas. (European Commission, 2004b, on-line).

 

 

2.3. SUPERVISION OF UNDECLARED WORK

 

According to the official gazette of the Republic of Slovenia (2007, on-line) undeclared work is under direct supervision of inspectorates (Market inspectorate, Labour inspectorate, Transport inspectorate and Tax inspectorate) and indirect supervision of Tax administration of the RS, Customs administration, Health inspectorate, the police and others. All of these bodies of misdemeanor have the right to demand all of legal persons’ or individuals’ papers based on which a breach of provision can be determined. Also a Commission for detection and prevention of undeclared work and employment is appointed by the government of RS. The commission coordinates the work of all of the inspectorates and distributes an annual report to the government of RS and the Economic and social council.

 

2.3.1. PENALTIES

 

It is stated in the official gazette of the Republic of Slovenia that penalties for individuals range from two hundred to just short of two thousand euros (50.000 sit – 450.000 sit) respectively, four hundred to just short of two thousand euros (100.000 sit – 450.000 sit) for a breach of article five, paragraph one, indent three. For an individual without a Slovenian citizenship deportation from one to five years is also a possibility.

Penalties for a legal person or an entrepreneur range from just over three thousand euros to just over twenty thousand euros (800.000 sit – 5.000.000 sit) respectively, just over four thousand to just over twenty thousand euros (1.000.000 sit – 5.000.000 sit) for breach of article five, paragraph one, indent three (Official Gazette of the Republic of Slovenia, 2007, on-line).

 

2.4. STUDENTS AND UNDECLARED WORK

 

It is declared in the  18^th paragraph of Regulations concerning conditions for employment service activities (Pravilnik o pogojih za opravljanje dejavnosti agencij za zaposlovanje, 2006, on-line) that agencies (student employment brokerage services) can provide temporary and occasional work only for persons with student status in Republic of Slovenia, who are not employed or registered as an unemployed person in the Register of unemployed persons at the National employment office.

This means that students can work through student employment services only with a valid student status. If a student loses his or her status this is not possible.

In 70^th paragraph of the Higher Education Act (Zakon o visokem šolstvu, 2004, on-line) it is declared that student status stops, if the student graduates, does not enrol in a next year or semester, does not graduate in twelve months after the conclusion of the last semester, drops out, is expelled, completes postgraduate study or does not complete postgraduate study in suitable, statute prescribed time.

Also in January 1st 2007 the Act of employment and insurance abolished the opportunity of working through student employment brokerage services for students who take a pause year (E-študentski servis, 2007, on-line). Due to this restriction many make use of illegal forms of work, such as working without a referral or working with somebody else’s referral.

 

 

2.5. THE EFFECTS OF NON OBSERVED ECONOMY

 

Babušek-Medič (1999, p. 212) explains different effects of non observed economy or undeclared work in Slovenia.The first type of effect is a supplementary effect in an aggregated supply of products and benefits in kind. At the same time, undeclared work is also an alternative activity to the official sector since it competes with it, seizes market share of official sector and reduces the efficiency of it.Undeclared work also represents an exhausting effect, since it is using the sources of national economy. From the point of a long-term view it means over exhausting of employees, which are subsequently not motivated for further qualification, for innovations and research activities in the companies where they are employed. As a result, intellectual capabilities of society are being less effective in long-term.Also important is the effect of redistribution. Unequal opportunities provide options to the groups that deal with non observed economy to afford new products and benefits in kind with the earnings they make by doing those activities.The last effect the author states is the moral effect. Non observed economy brings more selfishness and private venturing. It also brings more corruption and subsequently unwanted side effects to the stiff business environment.

 

 

2.6. SOLUTIONS

 

2.6.1. POLICY RECOMMENDATIONS

 

Undeclared work can be seen as a two-sided situation. On one hand it is a situation in which individuals or companies take advantage of the system by not declaring their activities, employees or total financial income. On the other hand this is an obvious cause of the inappropriate labour legislation. Therefore it is important to establish an effective strategy dealing with transformation of undeclared work into regular employment (European Commission, 1998, on-line).

European Employment Strategy (European Commission, 2004a, p. 186-188) presented different suggestions on how to combat with this transformation.  It includes different policies which are based on:

a)      Preventive actions

§         Removal of bureaucratic obstacles: Bureaucracy puts unnecessary obstacles that some employers and employees do not find it worthwhile to overcome. That is why formal demands when establishing a legal business should be minimum. This would make entering regular employment much easier.

§         Stabilization of socio-economic situation: Statistics show that in many new Member States there is a high correlation between the general income level and the extent of undeclared work. Therefore they should focus on state formation, development of democratic institutions and stabilization of socio-economic situation.

§         Strengthening incentives to declare work: In order to stimulate employers to declare work states should primarily reduce the taxation of labour. Incentives can also be provided in other ways, such as making access of labour market easier, through social protection for workers or by providing financial support (for example smaller taxes) to small enterprises.

b)      Sanctions

On account of inadequate control over undeclared work this problem is so widely spread. One effective solution is to sharpen the sanctions – this includes higher penalties and strengthened surveillance. The state must also assure improved communication and cooperation between authorities (tax offices, labour inspection, police). That is the only way that sanctions have a preventive effect (European Commission, 2003, p. 4).

c)      Cooperation between Member States

This is especially important when dealing with undeclared work in transnational dimension. According to the Commission report (European Commission, 1998, on-line) on undeclared work in Europe Member States agreed to ‘the programme of cooperation and reciprocal provision of administrative assistance’ characterised by:

§         Direct communication

§         Supply of information and documents

§         Respond to any request for cooperation

§         Establishment of offices in the Member States to accelerate cooperation

d)      Information campaigns to raise social awareness

By information campaigns people would become aware of the negative consequences of undeclared work especially for social security, solidarity and fairness. The purpose of these campaigns would be “to increase public confidence and commitment to the financing of the welfare systems.” Another solution is to promote a code of ethics (a summary of ethical behaviour) in public and private sector.

 

 

2.6.2. POSITIVE EFFECTS OF TRANSFORMING UNDECLARED WORK INTO REGULAR EMPLOYMENT

 

By choosing the appropriate policies, transformation of undeclared work into regular employment is much simpler. In many countries unemployment is a big problem. In 2002 6% of people in Slovenia were unemployed. Through the years this percentage has declined also on account of transforming illegal employment into legal. One major positive effect is achieving full employment. Another advantage is raising work standards since most of undeclared work is done in conditions that do not meet basic standards. Transfomation will also strenghten social cohesion and provide integration for people who were seperated from regular labour market (European Commission, 2004a, p. 186-187).

Commission of the European Union (2003, p. 4) accepted new Employment Guidelines by which every Member State is committed “to develop and implement broad actions and measures to eliminate undeclared work.”

 

 

 

  3. METHODOLOGY

 

For our resaerch we decided to do two interviews. On one hand we wanted to get a student's perspective on undeclared work and get to know the problems students without status face. On the other hand we wanted to show the benefits of employers who employ students without referral. The first interview was done with a student who does undeclared work. In the second interview we interviewed an employer who provides undeclared jobs for students. 

 

4. FINDINGS

 

We did an interview with an owner of a bar but because of the nature of our research we will not reveal her identity. From the interview we can conclude that undeclared work is paying off for the employers who practice this kind of employment, as well as for the employees. The benefits for the employers are: they can avoid certain costs (they do not have to pay health insurance, taxes,…), if they are not satisfied with the employee they can dismiss him because there is no contract to protect employees and they can pay them less money than formally employed workers. Although this is not positive for the employees they are pleased that they have a job because these are people who already have a steady job but need more money, students who took a year off from school,…People who usually work for her are people that she knows or are introduced to her by her friends and also some old customers. This kind of employment is usually for short periods of time, for a couple of months. She is practising this kind of employment for three years and momentarily has three undeclared workers. Our interviewee is not concerned about concequences because as she said the supervision in our country is very weak. They don't have enough people, resources,…to control them.

We also made an interview with a student who does undeclared work, who will remain anonymous. She told us that even though people are saying that there is nothing easier than finding a job in the shadow economy that is not always true. In her experiences it is actually quite hard to find an employer willing to take the risk of taking on a "student" without a referral. It was out of necessity that they hired her, otherwise she might still be looking for employment.

 

 

5. DISCUSSION OF FINDINGS

 

 

We conclude that students most often decide for undeclared work in case of student status loss. In this case they are unable to work through student employment services and therefore can not have a personal income. They became willing to work for employers undeclared, even though this means that they are absolutely unprotected in terms of working conditions, payment and safety at work. Employers usually decide not to declare students who are working for them, to avoid paying the tax.

There are also cases when students, who have a valid student status, decide for undeclared work. One of the reasons for this is that undeclared work is usually better paid than work through student services. The second reason is that those who work without a referral actually benefit in comparison to students who work legally, because they are not restricted by the monthly money order on one referral. The administration of taxes conducts 25% of your monthly earnings if the payment is higher that 400 € per referral. This problem is especially common in the summer when students work for a longer period of time and their payments are higher. Many students then get 400 € ordered to one referral and get the rest of their earnings paid on hand. The third reason is payement of personal income tax, if taxable income is higher than abatements. Therefore, students who work and earn more than general relief, decide for undeclared work to avoid paying income tax. 

We believe that the scope of undeclared student work differentiates between different kinds of organisations and different kinds of work. The largest scope of undeclared work would be in catering industry, where lots of employers are prepared to risk paying a penalty if they get caught because undeclared student work brings them lots of money.

We also think that in organizations which do not benefit from undeclared work, for example public administration or in organisations which are under severe control of the state, for example gambling houses (casinos), there is less undeclared work.

Students are more likely to do undeclared work in so called simple lines of work: work in production, warehouse, printing house, building sites, and so on. Weak control over these kinds of work is the main reason for the scope of undeclared work we are facing today.

 Less undeclared work is in so called professional working environments such as administrative work, computer work, accounting, because there is a lot of bureaucracy, which makes it easier for the state mechanisms of control to detect irregularities. Also, this kind of professional work is usually better paid, so students do not feel the need to turn to undeclared work.

Our suggestions on how to solve these problems are simple. Students who take a pause year should keep their status and continue working through student employment brokerage services. Otherwise the extent of black student labour will continue rising. As for the other problem, referral limits should be higher in order to avoid the unwanted payment on hand.  

 

 

 

6. CONCLUSION

 

As we can see there are many different reasons that make people do undeclared work. The main reasons are to avoid taxes, to improve your own social status, to avoid bureaucracy and high labour costs and the misuse of welfare benefits. Students who face the problem of losing the status often decide to work illegally. Unfortunately it is not as easy to find such work as we might have thought. These jobs are usually given to the employer’s friends, that is why students confront a closed circle of people, which is not easy to get into.

Our group members think that we have good and decent options for dealing with this problem in the next solutions and prepositions:

·        A great step towards declaring unregistered would be if the state realized that taxing student work is not helping to fight against undeclared work. The share of one student monthly earning per referral should be taken away or at least should be smaller.

·        Students who take a pause year should keep their status and continue working through student employment brokerage services.

·        Transforming undeclared work in legal work. In that way the unemployment level will lower and work relations of those new employees will bring-in to the state budget. As an opposite effect the state could lower the taxes on work and encourage employers to declare all of their employees and their work relationships.

Undeclared work is a problem whom the states and it citizens must face together. The idea is to get people aware of negative influence of that kind of work and to establish strong and successful mechanism that will operate together in one common goal. That is to minimize the share of undeclared work in national economy. One has to know and accept the fact that we can never fully eradicate it, but we can constantly put restraints on it and minimize it.

 

 

7. BIBLIOGRAPHY

 

 

Babušek Medič, M. (1999) Siva ekonomija v Slovenskem gospodarstvu in predlog njenega reševanja, Naše gospodarstvo, vol. 45, no. 3/4, pp. 210-215

 

Državni zbor Republike Slovenije (2007) Zakon o preprečevanju dela in zaposlovanja na črno, http://www.uradni-list.si/1/objava.jsp?urlid=200712&stevilka=567 (accessed 20 October 2007)

 

Državni zbor Republike Slovenije (2004) Zakon o visokem šolstvu, http://www.uradni-list.si/1/objava.jsp?urlid=2004100&stevilka=4325 (accessed on 1 November)

 

E – študentski servis (2007) Ali lahko delam preko študentskega servisa, če pavziram?, http://www.studentski-servis.com/Studenti/Pogosta-vprasanja#1-2 (accessed 1 November 2007)

 

European Commission (2004a) An analysis of undeclared work: an in-depth study of specific items, http://ec.europa.eu/employment_social/publications/2004/cev104021_en.pdf (accessed 1 November 2007)

 

European Commission (1998) Communication on undeclared work, http://europa.eu/scadplus/leg/en/cha/c11710.htm (accessed 1 November 2007, last updated 14 July 2005)

 

European Commssion (2003) Undeclared work and the European Employment Strategy – Working document, http://www.annoeuropeodisabili.it/documenti/vareseenlavorosommerso.pdf (accessed 1 November 2007)

 

European Commission (2004b) Undeclared work in the new Member States and candidate countries: size, measurement and policy – Slovenia, http://assemblealegislativa.regione.emilia-romagna.it/biblioteca/pubblicazioni/MonitorEuropa/2004/Monitor_10/Commissione/rapporto%20_lavoro%20nero.pdf  (accessed 1 November 2007)

 

European foundation for the improvement of living and working conditions (2004) Thematic feature - industrial relations and undeclared work, http://www.eurofound.europa.eu/eiro/2004/06/tfeature/si0406205t.htm (accessed 1 November 2007, last updated 13 September 2004).

 

Ministrstvo za delo, družino in socialne zadeve (2006) Poročilo o aktivnostih in učinkih preprečevanja dela in zaposlovanja na črno za leto 2005, Komisija Vlade Republike Slovenije za odkrivanje in preprečevanje dela in zaposlovanja na črno, http://www.mddsz.gov.si/fileadmin/mddsz.gov.si/pageuploads/dokumenti__pdf/delo_crno_porocilo05_ess.pdf (accessed 20 October 2007, last updated April 2006)

 

Ministrstvo za delo, družino in socialne zadeve (2006) Pravilnik o pogojih za opravljanje dejavnosti agencij za zaposlovanje,

http://www.uradni-list.si/1/objava.jsp?urlid=2006139&stevilka=6050 (accessed on 1 November 2007)

 

 

 

8. APPENDICES

 

 

APPENDIX A: INTERVIEW WITH A STUDENT WHO DOES UNDECLARED WORK

 

 

 

Question 1: Could you please tell us how hard was it to find work without a student status?

Answer: Not that easy actually. I had three job interviews and none of the companies wanted to take me on without a student referral. It was on the fourth job interview that I was hired.

 

Question 2: How come that the company wanted to hire you (without a status)?

Answer: You see, they urgently needed to hire someone and were looking for a student. I told them that I could work for them but that I do not currently have a student status, and asked if it was possible for them to hire me permanently (with a contract). They told me that that was not possible, and asked me if I had any friends who have a status and could I arrange it with them to work through their referral. I did, and now I have been working for the company for a month.

 

Question 3: How did you get to know that they were looking to hire?

Answer: Well, as you know, I could not just check the webpages of student employment brokerage services, because I would need to have a student status to do that. I had however worked through a student referral during the summer and went to that company to see if they would take me on – again. But they did not want to have problems so they said no. Then I sent an e-mail to a company I thought could be hiring – they were, but they also did not want to have anything to do with a student without a status.

I almost gave up, but then I wanted to apply to an  x class (not disclosed for the purposes of not revealing our source or the company), saw a poster on the wall that said that they were looking to hire a student. I went to the desk and the rest you already know.

 

 

APPENDIX B: INTERVIEW WITH A BAR OWNER WHO EMPLOYS STUDENTS WITHOUT REFERRAL

 

Question 1: Why did you decided to employ undeclared workers?

Answer: I decided to employ them because it pays off. There is a mutual gain, I avoid certain costs and paper work and they have a job, because these are people who already have a job, students who take a year off from school, …

 

Question 2: How do you find these workers?

Answer: Usually these are people that I know. They are my friends or my friends introduce me to somebody they know. In my case, I own a bar; I had some workers who were my customers before they started working for me.

 

Question 3: For what period of time do they work for you?

Answer: It depends. Usually for couple of months. But one girl has been working this way for about two years now.

 

Quesion 4: For how long do you employ undeclared workers?

Answer: For about three years.

 

Question 5: How many undeclared workers momentarily work for you?

Answer: 3.

 

Question 6: What about the consequences? Are you not worried if the inspection comes?

Answer: The supervision in our country is very weak. They do not have enough people, resources, …to control us. That is why undeclared work is so widely spread in our country, especially in my business.

 

 

 

9. GLOSSARY

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