Background

In Central and Eastern European (CEE) countries, the share of the informal economy is typically estimated in the range of 30 to 50 per cent of the official GDP. Therefore, it is an important obstacle to the modernization of the economy and society and the promotion of decent work and social protection.

According to the 2014 National Human Development Report, 22.3 per cent of all employees in Montenegro are informally employed, and an additional 10.3 per cent pay only part of due taxes and contributions). Informal workers employed by registered employers without a proper contract represent around 7 per cent of total employment.

The high proportion informal employment, especially unregistered self-employment, as well as the long period of average informal employment, indicate systemic problems in the institutional environment that hinder the transition from informal to formal employment. This is so despite the activities that have been undertaken in recent years.

Strategies for the transition from the informal to formal economy and the reduction of undeclared work require a long-term commitment as well as coordinated and concerted action by all stakeholders, including the social partners and the relevant public agencies, such as the labour inspectorate and the tax authority.

Objectives

The project focuses on three main kinds of action:

1. the generation of improved knowledge and monitoring of formalization and informalization,
2. effective action supporting the formalization and preventing informalization, and
3. improved protection and promotion of decent work for workers in the informal economy.

The project places special emphasis on fostering collaboration of social partners and tripartite collaboration in the development, implementation and monitoring of action on the informal economy.

Expected outcomes

1. Improved understanding and monitoring of informal economy and processes of informalization and formalization
   Accurate statistics on the informal economy are critical for diagnosis and policy development, as well as for monitoring the impact of efforts to promote formalization. In particular, it is important that statistical and other offices harmonize legal definitions (in line with the 15th and 17th International Conference of Labour Statisticians) and identify and monitor drivers of informality such as labour regulation, tax system, economic and productivity factors, etc.
   The National Statistics Agency, the National Employment Agency and relevant statistical services in line ministries are key ILO partners in efforts to improve the diagnosis and monitoring of the informal economy.
    
2. Effective action towards the formalization of informal economic activity and prevention of informalization
   ILO support will foster tripartite coordination through the reactivation of the tripartite Committee of the Social Council (originally established by an ILO project in 2009-2011).
   The capacity of government and its institutions (e.g. labour inspection and public employment service, social security institutions, vocational education and training institutions) to effectively plan and implement measures to formalize the informal economy and undeclared work will be enhanced.
   Further efforts are also needed to raise public awareness on the impact of informalization and to ensure public support for action against the informal economy.
    
3. Improved protection and promotion of decent work for workers in the informal economy
   Compliance with the law, including health and safety provisions, requires enhanced monitoring and outreach of labour inspection services to the informal economy. In addition, extending the coverage and enhancing the sustainability of social security services is a central component of promoting decent work in the informal economy.