Undeclared work
Turning Moldova “white” – The Moldovan government takes bold steps to encourage the formalization of employment
With ILO assistance, the Government of Moldova is developing innovative and ambitious policies for combating undeclared work, including a voucher system for occasional workers in agriculture, subsidy of social security contributions and by strengthening the labour inspectorate.
6 December 2022
© AFP/Sergei Gapon
In 2021, 22.8 per cent of the employed population in the Republic of Moldova had an undeclared job, notably in agriculture, construction and trade. Moreover, 6.9 per cent of the employees received salaries "in envelope". The unreported wages are estimated at 15 billion Moldovan lei or more than 6 per cent of GDP, which resulted in a deficit of the social security fund at almost 5 billion Moldovan lei. The prevalence of undeclared work entails significant losses of state revenues and leaves those workers outside the health and social protection. There is also a serious economic cost to law-abiding businesses. (See Labour Force in the Republic of Moldova: Employment and unemployment in 2021)
Facing these formidable challenges, the Moldovan government is developing a number of innovative and ambitious policies for combating undeclared work through a combination of incentives, detection and deterrence measures.
The ILO participated as primary technical source at the conference "
Among many other issues, the following three key measures were discussed:
Service voucher scheme for occasional workers in agriculture. The voucher allows for an easy process to register workers and to ensure social security coverage with an incentive. Employers in the agricultural sector purchase vouchers online or at post offices and give them to daily workers. A voucher has a fixed amount of 20 lei per day (approximately 1 USD). Of this amount, 40 per cent is remitted to the social insurance scheme (initially covering pensions only) and 60 per cent to the state budget. Thus, daily workers are covered by the pension system and in addition they can get a lump sum payment of 60 per cent of their total voucher amount at the end of the year as an incentive to remain in the social security system. A number of European countries (France, Switzerland, Austria, Greece, Italy) use vouchers to cover domestic workers and occasional workers. The ILO is supporting the Ministry of Labour and Social Protection in developing the online system for the submission and administration of vouchers.
Temporary subsidy of social security contributions. As an incentive to reduce undeclared work, the government will subsidize the full amount of the social contributions for up to two years if an employer declares actual wages to the employees by raising the reported wages by at least 50 per cent. The government expects that this measure will increase contributions to the social security system and could eliminate the current deficit.
Strengthening the State Labour Inspectorate. To effectively detect and prevent undeclared work, labour inspection is indispensable. A reform of the State Labour Inspectorate is underway with a view to enhancing its effectiveness and productivity, including the introduction of new risk criteria to select companies to be inspected, and the conduct of unannounced visits. The ILO is assisting the Ministry of Labour in this reform as part of its ongoing support to the Labour Inspectorate, which included assistance for carrying out integrated workplace inspections and the development of a new IT-platform for reporting work accidents and complaints. (See Digitalization of safety at work: Laying the foundation for safer workplaces in Moldova - Labour Inspectorate and ILO launch a new IT platform on work accident reporting). All these are crucial steps to bring the Moldovan labour inspection services in compliance with ILO Conventions Nos. 81 and 129, which is also a prerequisite for the EU accession.
For the proposed incentives and enforcement measures (“carrots and sticks”) to work effectively, it is indispensable to create a culture that fosters trust and a climate of support for desirable changes. The campaign "Go to light", recently launched by the Ministry of Labour and Social Protection with the ILO’s support, aims at contributing to the creation of this culture by informing the general public about the benefits of stopping these practices and their consequences for workers, employers, and the society as a whole.
Informal and undeclared work is a deep-rooted problem. The success of the policies for the reduction of undeclared work depends upon a long-term commitment and continuous efforts of all stakeholders. Clearly, in the Republic of Moldova there is a strong political will to change the situation through innovative measures. In the coming years, the ILO will continue supporting the Ministry of Labour and tripartite constituents to implement the existing reforms. The ILO will add assistance at the sectoral level by testing tailor-made packages to overcome informality in specific sectors with high prevalence of informality and a good potential for creation of formalized jobs.