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Workshops: The Hidden Economy in Macedonia

Key speakers

On 27-28 November 2014 the Center for Research and Policy Making, Macedonia and the Center for the Study of Democracy organized two workshops aiming to empower the Macedonian civil society and the relevant government authorities to monitor and tackle the hidden economy. The first day was dedicated to tackling undeclared work in Macedonia, and the possibilities for utilizing local and European experience, and the second day focused on strengthening the media reporting on hidden economy and corruption.

Ms Ana Mickovska-Raleva, Policy Analyst at the Center for Research and Policy Making made the opening remarks by noting the gravity of the issue of informality, which affects not only the economy, but also the whole society. Mr. Ruslan Stefanov, Director of the Economic Program at the Center for the Study of Democracy expressed his hope that the collaboration between CRPM and CSD will result in delivering policy solutions and change in Macedonia, and will contribute to the establishment of a more stable society operating in the formal economy.

Mr. Mladen Frckovski, Advisor at the Macedonian Ministry of Labour and Social Policy described the measures which the Ministry of Labour and Social Policy, the Ministry of Economy, and the state inspectorates implement in the framework of the 2012 Action plan for decreasing the informal economy. He noted that the authorities work to regulate the seasonal work and registering the unregistered working persons in risk sectors such as agriculture, construction and tourism. The young people are specially targeted by the measures. Hundreds of schools were visited to raise awareness and support the successful transition from the educational system to formal employment. The control over concessions of extracting industries, as well as the customs control over undeclared goods was also enhanced. Mr. Frckovsk underlined that currently, due to the high unemployment, many people prefer to work informally. In this context, the informal economy cannot be obliterated fully, but the Ministry aims to decrease it as much as possible. He pointed out that thousands of businesses have been formalized, however sustainability can be achieved only through the increased engagement of all authorities, as well as by building of a culture where all employees are encouraged to be more active in seeking their rights. He expressed his hope that the economic situation and the enforcement of rules will improve with the process of accession to the EU.

Dr. Peter Rodgers, Lecturer in Strategy and International Business, Sheffield University Management School, University of Sheffield presented the European experience in monitoring undeclared work. He listed the advantages and disadvantages of informal economy. Among the main disadvantages he noted the unfair competition, the inability for firms and employees to access capital and credit from banks, the lack of maternity cover, sick leaves, health and safety standards. He also underlined that customers suffer from lack of quality guarantees when purchasing informal goods or services, and the government loses state revenue. Dr. Rodgers noted that policy options for tackling these issues could include public naming of the people not paying taxes, imprisonment, improving the tax morale, simplifying the tax return system, improving the customer services, and amnesties for some individuals. In the UK a good practice used is to demonstrate to individuals exactly where their taxes have been used to improve public services. Dr. Rodgers underlined that prevention, commitment and compliance policies could have greater budget revenue impact than the punitive measures. He stressed that the way forward includes understanding the effectiveness of policy measures, and how scarce resource can be allocated efficiently to achieve optimum results.

Mr. Ruslan Stefanov, Director of the Economic Program at the Center for the Study of Democracy presented the undeclared work trends in Bulgaria and CSD’s experience in monitoring the policy dynamics through the CSD Hidden Economy Index. He pointed out that the development of the economy has been a key factor for the downward trend of the informal economy. Bulgaria's accession into the EU provided access to grants for the trade unions and labour associations to tackle the hidden economy. He underlined that the government spending in Bulgaria could be increased, if the size of the informal economy is taken into account. At the present the social sphere, including the healthcare and education, remains under-funded. He noted that in Bulgaria the focus is placed on inspections of micro-companies and imposing of sanctions, which proved to be effective for example in collecting excise duties. Complying with these regulations however creates an extensive burden on the businesses and the results are one-off, difficult to be sustained and few in terms of fines collected. In this regard Mr. Stefanov advocated for service-oriented approach based on risk assessment, increasing the customer satisfaction, compliance and awareness. He also recommended differentiation of the measures applied - for the subsistence economy no strict measures are necessary; motivational measures without extensive sanctioning should be used to counter the hidden economy, and market and punitive measures should be used when the hidden economy starts to merge with the criminal economy. Regarding the latter, Mr. Stefanov underlined that the hidden economy and corruption often reinforce each other. He referred to the results of the SELDI Regional Anti-corruption Report, according to which corruption is widespread and generally accepted by the population. In conclusion he stressed on the importance of systematic evaluation of the impact of the measures. He pointed out that the people at the top of the political power should lead by example and higher compliance standards should apply to them.

Mr. Emil Shurkov, Policy Analyst at the Center for Research and Policy Making made a review of the policies applied in Macedonia. According to different measuring approaches the hidden economy in Macedonia varies between 24%-47%. He explained that during the transition period characterized by fast development of SMEs operating in cash, various informal practices emerged. He highlighted that the main factors for the existence of the informal economy in Macedonia are the size of the taxes and the low tax morality, as well as the high levels of unemployment (28,4% for the second half of 2014, of which 54.6% youth unemployment in 2014, and 82.1% long term unemployment in 2012). Mr. Shurkov also presented preliminary results from the business and population surveys performed by CRPM based on the CSD hidden economy monitoring methodology. The data shows that 27.3% of the Macedonians declare a salary based on the minimum wage, although their real salary is higher; about 40% of the employees are partially or fully undeclared, and about half of the employers confirm the use of practices related to labour contracts with hidden clauses. The analysis also reveals that people of 15-34 years of age and students are most likely to enter into informal labour. He concluded by expressing his hope that during the next years there will be more intensive government measures and enhanced enforcement. He noted that the foreign direct investments can also help indirectly the formalization of the economy, the improvement of the labour practices and the quality of life.

Mr. Zlate Stojanovski, Director of the Labour Inspection of Macedonia presented the experience and challenges of the labour inspection in detecting undeclared workers and the possible policy solutions. He noted that according to various surveys the estimated informal workers are about 80 000-160 000, however no official data is available. The street merchants, workers in agriculture and family businesses most often do not register as employed and do not pay social securities. The manifestations of informal labour vary - in some cases only health securities are paid but not the tax for pensions, and in other cases there are delays of payment resulting in loss of healthcare rights. Mr. Stojanovski noted that often the inspections of the Labour Inspectorate are obstructed, access of the inspectors is denied and workers do not provide the requested information. Despite the penalties introduced, the detection rate remains low since workers do not have any incentives in declaring malpractices. He underlined that the termination of firm operation for one month and the high fines for unregistered workers decreased the informal labour to a certain degree. These measures however proved to be detrimental also for the official workers. For that reason, in September 2010 amendments in the legislation were made to reduce the fines and introduce incentives of formality.

Ms Daniela Mineva, Research Fellow at the Economic Program of the Center for the Study of Democracy presented the general approach adopted in October 2014 for the establishment of a European platform for tackling undeclared work and noted the high expectations that are placed on its future activities. The Platform is foreseen to join the efforts of the relevant authorities form the EU member states in joint trainings, peer reviews, inspections, exchange of information and best practices for countering all forms of informality.

During the discussion the participants focused on the legislative changes from July 2014. They pointed out the unclear texts regarding the formation of the base for payment of social securities and the possibility for volunteer work or honoraria contracts to be abused for non-compliance. The participants concluded that the inspectors in Macedonia are few and low-paid, which creates huge corruption and integrity risk, and there is need to stimulate the employers to develop their businesses and open new working places.

Ms Mare Anceva, Association of Trade Unions of Macedonia explained the role of trade unions in reporting undeclared work. She noted that in the recent years the problem has greatly decreased, but it has not disappeared. The cases of undeclared work are difficult to detect, because the workers do not feel protected from being fired in case they report a malpractice. She stressed that the informality is a social problem, not just legislative one, and in this respect solely awareness raising campaigns cannot achieve lasting results.

During the second day the participants discussed the cases and challenges related to the media reporting of hidden economy and corruption in Macedonia. Ms Ana Mickovska-Raleva, Policy Analyst at the Center for Research and Policy-Making presented analysis of 115 articles posted at websites of media portals and television stations in the period January 2011 - July 2014, and covering the topic of informal economy. The texts focused mainly on the policy measures or presented data from surveys, and included only six investigative stories. She stressed that the topic is covered very superficially due to the problems that the journalists encounter. These obstacles include difficult communication with the institutions, obstructed access to information, and avoidance of the topic. In conclusion Ms Mickovska-Raleva underlined that both the Macedonian CSOs and media should collaborate for deepening the analysis and media coverage of the informal economy.

Media Coverage

The participants in the workshop
Ms. Mare Anceva, Association of Trade Unions of Macedonia
The participants in the workshops
Ms. Daniela Mineva, Research Fellow at the Economic Program of the Center for the Study of Democracy (right) and Dr. Peter Rodgers, Lecturer in Strategy and International Business, Sheffield University Management School, University of Sheffield (left)
Mr. Zlate Stojanovski, Director of the Labour Inspection of Macedonia (right) and Dr. Peter Rodgers, Lecturer in Strategy and International Business, Sheffield University Management School, University of Sheffield (left)

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