Each fourth employed person in the Republic of Moldova works informally and the state fails to collect incomes totaling over 7% of the GDP, shows an analysis carried out by Stas Madan, director of the program “Business Environment and SMEs” of the Independent Think Tank “Expert-Grup”, IPN reports.

The expert said that both the employees and the employers accept to give or to receive salaries unofficially for evident reasons. “The motivations for this phenomenon derive from the employers’ wish to have larger current incomes, the citizens’ distrust in the social contract, the perception of the quality of public services and are also fueled by firms - persistence of cash in transactions, perception of the high compliance costs and low noncompliance costs,” said Stas Madan.

The State Labor Inspectorate does not have real instruments to fight informal labor. “The given institution cannot carry out unplanned inspections and impose penalties and this goes against the international conventions of the International Labor Organization to which the Republic of Moldova is a party,” stated Stas Madan.

According to the National Bureau of Statistics, 192,000 people were working unofficially in 2021. This is about 22.8% of the working population. “Approximately 61.2% of those who are paid unofficially work in agriculture, being followed by those who work in the construction sector – 22.1%. The informal employees in the trade and hospitality industry together represent 6.6% of the persons working informally. Most of the people employed unofficially work at unregistered individual enterprises that do not have the status of legal entity,” noted the expert.

Even if undeclared work has a noxious impact on the population, firms and the state, the phenomenon expands. “Social insurance contributions are not paid for these employees. They do not benefit from paid annual leave and do not benefit from paid medical leave in case of illness.”

According to the study, the pandemic crisis worsened further the situation. In 2015 – 2020, the fiscal losses generated by the underground economy rose from 8.9 billion lei to 15 billion lei a year. Against the GDP, these losses grew from 6.1% in 2015 to 7.3% in 2020. The ratio of fiscal loses to fiscal incomes varied around 25%.

The study revealed that the people accept to receive pays unofficially also because they are at the poverty line. “A number of factors contribute to this, including the wish to have larger current incomes, the negative perception of the quality of services and benefits, consent to perform activities with very low productivity so as to remain at the poverty line and low fiscal morality,” said the expert.