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Contract-free work in Europe: How do member countries compare?

2024-08-13 08:28:30Biznes SHKRUAR NGA REDAKSIA VOX

Informal employment, otherwise known as work without a contract, legal protection or social security, remains widespread around the world. According to 2023 estimates by the International Labor Organization (ILO), 58% of the global workforce is engaged in informal employment. After excluding agricultural workers, the figure drops to 50%.

In Europe and Central Asia, informal employment accounted for 1 in 5 workers until recently. Although the rate of such employment is lower in EU countries compared to other regions, a significant number of workers across Europe still participate in the casual or zero-hours contract economy.

According to ILO data for 2023 or the most recent figures available, Hungary and Poland had the highest rates of informal employment among EU countries, at 17.8% and 9.8% respectively. In contrast, the informal economy is much less widespread in other EU member states, with informal employment rates falling below 2% in a third of EU countries.

Malta recorded the lowest rate of informal employment at 0.7%, followed by Slovenia at 1%, and both Belgium and Bulgaria at 1.3%. However, when considering the Free Trade Association (EFTA), EU candidate countries and potential candidate countries, the picture changes significantly. Georgia and Moldova stand out as outliers with informal employment rates of 56% and 52%, respectively.

Why is informal employment so high in Turkey?

Beyond these differences, Turkey recorded the highest rate of informal employment among these countries, at 27.3%. Turkey's high share of agricultural employment is a key factor contributing to the country's rising informal employment rate, according to Professor Aziz Çelik of Kocaeli University. "While employment in agriculture is on average about 4% in European countries, it is approximately 15% in Turkey," the professor noted.

He pointed out that casual work in Turkey is particularly rampant within the agricultural sector, where 81% of employment is informal, compared to 17% in non-agricultural sectors. As the percentage of employment in agriculture has been declining in recent years, the overall rate of informal employment in Turkey has also been declining, from just over 50% in 2004, as reported by the Social Insurance Institute of Turkey.

Çelik also pointed to institutional and legal factors as important contributors to the persistence of informal employment in Turkey. He emphasized that the effectiveness of measures to combat unregistered employment plays a decisive role. However, in Turkey, frequent tax and insurance premium amnesties (restructurings) and the lack of strict inspections have allowed unregistered employment to remain high. Informal employment is particularly high among candidate and potential candidate countries for the EU.

The UK has the largest number of top economies in Europe

It is surprising that informal employment is more widespread in the UK compared to some other European countries. Among Europe's top five economies, the UK had the highest rate of informal employment at 6.5%, followed by Italy at 3.8% and France at 3.6%. In contrast, the informal employment rate was 2.6% in Spain and 2.5% in Germany.

Reasons behind inequalities: Social norms and legislation

Social norms, traditions and legislation are key factors contributing to inequalities in informal employment across Europe, according to Professor Mihails Hazans from the University of Latvia, who has extensively researched informal work across the continent. For example, in Poland, the prevalence of small enterprises, which often rely on informal workers, may partly explain the higher rates of informal employment.

Moreover, the sectoral composition of employment plays an important role. Hazans pointed out that informal employment tends to be higher in countries where the hospitality and construction sectors represent a larger share of total employment. These industries are particularly prone to informality because of the nature of their work and the ease with which informal work can be integrated.

Regarding the higher rate of informal employment in the UK, Mihails Hazans noted that "a written contract is not required in the UK", which may contribute to the spread of informal work. He also noted that the gig economy can play a significant role in influencing these higher rates, as gigs often lack formal contracts and protections.

Based on data from the European Social Survey, Professor Hazans found that the rate of informal employment in the UK is actually higher than the ILO estimate. In 2018, the informal employment rate in the UK was 8.5%. This rate rose to 13.3% between mid-2021 and 2022, before falling to 8.9% in 2023. In his calculations, a similar trend was observed in Ireland, where the unemployment rate was 12.6% in 2018, significantly more higher than the 1.8% reported by the ILO. This pattern also applies to Portugal, with Hazans estimate at 9.3%, compared to the ILO's figure of 4.6%.

Conversely, it identified lower unemployment rates for Hungary and Poland than those reported by the ILO. In the informal economy, also known as the underground or shadow economy, workers lack social and legal protection, leaving them vulnerable. Furthermore, the risk of family poverty increases with the degree of informality within a family.


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