Jobs recovery likely to decrease black market labor | Business| Economy and finance news from a German perspective | DW | 26.01.2011
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Jobs recovery likely to decrease black market labor

Germany's clandestine economy is larger than the average among OPEC countries. Companies sidestep social security dues and taxes using black market labor, but an increase in jobs will likely bring changes.

A customs official checks a Bulgarian worker's papers

Officials say there's more black market labor than they're able to uncover

The upswing in Germany's job market has had an additional benefit for the country, as black market employment is now estimated to be at its lowest point in the past 15 years.

The simple fact that many people have legitimate jobs again and less time on their hands has led to the decrease, according to the Institute for Applied Economic Research (IAW) of the Eberhard Karls University in Tübingen, which expects the trend to continue into 2011.

Still, experts say many of the new jobs are short-term or freelance contracts, and warn this could damage the job market in the long-term.

Germany also remains saddled with a black market economy of 13.7 percent of its gross domestic product, above the average of 13.4 amongst OECD countries, according to the IAW study.

Greece has a clandestine economy of 25.8 percent of its GDP, while the United States has the cleanest record with 7 percent. Those estimates are based on a variety of economic factors, and the study factored in other criminal activity relevant to black market employment.

Friedrich Schneider, an expert on clandestine economies at the Johannes Kepler University in Linz, Austria, said the reasons people choose black market employment are the same everywhere: "pressure from taxes, regulations, morals and how much time people have."

A job center in Germany

An increase in jobs is likely to decrease black market labor

"In general, black market labor doesn't damage the economy," he told Deutsche Welle. "Instead, it bolsters the economy, because the money earned clandestinely creates value. Those who lose out from black market employment are governmental institutions."

Inspectors busy

The IAW report assumes that in 2011, Germany's yearly unemployment average will recede to 2.95 million while the country's GDP will grow 2 percent. It also assumes planned labor agreements with eight middle- and eastern-European countries will come into effect in May, potentially legalizing many workers.

The size of Germany's clandestine economy has swelled in recent years, peaking in 2003 at an estimated value of 370 billion euros ($505 billion), or 17.1 percent of the country's GDP.

A spokesperson for the German Customs Administration said concrete numbers about the development of black market labor in Germany won't be available until March.

Michael Bender, a spokesman for the main customs office of Giesen, said the closer customs officials look, the more black market labor they're sure to uncover.

"In my experience, and in our district, the books are consistently full - very full, in fact," he told Deutsche Welle. "If we step up our inspections, then we'll discover more. That doesn't mean black market labor has increased or decreased. It just means we've discovered more through increased inspections.

In 2009 alone, German officials uncovered 624 million euros worth of unpaid social security contributions along with 37 million euros in unpaid taxes through black market labor, according to Bender.

Unemployed youth in Bosnia

Labor agreements with countries to the east could reduce the black market

"Think about what could be done with that money," he said. "The state desperately needed that money."

Large-scale problem

Still, customs officials aren't primarily looking for small-time handymen doing extra jobs off the books, or immigrants, for that matter. Instead, a large part of the problem are German companies which shirk payments by employing workers illegally.

"These companies secure a competitive advantage by doing so - that's what it's about - and that's how they secure better contracts," Bender said. "It really has to do with an organized black market labor - and that on a large scale. That's where these big losses come from, and that's where some employers are really able to make money."

Bender added that part of the difficulty with black market labor is that it is often perceived as a trivial offence.

"I'm certainly not of the opinion that it can be combated with inspections alone," he said. "It's not so simple as just driving somewhere, doing an inspection, and then the problem is gone."

Author: Gerhard Schneibel
Editor: Ben Knight

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