Minimum wage and tackling the undeclared work and envelope wages in the construction sector – topics of a tripartite workshop organized by the ILO

The event was attended by members of the Tripartite Committee in the construction sector, representatives of the National Bureau of Statistics, ILO specialists from Geneva headquarters and Budapest regional office, representatives from the Ministry of Infrastructure and Regional Development, as well as from the National Economic Research Institute.

The workshop participants from the tripartite setting in Moldova agreed that there was a need to modernize the minimum wage system in the Republic of Moldova so that the latter contributes to improving the living standard of the population, particularly that of most vulnerable groups and who are likely to be more impacted by the multiple crises that Moldova is currently facing. In particular, the discussion touched on the possibility to increase the current level of the minimum wage above the 4,000 MDL floor so that the level reflects better the willingness from both, workers, and employers, to increase lower wages in the sector. ILO officers provided empirical evidence to suggest the need for the minimum wage to be adequate to cover the needs of workers and their families, as well as the economic context, while emphasizing the need for an effective implementation that should leave no one behind. Likewise, the ILO highlighted the importance of strong collective bargaining in combination with a well-designed minimum wage system to produce a wage structure that would be effective at reducing wage and income inequality. The report on „Empirical assessment of the minimum wage for an evidence-based social dialogue in the Republic of Moldova” developed by the International Labour Organization served as a basis for discussions.

The report provides a detailed analysis of the wage distribution and wage policies in Moldova and is part of the ILO technical assistance requested by the Government, financed by the joint United Nations Program for Strengthening Moldova’s Resilience to the current multiple crises that affect the economy and society, as well as to address the impact of the Ukraine war on food security and incomes of most vulnerable groups. The report, which is comprehensive including with the provision of a section on policy recommendations, provides evidence to support the need to strengthen tripartite actions to design a more effective and sustainable minimum wage system.

“The report provides empirically based information that could help improve the operation of the minimum wage system and proposes specific policy solutions, particularly regarding the coverage of the minimum wage and how to reduce non-compliance rates. A well-designed minimum wage system together with strong social dialogue and tripartite consensus could promote wage growth in pace with economic growth, thus reducing wage and income inequality while promoting the creation of formal employment and inclusive growth”, mentioned Rosalia Vazquez-Alvarez, Econometrician, Specialist in Wages at ILO.

Among the recommendations included in the report is the necessity to update the empirical evidence so that the periodic adjustments of the minimum wage provide workers and their families with an adequate standard of living without adverse effects to employment growth and the growth in labour productivity.  One of the main problems discussed during the meetings that took place is the existence of envelop money, that is, the fact that many workers are paid (in part or full) with undeclared wages; the ILO suggested that information campaigns should be put forwards to help wage employees understand that undeclared earnings today mean lower social protection rights, including lower pension rights, in the future. Besides information campaigns, the talks between social partners, the government and ILO officials rose awareness about the need for capacity building activities for the employer and worker representatives. Labour inspections, together with measures that would include sanctions and benefits, could contribute to significantly improving the level of compliance in terms of the minimum wage. These measures should be accompanied by measures for encouraging formalization, which represents a major challenge for the application of the legislative provisions on minimum wage.

The workshop addressed the subject of envelop money in the constructions sector which employs approximately 11% of the workers in Moldova and continues to present high shares of workers receiving either “a part”, or their entire earnings, in form of envelope money. According to the Labour Force Survey, the construction sector alone includes about 19% of wage workers who receive envelop money, a higher percentage that goes hand in hand with high degrees of informality in the sector (58 percent).

Considering the share of envelop money that is received by the 19% of wage workers in the construction sector, the total amount that is paid as undeclared amounts every month is about 36 million of lei per month. But it is not only in the construction sector where envelop money is a fact: considering all sectors in the economy, almost 190 million lei per month are paid undeclared and, therefore, generating a loss in public revenue. This is a worrying fact because a reduction in the fiscal space impacts adversely in the economic and social development in the country and, therefore, undermines the potential for public investment, for improving social protection and for economic growth. 

The workshop provided a possibility to the participants to discuss measures for combatting the phenomenon of undeclared earnings, including by strengthening the role of the labour inspection, the design of penalties and rewards effective enough to eradicate the practice, and the continuous analysis of data that could help monitor and evaluate policies changes in the short and medium term. The importance of monitoring and evaluations is crucial to guarantee that new measures are achieving the expected changes.

The ILO Project ‘Inclusive and Productive Employment’ financed by SECO will continue to provide technical advice to the tripartite partners to build consensus to design and implement measures to tackle the undeclared work, envelope wages and help micro- and small enterprises in the formalization process.

For more details, please contact: vrabie@ilo.org or call + (373) 78 11 33 90.