Swiss economy reveals its dark side

Construction is one of the sectors most affected by illegal work Keystone

It's a sector of the economy that employs around half a million people and has a turnover of around SFr40 billion ($32.6 billion) a year – all of it illegal.

Recent figures show that Switzerland’s black economy has shrunk as a result of tougher legislation, but a leading expert says only a change of policy could reduce it even further.

Compared with its neighbours and other industrialised nations, Switzerland still has a relatively small illegal work sector.

According to the State Secretariat for Economic Affairs, it is difficult to gain an overview as there is a lack of data in Switzerland on the issue. But Friedrich Schneider, a professor of economics at the Johannes Kepler University in Linz, Austria, has been studying the problem worldwide.

He says that after a period of constant growth over 30 years, illegal working has been decreasing in European countries since 2004.

His figures for Switzerland – which do not take into account activities such as drug trafficking – bear out this theory. In 1975 moonlighting made up 3.2 per cent of Gross Domestic Product (GDP). By 2003, it was 9.5 per cent.

However, in 2005 it fell to nine per cent, and in 2006 to 8.5 per cent. For this year, Schneider predicts a figure of around 8.2 per cent.

“The drop observed in recent years in Switzerland is essentially thanks to the introduction of new regulations and laws, which have made the fight against the underground economy easier,” Schneider told swissinfo.

Tougher law

On top of the fines already in place, a tougher law is scheduled to come into effect next year.

Punishments include increased financial penalties and prison terms, as well as cuts in government subsidies for farmers and exclusion from public tenders for the building industry.

According to Schneider, the number of people paid cash in hand in Switzerland is around 490,000, or about 15 per cent of all workers.

Contrary to popular opinion, only one seventh of this work is in a domestic setting – babysitting, gardening or cleaning.

More than half of illegal employment, says Schneider, is in the construction or crafts sectors.

“Let’s not forget catering and agriculture, of which the latter sector is subject to far less control than building sites,” adds Doris Bianchi, of the Swiss Trade Union Federation.

Moonlighting still remains far less common in Switzerland than in the rest of Europe, where the Mediterranean countries lead the way.

At the top of the list, according to predictions for 2007, is Greece at 25.1 per cent of GDP, followed by Italy (22.3 per cent) and Spain (19.3 per cent).

Even in Scandinavia

Not even the socially minded Scandinavians can compete. In Norway, Sweden, Finland and Denmark the illegal sector accounts for around 15 per cent of GDP.

“In general, it can be stated that the greater the fiscal and tax burden, the larger the shadow market,” said Schneider.

An excessive regulation of the work market and poor quality of public services are also reasons, he added.

On a world level, only the United States has a lower rate of illegal work than Switzerland – 7.2 per cent.

At the other end of the scale come Bolivia, Georgia and Zimbabwe, where the underground economy makes up an estimated two thirds of GDP.

The Swiss government has become increasingly concerned about the rise of illegal work’s turnover, which at SFr40 billion is about twice the revenue generated by tourism.

Schneider says the best way to deal with this is to implement measures that would encourage the shadow economy to change into a legal one.

“Instead of adopting punitive policies, it would be necessary to reform the fiscal and social security systems to give a boost to the legal economy,” he said.

swissinfo, based on an Italian article by Luigi Jorio

New law on illegal working

On January 1, 2008 a new law on illegal working will come into force in Switzerland. It was approved by parliament in 2005.

Under the new law, punishments for employers found using illegal workers will become tougher. In construction and agriculture – two sectors particularly affected – they include exclusion from public tenders and cuts in farming subsidies.

Fines of up to SFr1 million could be imposed as well as prison sentences of up to five years.

The new law also makes it easier for casual workers earning low wages, such as gardeners and cleaners, to register with a social insurance scheme.

Shadow economy worldwide

Turnover generated by illegal working in Switzerland will amount to 8.2% of GDP in 2007, according to Friedrich Schneider. Here are his predictions for 2007 for other countries.

Greece: 25.1%

Italy: 22.3%

Germany: 14.6%

France: 11.8%

Britain: 10.6%

Austria: 9.4%

US: 7.2%