Undeclared Work in the Czech Republic and its Implications for the Czech Labor Market

Abstract

This paper aims at describing the issue of undeclared work in the Czech Republic and to explain the burdens it represents for the national economy. It also describes what measures can be undertaken in order to tackle undeclared work and uses some real-life examples to illustrate their outcomes. Undeclared work and the so-called svarc system (the employer-employee relations with a person exercising the employer's normal activities not being an employee in legal terms but acting as an independent entrepreneur) are among the biggest issues on the Czech labor market nowadays. According to some estimations, the Czech state loses about five billion CZK annually in the form of uncollected taxes, unpaid revenues and health and social insurance payments. New changes to the Czech labor legislation that came into force in 2012 were envisaged to tackle undeclared work, reduce tax evasions, fight shadow practices on the labor market, and to prevent social deprivation and other threats for the society by shifting the competences to conduct random checks, and controls of firms and businesses were transferred to the State Labor Inspection Offices (SLIO). The changes in the legislation facilitated the identification of the undeclared work and penalizing of its bearers, which minimized the losses from the illegal employment.