Laws will be tightened from the start of January to clamp down on people conducting undeclared work - activity that costs the Swiss economy SFr39 billion ($35 billion) a year.
Economics Minister Doris Leuthard announced the war on moonlighting with the backing of unions and employers. Measures include increased controls and sanctions coupled with less paperwork for low earners.
Workers and employers who fail to reveal earnings to the authorities costs the Swiss economy the equivalent of nine per cent of gross domestic product in lost taxes and social security contributions to the state and cantons.
The problem belongs to the same category as illegal prostitution and drug trafficking, supporters of new regulations say.
Moonlighting not only harms the people who work without a social safety net and adequate insurance cover against accidents at work but also encourages wage dumping, Leuthard said on Thursday.
"Anyone who works in the black market damages themselves because they are giving up wages that come with the right to social security protection. Working on the black market is no trifling offence. Whoever does this is liable to be prosecuted. The consequences [of moonlighting] cost everyone," she said.
The fact that Switzerland suffers less from moonlighting than most other countries belonging to the Organisation for Economic Cooperation and Development (OECD) is no reason to be complacent, Leuthard added.
The campaign entitled "No Moonlighting. Everyone gains" will begin on January 1 with a national poster campaign to raise public awareness.
Under the tough new laws fines for employers aiding and abetting moonlighting could be raised and repeat offenders could lose state business and subsidies. Offending companies were blamed for distorting competition in the market by illegally saving on staff costs.
The State Secretariat for Economic Affairs (Seco) names and shames culprits on its website.
However, measures will also be taken to reduce the paperwork for employers who engage workers on low wages. They will soon only need to fill out a single form for social security contributions if employees earn no more than SFr19,890 a year or if the total wage bill is SFr53,040 or less.
Cantons to enforce
This will be paid once a year and the employers will be taxed five per cent at source.
From the start of next year the cantons will have to shoulder most of the responsibility for enforcing the tougher rules, with many having to take on new inspectors and administrative staff. The state will fund half of the extra costs through fines levied by the system.
The cantons will be required to work with government and regulatory agencies to exchange information in order to make it more possible to identify people claiming welfare assistance while working, for example. However, the new enforcement procedures promise not to violate the privacy of personal information.
swissinfo with agencies
Schneider's 2007 predictions for the cost of moonlighting workers in other countries in terms of GDP percentage (Switzerland 8.2%):
Friedrich Schneider, a professor of economics at the Johannes Kepler University in Linz, Austria, has studied the issue of illegal working worldwide.
Earlier this year, his figures for Switzerland – which do not take into account activities such as drug trafficking – found that 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 2007 Schneider predicted a figure of around 8.2 per cent but the government calculates it is around nine per cent.
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.