Illegal “moonlighting” costs government billions

Up to 1 million people could be working illegally (www.zvw.de) www.zvw.de

More and more Swiss are working illegally to avoid paying tax and social insurance, according to a study by a leading economist.

Friedrich Schneider, an economics professor at the University of Linz in Austria, says moonlighting is now the fastest growing sector of Switzerland’s economy.

Illegal workers in Switzerland earned more than SFr39 billion ($27 billion) in 2002, representing 9.5 per cent of gross domestic product (GDP), according to the study.

Schneider estimates that there are around 500,000 Swiss people working illegally in full-time positions, while the overall number of illegal workers – including foreigners – is put at between 700,000 and one million.

He says many of them do not fit the stereotype of a typical illegal worker: someone who is unemployed and works for cash on a full-time basis.

“A lot these people have an official job, as a craftsman, for example, but work in the evening in the shadow economy,” Schneider told swissinfo.

“It’s not a few people who are unemployed or who are illegal residents in Switzerland.”

Impact on the economy

The growth of illegal moonlighting over the past 25 years has led to an inevitable drop in social and state contributions of up to SFr10 billion annually.

According to Schneider, two-thirds of the money earned by illegal workers – SFr25 billion – does filter back into the economy through official channels, such as the buying of consumer goods.

Schneider says the driving force behind the upsurge in moonlighting is the high cost of labour in Switzerland.

He warns that as long as this remains high, employers will continue to turn to cheaper, illegal workers.

“Lower the labour costs by lowering the state contributions, then the shadow economy might stabilise or even shrink again,” says Schneider.

Global disease

However, Switzerland is by no means the worst offender when it comes to illegal working practices.

The study found that, along with the United States, Switzerland has the lowest percentage of illegal workers, due to its low tax rates.

Earlier this year, the Swiss government proposed a new law in a bid to clamp down on illegal workers and stem the loss in revenue.

The proposal calls for tighter controls, simplifying the process for paying social insurance, more efficient sharing of data among federal departments, and tougher penalties.

Under existing legislation, employers face a fine of SFr5,000 and employees, SFr2,000 if they are caught breaking the law.

This would be increased to SFr500,000 for the employer and SFr20,000 for the employee, as well as carrying the threat of a prison term.

swissinfo, Isobel Johnson

Key facts

Moonlighting is the fastest growing sector in the Swiss economy.
The total number of people working illegally is currently between 700,000 and one million, with 500,000 of them in full-time jobs.
They earned SFr39 billion in 2002.
Unemployment reached 3.3% in November.