In 2019, on average 1.3% of the registered labour force in OECD countries were employed as non-care household service workers, and many more engage in undeclared work in this sector. These workers, most of which are women, provide a variety of services that support households in their daily life, such as cleaning, laundry, gardening and cooking. With increased time stress within households, these services can be an important contributor to the well-being of families. This is particularly important for women, who spend more than twice as much time per day on unpaid non-care housework than do men. Despite its unpaid nature, conservative estimates suggest that non-care housework contributes as much to our economic well-being as the average value added by the manufacturing sector in the OECD.

The relatively high formal labour cost for low-income workers in many OECD countries, has contributed to the development of a large informal non-care household service sector in many countries. Undeclared workers generally lack access to social benefits, sufficient health and safety protection and/or employment-related training, which leaves many of them in vulnerable employment, social and health conditions. To reduce the incidence of informal employment, integrate vulnerable workers in the labour market, and enhance employment and career opportunities for women otherwise engaged in unpaid housework, several OECD countries have introduced a range of schemes to formalise employment and production in the non-care household service sector.

This report compares the formalisation approaches in five countries with extensive policy frameworks for non-care household services: Belgium, Finland, France, Germany and Sweden. Common to these countries are policy instruments that reduce the price of non-care household service work. Belgium and France use social vouchers, which recipients can buy at low prices or receive from their employers to pay for non-care household services. Sweden, Finland, France and Germany grant tax credits that offer different degrees of favourable tax treatment to the consumer of such services.

Social vouchers are transparent measures that are easy to use for consumers across the income distribution; they also facilitate targeting support at specific groups in the population. However, tax credits are usually claimed with the annual tax return, which requires that consumers pay the full service price upfront. This can lead to low consumption among households with lower incomes who cannot afford the higher price.

Low-income households may also not have sufficient taxable income to benefit from traditional tax credits. In response, French policy has made these tax credits refundable (i.e. they are paid out in cash to those without the necessary tax liabilities), but this has not led to substantial consumption effects at the lower end of the income distribution. The high gross service prices seem to be a substantial barrier for low-income households to overcome. However, if tax credits are granted “at source” – at the time of service consumption – as in Sweden, households with lower income find it easier to buy profit from favourable tax treatment.

Other instruments simplify the administrative processes in hiring domestic workers, for example, by outsourcing the handling of payroll and social contributions to external contractors. Particularly in countries where direct domestic employment is common, i.e. where households act as the employer of domestic workers, these systems are another important aspect of accessibility. In countries where most services are provided through intermediary provider organisations, such instruments are generally not important.

Particular design features of tax credits or social vouchers, such as limiting the use of vouchers to services bought from provider organisations, can influence the distribution of the types of work arrangements and thus the job quality in the non-care household service sector. For example, registered intermediary service providers generally offer better social and health protections than households who directly employ service workers. In addition, if direct employment is established through declarative vouchers, many households are not even aware that they have taken on employer responsibilities.

Depending on the country, both social vouchers and tax credits can be linked to a reduced incidence of informal work. However, the effectiveness depends on the extent to which service prices are reduced by tax credits/social vouchers. For example, German households can receive a tax rebate equal to 20% of their expenses on household services, while households in Sweden and France receive a rebate of 50%. The French and Swedish systems have proven to be more effective in moving informal work into the formal sector.

While support policies have generated positive employment effects among low-skilled workers and the unemployed, some systems have proven to be very attractive to labour migrants. For example, in Brussels EU labour migrants make up two-thirds of the non-care household service workforce, and initial policy objectives of the policy to integrate refugees and other vulnerable workers were difficult to achieve.

The available evidence does suggest, however, that following the introduction of non-care household service policies, higher-skilled women generally increase their labour force participation.

The public costs of non-care household services can be substantial, yet resulting reductions in the expenditure on unemployment benefits and increased public revenue can lead to considerable earn-back effects. The net costs of the formalisation policies is often estimated to be close to being budget neutral, but the underlying assumptions on job creation and unemployment reduction may well be overly optimistic. At the same time, moving informal work into the formal sector is generally associated with substantially better working conditions, (partial) coverage by labour protections and access to social benefits. While these effects cannot be measured in cost-benefit analyses, they are a critical factor for the well-being of non-care household service workers.