The $ 2 trillion underground economy could be the savior of the recovery

Parallel economies are generally associated with illegal activities, such as drug trafficking. But anecdotal evidence indicates that informal work in today’s labor market includes personal and domestic workers, such as housekeepers and nannies.

“Jobs are in service industries, from small food establishments to landscaping.” said David Fiorenza, professor of economics at the University of Villanova. “Even the arts and culture industry is not immune to working outside of books in music and entertainment.”

It also includes companies that hire hourly or daily construction labor, IT specialists, and web designers. Many of those who have a job that does not pay enough take another that pays illegally.

“We’ve always had people making income without saving it, so it’s not really new,” said Peter McHenry, assistant professor of economics at the College of William & Mary. “But the fact that more and more people are doing it shows how bad the work situation is,” he added.

The reasons for the growth of the underground economy are quite simple, according to Gonzalez.

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“There are a lot of uncertainties about the changes in immigration and who will be legal, and how Obamacare will be paid,” she said, adding that most underground economy workers are in the country illegally. “Government rules prevent companies from hiring.”

A report from the ADP Research Institute states that many employers, especially in low-wage businesses such as retail and catering, plan to reduce workers’ working hours to less than 30 hours per week to avoid having to provide employee benefits. health via Obamacare (or to pay a fine).

“This kind of regulation could put more people out of work and into a black economy,” McHenry said.

But employers have their own agenda, according to Padilla.

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“Businesses are not angels, and they exist to make a profit,” said Padilla. “They’re going to do whatever they can to cut costs, and if that means paying people off the books, they will. The government doesn’t really have the resources to track down all the companies that do that.”

What the government is watching are revenue losses. According to the Internal Revenue Service, about $ 500 billion in taxes were lost last year due to unreported wages, up from $ 384 billion in 2001.

“The effects of the underground economy are greater than you think,” said David Fiorenza. “The result is less tax money paid to different levels of government.”

“Those who work and do not pay taxes put the burden on those who pay taxes,” Fiorenza added. “Taxes could be lower if the government were able to take over the underground economy instead of raising taxes on those who currently pay the various income taxes and payroll taxes.

But the dangers of an underground economy go beyond dollars and cents, analysts said. Workers who are not on the books do not receive social security or health benefits, and worse.

“People who do this type of work run the risk of being exploited with lower pay or not getting paid at all,” Gonzalez said. “There could be more exploitation if more people were forced into this type of economy.”

“Some income is better than nothing, but there’s a reason we have some regulations in place to protect workers and what they do,” McHenry said.

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At the end of the day, what is happening below normal in the economy shouldn’t be too shocking, according to Gonzalez.

“People lack patience when it comes to finding a job and losing income,” Gonzalez said. “So it’s no surprise that there are workers in underground economy jobs. But it’s a sign of how serious things are and how we need to get the real economy going.”


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Shawn G. Randall

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