September 16, 2011 |
The United States continues to suffer from mass unemployment. People
have had to adjust their lifestyles to the new reality—fewer jobs,
lower wages, mortgages to pay that are now more than their homes are
worth. Millions
have dropped out of the job hunt and are trying to find other ways to sustain their families.
That's where the underground economy comes in. Also called the shadow
or informal economy, it's not just illegal activity like selling drugs
or doing sex work. It's all sorts of work that doesn't get regulated by
the government or reported to the IRS, and it's a far bigger part of the
economy than most of us are aware—in 2009, economics professor
Friedrich Schneider
estimated that it was nearly 8 percent of the US GDP, somewhere around
$1 trillion. (That makes the shadow GDP bigger than the entire GDP of
Turkey or Austria.) Schneider doesn’t include illegal activities in his
count-- he studies legal production of goods and services that are
outside of tax and labor laws. And that shadow economy is growing as
regular jobs continue to be hard to come by—Schneider estimated 5
percent in '09 alone.
The Young Women's Empowerment Project [
PDF]
describes the “street economy” as “... any way that girls make cash
money without paying taxes or having to show identification. Sometimes
this means the sex trade. But other times it means braiding hair,
babysitting, selling CDs/DVDs, drugs or other skills like sewing and
laundry.”
D.A. Barberexplained:
“This underground economy goes beyond the homeless collecting
aluminum cans or clogging day labor halls. It includes the working poor
getting cash for all forms of recycling: giving plasma, selling homemade
tamales outside shopping plazas, holding yard sales, doing
under-the-table work for friends and family, selling stuff at pawnshops,
CD, book and used clothing stores, and even getting tips from
restaurants and bars--to name a few.”
That means nearly all of us have participated in some way in the underground economy.
Yet little is known or discussed about this area of our lives, even though it touches many of us as we try to make ends meet.
Economist Edgar Feige estimated in 2009 that unreported economic
activity was costing the US government $600 billion in tax revenues, and
the growth in that number—from the Internal Revenue Service's 2001
estimate of $345 billion—indicates the growth of the informal economy.
Reporting on Feige's work,
Dennis Chaptman
noted, “As the recession deepens and regular employment opportunities
decline, unreported activities tend to grow, thereby swelling the tax
gap and worsening the government's budget deficit.”
Workers in the underground economy can also be vulnerable to exploitation; the
Monthly Review
pointed out that workers, especially undocumented immigrants, are
pushed into off-the-books work out of desperation and have no authority
to appeal to when their conditions are horrific or their pay
substandard; wages are pushed downward and expectations lowered.
Labor economist Mark Price agreed. He told me, “People enter such
arrangements because of their difficulty finding formal employment.
Think of undocumented immigrants that work as housecleaners or in the
construction industry.”
He continued, “Employers or consumers who use workers in this way are
doing so to boost profits or lower prices. Of course documented
workers also can end up choosing to work in the underground economy but
that choice, like the choice for the undocumented, has the same basic
driver--the inability to find formal paid employment that meets a
worker's needs.”
Alfonso Morales, a professor at the University of Wisconsin at Madison, told the
Christian Science Monitor
that off-the-books work “is probably neutral to good.” He pointed out
that it is impossible to separate the informal economy from the formal.
“People who make their money in unregulated businesses probably spend it
in regulated ones.”
Price compared the growth of the underground economy to payday
lending; “a typically undesirable practice that develops and thrives
because it fills a need created by the failure of public policy to
address societal needs.”
The informal economy, though, does not only consist of low-wage
workers. Saskia Sassen, Robert S. Lynd Professor of Sociology at
Columbia University, pointed out in her book
Cities in a World Economy
that there is also an informal economy of creative professionals. In an
article titled “Cities Today: A New Frontier for Major Development” she
wrote:
“In brief, the new informal economy in global cities is part of
advanced capitalism. One way of putting it is that the new types of
informalization of work are the low-cost equivalent of formal
deregulation in finance, telecommunications, and most other economic
sectors in the name of flexibility and innovation. The difference is
that while formal deregulation was costly, and tax revenue as well as
private capital went into paying for it, informalization is low-cost and
largely on the backs of the workers and firms themselves.”
She points out that by keeping creative professional work informal,
these workers avoid the corporatization of creative work, and maintain
the freedom to be innovative and self-sufficient.
While these creative workers prize independence, Lisa Dodson stressed
the way communities come together to help one another through tough
times, often through off-the-books economic activity, in her book
The Moral Underground: How Ordinary Americans Subvert an Unfair Economy.
In one passage, she tells the story of arriving in a small-town
farmer's market in Maine, only to overhear a discussion between locals
on “neighbors and the market erosion of common fairness.”
She wrote:
“Just then a middle-aged woman, who had been talking to friends,
suddenly turned around to face other shoppers and asked, 'What’s
happening to us? Why doesn’t the government do something?' A local
farmer, sorting vegetables nearby, responded immediately, 'The
government is the same as the oil companies. There’s no difference. We
can’t wait for them to do anything.' A young mom holding a baby as she
stood in line said, 'So what do we do?' There was no single response,
but they were looking at each other to find it.”
Without solutions coming from Washington or local governments, it
continues to be up to working people to find a way to negotiate the
rough economy. Price argued, “People shouldn't have to give up
fundamental human rights like access to income in retirement or safety
on the job because they need work. But in a society like ours, which
tolerates high levels of unemployment, the underground economy is often
the next best alternative to starving.”
While some have been able to flourish working underground, it's
important to remember that most workers are not off the books to dodge
paying taxes or because they prefer it that way. As we see more and more
people dropping out of the formal labor market in despair, the informal
economy will remain a destination of last resort—and will keep growing.
Sarah Jaffe is an associate editor at AlterNet, a rabblerouser and frequent Twitterer. You can follow her at @seasonothebitch.
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