Economists have long thought the underground economy--the vast, unregulated market encompassing everything from street vendors to unlicensed cab drivers--was bad news for the world economy. Now, it's taking on a new role as one of the last safe havens in a darkening financial climate, forcing analysts to rethink their views.
"Dramatic change often comes as a response to imminent collapse." Tom Peters
As many as 52 million people could lose their jobs from the economic crisis worldwide, says the International Labour Organization, an agency of the United Nations. Without the informal sector, many of them will have nowhere to go.
Informal jobs "will absorb a lot of people and offer them a source of income" over the next year, says W.F. Maloney, an economist at the World Bank in Washington. There are also some informal workers in the U.S. and other wealthy countries, including off-the-books maids, gardeners and "gypsy" cab drivers, though the phenomenon isn't nearly as widespread as in the developing world. Analysts say it may add up to as much as 10% of the overall U.S. economy, and probably is growing now that employers are slashing staff, forcing more people to try their own small-scale businesses or make do with part-time contract work.
The current recession, which is pressuring companies to cut labor costs, could intensify by pushing companies to ditch expensive formal workers in favor of cheaper part-time employees without benefits. Many laid-off workers may never be re-absorbed by the formal economy, as companies grow more accustomed to the flexibility of their informal counterparts.
"The government's view of the economy could be summed up in a few short phases: If it moves, tax it. If it keeps moving, regulate it. If it stops moving, subsidize it." Ronald Reagan
Source: The Wall Street Journal, March 14, 2009