Greece continues to struggle with recession issues including one of the largest shadow economies in Europe costing $15-$20 billion euros a year in lost tax revenue. Public spending, jobs, and community services are being cut not only in Greece but through out the United States as well. Individuals are beginning to see their contributions through taxes as being misappropriated and the inclination to participate legitimately diminishes in direct proportion to government reciprocation in trying economic times.
The benefits of participating in shadow economy activities such as, working off the books or not paying taxes on earnings, goods or services, may not be immediately recognizable. Choosing this path is risking renunciation and arrest, depending on the nature of the transaction. The Organization for Economic Co-Operation and Development sponsored a study, concluding that nearly 1.8 billion workers worldwide participate in this type of market to some capacity. In light of massive job loss and economic troubles, the shadow market acts as a "coping mechanism" for a population in a state of economic arrest. Benefits outweigh the risk with the prospect of fast, untaxed monetary gain. It is not simply enough to acknowledge that this market exists. We should strive to understand the causes and conditions creating this economy, also what changes can be implemented to discourage participation.
Betty and Helen are both single mothers living and working in South Florida. For the purpose of streamlining the example, both work a five day, 40 hour work week. The American median wage for 2010 is $26,363.55, and this is Helen's salary as an administrative assistant. For her income bracket the tax rate schedule is: 15%+850.00=$4804.54 leaving $21,559.02 to live and thrive for a year. For perspective, in the contiguous U.S. the poverty level for a family of two is $14, 710. The reality of this income bracket is that the numbers dance close together never really allowing the individual to break cycle of poverty. Betty is a shadow worker. Her nights are spent as a stripper and days as a seamstress. Dances at most adult establishments are $25 per song, 2-3 minutes in length, so in any given night there are 120-150 song opportunities to make money, obviously if people are there. A strippers' minimum average is typically $100-$150 though most frequently make more.
Earning a minimum of $100 a shift with no variation for a week, $500 breaks down to $12.50 hourly wage. Betty also does seamstress work charging $10 to hem pants. One pair takes 15 minutes. Assuming Betty is able to secure the work for one hour of work a day, for five days she can bring in an additional untaxed $200 a week. Consistently securing those numbers as earnings, it develops into a yearly salary of $36,400 and hourly wage of $17.50. That is not taking into consideration earnings above $100 at the strip club. In bad financial situations the shadow economy offers what the mainstream market is unable to: opportunity.
To understand the extent of participation we need to dispose of the notion that the shadow economy is made up of solely violent and vice type transactions. Getting exact numbers is difficult but the estimated shadow economy GDP is $1.5 trillion, illicit earnings at $1.1 trillion and off the books services at $400 billion. The shadow worker takes many forms: as a gypsy cab driver, stripper, seamstress, and the parking lot security guard at the 24-hour Wal-Mart charging homeless families $25 a night for a safe place to park their car and sleep, all are shadow workers. From legal to sexual services the market spectrum is broad, workers often operating in both markets undetected as undeclared earnings provide capital for future micro-entrepreneurial ventures.
How workers end up in the market is wildly varied, for some it is all they know, others fail to gauge the reality of credit and make poor financial decisions. All these stories collide with real facts and distressed realities of earning a living as a lower or middle class American in recent years. Changes are going to have to be made sooner than later, facing 8.3% unemployment, crushing student loan debt in light of joblessness, and a tax system that has its own issues, the list goes on. With jobs and lives threatened, the need for expeditious monetary gain is real and the shadow economy is becoming an increasingly viable option to many Americans.
Photo Credit: Borman818