The shadow economy

david52_gwJanuary 31, 2012

Salon is running a series of articles on the 'shadow economy' - untaxed, unregulated. This bit caught my eye -

"Half the workers of the world," writes Robert Neuwirth in his new book "Stealth of Nations: The Global Rise of the Informal Economy," work in jobs that are "off the books - neither registered nor regulated." The combined economic activity of these 1.8 billion workers adds up to $10 trillion. If the informal economy were squeezed into a single political structure, observes Neuwirth, it would be the second largest economy in the world.

For many economists, labor organizers, government leaders and law enforcement officers, those numbers represent a huge problem: a tragic panorama of exploited workers, criminal activity and crippling shortfalls in government revenue. But where others see darkness, Neuwirth - reporting from China, Brazil, Nigeria and elsewhere - witnesses something more promising. In a world of growing inequality and faltering "real" economic growth, the shadow economy is where job creation is actually happening. Calling upon the most meager of resources and without any government assistance, people are somehow finding a way to survive, and even prosper.

"Stealth of Nations" makes a provocative argument: Instead of demonizing the informal economy, we should embrace it. Left to their own devices, people are finding ways to create jobs for themselves. The informal economy may ignore borders, trample over intellectual property laws, and thrive on bribery and other rule-bending behavior. To a mainstream economist, it may represent a fundamentally inefficient way of organizing economic behavior. But to Neuwirth, the informal economy is something we've got to learn from, coexist with and possibly even nurture. Because the world needs all the avenues for upward mobility that can possibly be mustered. "Employment," he writes, "has more value than efficiency." snip / end quote

The whole series is interesting reading, but the link goes to this particular article. IOW, rethinking those pirated CD's - the basis of a whole other economy, supporting millions.......

Here is a link that might be useful: link

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Calling upon the most meager of resources and without any government assistance, people are somehow finding a way to survive, and even prosper. other words, "bootstraps and personal responsibility". Good for them !

    Bookmark   January 31, 2012 at 1:20PM
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Brushworks Spectacular Finishes(5)

Well, avoiding taxes (your fair share of community support) is personally irresponsible, not personal responsibility. :)

And here is what the IRS has to say about THAT! Read the list. Read the audit technique. It's interesting.

Most articles forget about the professionals that earn underground income to avoid taxes. Policemen, firemen, teachers, tutors, music teachers, public accountants, etc...etc..etc. Not all underground workers are "struggling".

Here is a link that might be useful: The Underground Worker

    Bookmark   January 31, 2012 at 5:05PM
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I was reading something recently about Nigerian entrepreneurs who collect scrap plastic, bale it/put it in a container and try to sell it on the world market for recycling. They get the 'raw material' from legions of rag pickers, who in turn get a floor to sleep on and a meal.

Anyway, the article pointed out the problems the guy had selling his stuff, what with all the famous Nigerian scams.

    Bookmark   January 31, 2012 at 6:59PM
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marshallz10(z9-10 CA)

The plastic scam must then be the lowest form of scam.

I'm seeing a lot of under-the-table tradespeople in my landscaping work. Lots of cash passing hands although I don't dare to deal much with those folks.

    Bookmark   February 1, 2012 at 12:18AM
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I have been thinking lately about the island of plastic that is supposed to exist somewhere in the ocean (the Pacific?).

It seems to me that as petroleum becomes scarcer it could enrich someone to collect and process that plastic.

    Bookmark   February 1, 2012 at 1:38AM
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Brushworks Spectacular Finishes(5)


In my trade, the client (scammer) who wanted to pay for painting under the table is ALWAYS the hardest one to please.
They expect more, offer less. Such a pathetic group of people.

The ones who contact your crew when you decline them are the lowest of pathetic people.

    Bookmark   February 1, 2012 at 7:07AM
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In a single day in the HVAC/R service/repair/installation/sales business, it's pretty common to have several customers ask for no-receipt cash discounts and/or ask employees if they'll perform side jobs for cash.

Many former employees have gone out of their way to inform customers that they perform side-jobs as well.

In a single winter, we fired 7 employees that were doing side jobs for our customers - often with our vehicles, equipment, tools, parts, supplies and hardware.

    Bookmark   February 1, 2012 at 9:41AM
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The underground economy is booming in many local regions. More and more people are working for cash/barter or partial cash/barter and more and more tradesmen, trunk slammers, side jobbers, handymen and DIY types are working without professional licenses, insurance, plans, multiple permits, multiple inspections, variances, taxes, guarantees etc.

Much of the cash/barter income is supplemental as the offenders are already working a job or two, or collecting unemployment, unemployment extensions, numerous public assistance benefits, disability etc.

Recently I gave an estimate to a former tenant that quit 2 part time jobs to perform numerous under-the-table jobs and services. Their primary under-the-table income is cash/barter from daycare customers, cash rent from 2 apartments and cash rent from 2 room-mates. Room-mates are also part-time cash/barter employees.

Besides daycare and rental incomes, some of the household members also clean houses and provide homecare/healthcare for cash customers. One of them performs home based and onsite auto/marine detailing work, interior/exterior painting/staining, pressure washing and wallpaper work. They offered to pay me a commission if I sent them customer referrals.

Yet another household member performs house/business/foreclosure clean-outs/junk removal, buys/transports scrap metal, plus lawmowing, raking, snowblowing, roof shoveling etc. It's been a slow winter, so they're doing more odd jobs - light carpentry, home and camp repairs.

Many of their customers can't afford the cost of licensed daycare as it would be close to, equal to, or more than they'd make working.

Many of the underground economy workers actually send us substantial numbers of plumbing, heating, cooling. refrigeration, electrical, heating fuel, automotive, marine and computer customers - or just about any job they can't, or won't do.

Tougher job requirements, rules, regulations and the changing job market has left many people unemployed, under-employed, or unemployable, plus made many products and services unaffordable, so they do what they have to do to survive.

That said, the underground economy work has kept many off public assistance, plus the money made generally ends up back in the local economy - unless they're stuffing their mattresses full of cash and/or burying it in the back yard...

    Bookmark   February 1, 2012 at 10:07AM
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marshallz10(z9-10 CA)

I've had similar experiences to those itemized by Mark and mentioned by Brush. I've fired workers for taking side jobs with existing clients, often involving use of my equipment and supplies.

I wouldn't turn in those depending upon the black economy unless they were seriously disreputable. However, there are licensed contractors that police their trades to identify and have punished those working off the books and, of course, unlicensed.

The underground economy is a safety valve during hard times, supplying a need and keeping many off the dole. I've mixed feeling about those on welfare augmenting their income rather than finding and creating jobs for which taxes are collected and remitted.

    Bookmark   February 1, 2012 at 11:22AM
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One of the most asked question in our theater by US tourists is where is Canal Street. Whats on Canal street a lot of Tourists looking for knock of Louis Vuitton & Prada bags, pirated softwear at about a tenth of the cost.
Still not cheap but about a third of the original Price on the bags usually.
Even with continuous raids over the years this 2nd economy thrives fueled by US tourists who flock to Canal Street.

Here is a link that might be useful: Vendors

    Bookmark   February 1, 2012 at 7:52PM
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We have a local flea market that DH helps out at (his organization is using the proceeds to purchase the land they occupy).

State officials have been keeping a close eye on the operations of flea markets like this, and have required DH's organization to see that all participants receive, fill out, and return the appropriate tax forms. Quite a few vendors have had to request assistance with this due to illiteracy.

Some other flea markets in the area have not been as tax compliant, and have suffered raids by tax enforcement officers. One local flea market saw several vendors (from Nigeria, I think) arrested due to selling counterfeit goods.

IMO it is unfortunate if those eking out an existence in the underground economy are targeted; my fear is that many will hit the welfare or SSI rolls instead, and have their sense of self worth destroyed in the process. I realize some do make out quite well and probably could afford to pay tax, but that is not true of all of them. Many probably do have business expenses (transportation, storage rental, etc.) but would not have the paperwork skills to document these.

I have felt for some time that there should be more lenience in society for survival at various social levels. At the bottom, IMO, there should be few regulations or laws impeding commerce, because it is simply beyond some people to be able to comply. I realize that this makes things less safe and etc, but people need to be allowed to do what they are able to get by, and the customers also often need such lesser resources as well because they are less expensive. Many realize that the popular "dollar" stores and discount grocers also carry less safe goods, but utilize these stores out of necessity.

Overregulation facilitates monopolistic practices which exclude many from the economy. There should be different rules for different scales of operation.

    Bookmark   February 2, 2012 at 1:31AM
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One of our former employees has been servicing and installing residential/commercial/industrial A/C, refrigeration, hydraulics, pneumatics, boilers, steam boilers, gravity boilers, water heaters, gas/oil burners, plumbing etc for 35 years. He's one of the best in the business.

Due to recent changes in one of his service areas, only licensed plumbers, or contractors working under licensed plumbers can perform any kind of plumbing work.

Because of this, by request of his customers, he works illegally - without permits, or inspections in order to serve over 200 customers in one particular area.

So that he doesn't leave a paper trail, he can only be paid in cash/barter and doesn't buy equipment, materials and hardware locally. One local supplier alone probably lost over $100,00 worth of his business in a single year.

He'll sometimes work under our one of our licenses, but the added costs, time and hassle are often deal breakers.

Since they now require licensed plumbers, the majority of tradesmen performing this work in the past can no longer perform much work in the area. Because of this, there's little competition, so many prices have more than doubled, plus wait times are often long.

Since many of the customers can't afford higher prices, they neglect equipment, keep grossly inefficient dangerous equipment, or hire an underground economy worker to perform installations, maintenance and repairs.

Due to increasing costs of regulation, many also seek help via the free boiler/water heater/furnace replacement component of HEAP, so taxpayers are picking up the bill - up to $6,000.

Since so many customers now use HEAP for furnace, boiler, water heater service/repairs/installation, unlicensed plumbers, underground economy workers and tradesmen working illegally can no longer perform the work.

Even if they're working legally, many smaller businesses can't perform HEAP work, or a substantial amount of HEAP work since they don't have the savings/credit to cover overhead until they receive payment.

Regulations are often the best friend of larger businesses, but really hurt small businesses and independents.

Since protectionism is much higher currently, there are more licensed plumbers, licensed electricians and fire department/code enforcement patrols cruising neighborhoods looking for possible violations.

    Bookmark   February 2, 2012 at 9:06AM
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Regulations are often the best friend of larger businesses, but really hurt small businesses and independents.

You give a good example of the unintended consequences. Although some times, I suspect that regulation is precisely to put the small guy out of business - see small organic farms.

With this topic, I'm more intrigued by the 3rd world model of 'entrepreneurship' - some of these poorly governed, over-populated, chaotic groups of humanity that represent half the worlds population. India, Pakistan, Nigeria, Mexico - on and on. There may be some 'formal' economy, that runs on general principals of capitalism, regulation, taxation, etc, but that never even touches most of the population.

    Bookmark   February 2, 2012 at 9:44AM
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The story of the guy trying to sell scrap plastic reminded me of a local homeless guy we know that collects scrap metals.

He was doing OK for a while, but then the stores stopped letting people take shopping carts off the properties. One guy actually dumped his scrap metal and returnable bottles on the ground, then took the shopping cart back to the store.

He bought a bike with baskets, plus a pull cart, but both were stolen.

Recently, due to increasing copper and metals thefts the local scrap yard stopped buying scrap from anyone without a current driver's license, or DMV issued photo ID. Since he didn't have a driver's license, or DMV issued photo ID, he couldn't sell his scrap metals.

He ended up giving a guy a cut of his profits to sell his scrap metal, however the scrap yard will be moving shortly, so he and many others with income/transportation challenges will be out of the scrap business.

As scrap has increased in price, more people are getting into the scrap business, plus fewer people are giving away scrap, or selling it cheaply, so it's tougher for the poor to obtain scrap.

The same applies to returnable bottles. So many people in the poor urban areas are collecting them, that brutal competition has thinned out potential profits.

    Bookmark   February 2, 2012 at 10:44AM
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New York City requires everyone selling merchandise such as clothing, dolls or watches to have a license. But the city grants only 853 licenses to nonveterans and has a waitlist of thousands, forcing many vendors to operate illegally.
There are more than 853 street vendors on a good afternoon in Soho pushing art, shirts, sheets,

These people here are setting up before the rush hour in the morning & the tourists in the afternoon

There is block after block in this area that looks this way I would hate to have to run for my life with these barricades block after block.

Same street later the passing parade & impulse buys.

Not an easy life a lot of thefts, the occasional police raid & seizures of goods but Bloomberg did not want Giuliani's reputation on this.

    Bookmark   February 2, 2012 at 11:02AM
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I drove to town yesterday afternoon and saw that someone had thrown an aluminum soda can outside my gate. Came back an hour later and someone had already picked it up. Five years ago, I'd go out in the spring when the snow melted and pick up a garbage bag of cans and bottles. Don't see that any more.

That scrap metal thing is sure cleaning up the place. I saw my neighbor load up a trailer with old pipe, fence, and what not, drive it down to the dealer, he's out loading it up again. The scrap dealer has a deal running in the paper for scrap cars at $120 a ton, old car batteries $5 a piece. The number of junked cars up on blocks and old oil drums - the two 'State Flowers' of Rural America, is rapidly disappearing.

    Bookmark   February 2, 2012 at 11:06AM
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The supply of cheap used cars typically purchased by income/credit challenged residents that need cars to find/keep a job/home/apartment is slim since so many are buying/selling them for scrap.

Many running vehicles are driven to the salvage yard, the plates are removed, then they're driven across the scales and sold by the pound.

Auto flippers and buy here-pay here vehicle dealers are buying up much of the supply of cheap vehicles as well.

Stock at some of the auto salvage yards is slim since owners, junk dealers and middlemen are taking them to the scrap metal businesses, not the salvage yards, or shipping them out of town for a higher price.

Many vehicles were destroyed by the cash for clunkers program, plus many vehicles are sent to crusher when metal prices peak.

    Bookmark   February 2, 2012 at 12:42PM
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nancy_in_venice_ca Sunset 24 z10

Canal Street looks like the Venice Boardwalk - minus the skaters, chain-saw jugglers, Echo Man, one-man bands, and various preachers.

Trash cans on the boardwalk and on the beach are scavenged for glass and metal recyclables. Metal and glass are also routinely scavenged from city-issued recycle bin issued to residents even though supposedly prohibited by law. Lately newspapers are disappearing along with glass and metal.

People are going to do their best to survive in hard times.

    Bookmark   February 2, 2012 at 1:02PM
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marshallz10(z9-10 CA)

In in my small town, home to a lot of genteel poverty, there are a group of old men who arrive before dawn of pick up day for trash and recycleable cans pickup. At least they don't leave much of a mess as seen in other neighborhoods. One old fart asked me what I did with the "good" recycables. I told him that I hardly generated enough trash and "good" stuff to put out my cans once every two or three weeks. Then there is the old stakebed truck driven by some hispanics on the lookout for the big metal pieces. The cruise there neighborhoods the afternoon and evening before pickup day and pass by with more speed on the pickup day.

Practicing for a prime place in the Third World economi future.

    Bookmark   February 2, 2012 at 7:47PM
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Actually we have a lot of scrappers here, they come at night before pickup day and haul all matter of things. I am always amazed how these mostly broken down trucks, held together with bailing wire and mis-matched boards continue to run.

Then we have the "drive by" scrap dealers. They set up shop in one of the heavily (foreclosed) neighborhoods. I shop/sell at an inner city farmers market. For six months we watched grocery carts, strollers and brute strength to bring in "salvage" from abandoned buildings that are on a very long list for demolition (not to mention unpaid taxes) and I saw many an old clawfoot, cast iron tub be hauled in (yes in grocery carts).

As soon as the neighborhood is stripped, the scrap dealer moves on to the next devastated neighborhood. I drive thru there on the way to the market and think that one time it was all farmland anyway. Who knows maybe it will be again one day :)

    Bookmark   February 2, 2012 at 7:55PM
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And just think - an awful lot of the scrap is now exported to China and elsewhere for further processing, and sold back to us. Like the empty plastic water bottles.

    Bookmark   February 2, 2012 at 8:06PM
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nancy_in_venice_ca Sunset 24 z10

Lots of scrappers and scavengers in our alleys in Venice. I should know, I scored some really nice used brick, pots, a large crock and other stuff adaptable to an eclectic garden aesthetic. Oops, now it's called a 'collected look' with an emphasis on 'patina.' If Jay Griffith is getting big bucks for this look, no reason the rest of us in his old neighborhood can't do the same.

If something is in decent shape, a lot of us place it in the alley rather than call the city for a special removal. Way faster pick-up service, for sure!

    Bookmark   February 2, 2012 at 8:14PM
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LOL Nancy I picked up a wrought iron dinette set from the curb across the street, young man putting it out actually helped me carry it home. I in turn set my old (family) table on the curb with the still good chairs and small bud vase. Only took 20 minutes for a lady and two children to stop and haul it off in her van.

Several of our "cherished" family heirlooms were rescued from either a thrift store or off the curb (^_^)

Always check to see what is put out around here, never know what treasure awaits.

    Bookmark   February 2, 2012 at 9:34PM
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10 years ago, when we cleaned out homes and apartments after evictions, foreclosures and tax seizures in some areas, you'd have to take most everything to the dump.

Currently, you can leave much of the stuff on the curb where it's picked up by scavengers. We've even seen fights - pushing shoving yelling matches over stained or ripped mattresses, sofas, chairs etc.

Due to unemployment, limited savings, limited credit etc, many people will actually buy things typically thrown out 10 years ago and/or sales value is higher than scrap value.

We used take used furnaces, boilers, water heaters, oil/gas burners, controls, tanks, piping, ductwork, compressors, condensing units, air handlers, space heaters and numerous other parts to the salvage yard where they were sold by the pound. Currently, people will pay big bucks for many of these things as re-use value is substantially higher than scrap value.

When we removed a 20 year old boiler recently, the neighbor of our customer said he'd give us scrap value for the boiler. Much to his surprise resale and parting-out value was 10X scrap value. We can sell the burner, aquastat and low water cut-off alone for 4/5/6X the scrap value of the entire boiler.

Ebay and especially craigslist have really changed the local salvage market as well. Things we would have tossed 10 years ago can now be sold on craigslist for decent money.

    Bookmark   February 3, 2012 at 7:54AM
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Mark, same thing happened to us with out rentals . Even if renters weren't evicted , they still tended to leave stuff.
It started in the 80's and continued as long as we owned rentals . First vacancy we hauled it all to the dump and paid the dump fee.
The next time we hauled it to the curb thinking we would haul it the next day. We got to the house the next day and the stuff was gone.

    Bookmark   February 3, 2012 at 8:24AM
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