Notes from the Underground: America's Sprawling Informal Economy

Article excerpt

Government policies usually have unintended consequences, but one effect is literally invisible to policymakers. When regulations get too complex or costly, or taxes too high, employers, workers, and entrepreneurs sometimes move outside the official system and into what is called the "informal sector." A growing body of research suggests that the informal sector - also called the underground, unofficial, black, subterranean, or non-registered economy - is an extremely large and highly productive subsection of the economy. In it mostly legal goods and services are bought and sold in a manner that evades the government's regulatory and fiscal reach. During the presidential transition, public attention focused on the off-the-books hiring of nannies, sometimes illegal immigrants. The Zoe Baird phenomenon is but a small part of a vast subterranean economy that has grown in response to overly burdensome and arbitrary government.

The informal sector has been studied extensively by professors of anthropology, urban planning, and sociology, whose political sympathies lie with the Left. Nevertheless, their studies highlight a question that should be of interest across the ideological spectrum: Isn't something wrong when an entire segment of the population works extremely hard, possesses valuable skills, and produces goods and services people want and use, yet is shut out of the official economy? Shouldn't their activities be considered legitimate?

New York Off the Books

Professor Saskia Sassen-Koob, who teaches architectural planning at Columbia University, has studied New York City's informal sector for well over 10 years. She thinks American culture places too much emphasis on what she calls "valorized" occupations - those with a high degree of visibility to match their high wage levels. Professor Sassen-Koob and her graduate students are doing hands-on work interviewing informal street vendors, car repairmen, cab drivers, and others employed in the informal economy all over New York.

The researchers have found substantial informal activity throughout the apparel industry, general construction, masonry, stonework, plastering, toys, sporting goods, and electronics. They found unlicensed or unregistered work in most of the 40 standard industrial classification sectors they examined. Concentrating mainly on new immigrant communities in New York, they found an extremely diversified informal economy among Hispanic, Chinese, Koreans, and Russian immigrants in Brighton Beach.

In many areas of Queens (Jackson Heights, Ridgewood, and Astoria) and in Brooklyn (Sunset Park and Williamsburgh), skilled cabinetmakers produce customized furniture for a high-income clientele and basic furniture for lower-income residents. Many of the furniture shops are located on the second floor of buildings, since the first floors must adhere to enforced zoning codes, making them available only for other uses.

Professor Sassen-Koob and her researchers estimate that in one four-block survey in Manhattan, 90 percent of all interior work was done without required permits and licenses. In government-funded projects, on the other hand, the official sector dominates. But in those public sector projects using subcontractors, growing numbers of informal workers are involved, as indicated by the increased number of labor violations recorded by the Department of Buildings. These are the "fly-by-night" operations often denounced in the press.

Sometimes it takes an accident and follow-up investigation to reveal informality. One such case occurred in the early 1980s when a crane operator dropped a block of cement and nearly crushed a passerby. The newspapers were outraged to discover that he was unlicensed, and a follow-up showed an unexpectedly high incidence of people working without licenses.

Clothing is one of the most important informal industries. Professor Sassen-Koob has discovered that most production workers in the apparel industry in New York and New Jersey do unregistered work in "sweatshops" and at home and sell their product to registered New York firms. …