Academic journal article International Journal of Economic Development

The Heterogeneity of the Underground Economy

Academic journal article International Journal of Economic Development

The Heterogeneity of the Underground Economy

Article excerpt

Abstract

This paper evaluates critically the representation of the underground economy in the advanced economies as comprised of marginalised populations working 'off the books' as employees for wholly or partially underground businesses under exploitative conditions. It reveals that this 'thin' reading of underground work is descriptive of just one small segment of the underground economy and uncovers how other forms underground work can be identified ranging from income-oriented 'off-the-books' self-employment through to community-oriented paid favors. To conclude, therefore, a call is made for the heterogeneous forms of underground work to be recognized in order that a richer and more textured comprehension of the multiple roles of such work in contemporary economic development can start to be achieved.

Introduction

With underground work representing the equivalent of somewhere between 7 and 16 per cent of GDP in western economies and growing rather than declining (European Commission, 1998; Schneider, 2001; Schneider and Enste, 2002), the issue of tackling such work has risen to the top of public policy agendas both in the western world and well beyond (European Commission, 1998, 2002, 2003; Grabiner, 2000; International Labor Office, 2002; OECD, 2000). For example, at the Lisbon Summit in 2003, the European Council announced that tackling the underground economy was to be one of its top ten priorities for action with regard to employment reform (European Commission, 2003). Throughout the western economies, therefore, public policymakers are currently busily engaged in considering how to tackle this form of work.

The aim of this paper is to directly feed into these discussions by evaluating critically the representation of the underground economy in the advanced economies as comprised of marginalised populations working 'off the books' as employees for wholly or partially underground businesses under exploitative conditions. To do this, the extensive literature on underground work is analyzed in order to evaluate each and every one of the tenets underpinning this portrayal. In so doing, it will be revealed that this conventional 'thin' reading of underground work is descriptive of just one small segment of the underground economy and that a multiplicity of forms of underground work exist ranging from income-oriented 'off-the-books' self-employment through to community-oriented paid favors. The outcome will be a call for the heterogeneous forms of underground work to be recognized so that a richer and deeper comprehension of the multiple roles of such work in contemporary economic development can start to be achieved.

At the outset, however, the underground economy needs to be defined. Despite some 35 adjectives and six nouns having been previously employed to denote this activity (Williams, 2004a), such as the 'submerged' and 'off-the-books' economy, 'hidden sector', 'informal employment' and 'undeclared work', there is a strong consensus on how to define such work. Underground work is widely accepted to involve the paid production and sale of goods and services that are unregistered by, or hidden from the state for tax and/or welfare purposes but which are legal in all other respects (European Commission, 1998; Feige, 1999; Portes, 1994; Thomas, 1992; Williams and Windebank, 1998, 2001a,b). This realm therefore includes only paid work that is illegal because of its non-declaration to the state for tax and/or social security purposes. Paid work in which the good and/or service itself is illegal (e.g., drug trafficking) is excluded, as is non-monetised exchange.

From the Underground Economy to Underground

Analyzing the vast literature on underground work in western economies, it takes only a cursory glance to realize that the majority focuses upon measuring its size and how this varies socio-spatially. To greater or lesser extents, many of the studies so far conducted have ultimately done little more than to test the validity of the 'marginality thesis', which views underground work to be concentrated in marginalised groups and/or areas (e. …

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