The 'Underground Economy', Immigration and Economic Development in the European Union: An Agnostic-Skeptic Perspective

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Is the underground (or informal) economy growing in European countries and to what extent is it related to (illegal) immigration? This paper draws on research primarily from the experiences of European Union countries since the early 1990s, and critically analyses the relationship between the apparent growth of (illegal) immigration, n forms of political economy, and what shall be referred to in this paper as 'underground employment'. By disentangling these complex processes, I provide afire-grained critical assessment of some of the more hyperbolic statements about the growth of underground employment, especially with respect in (illegal) immigration. That is, without denying the presence of underground employment, or the role of immigration within it, my discussion ranges from the agnostic to the skeptical. 1 conclude by suggesting what implications my analysis has for economic development policies with respect to underground employment in European countries.


In early January 2005, the putatively left-leaning British daily, The Guardian, published yet another expose on 'illegal workers' in the UK. To anyone working in the field of immigration or employment in Europe (or anywhere else for that matter) this could hardly be labeled 'news', worrying or depressing, as it may have seemed to some. Indeed, for most critical political economists, it is no longer novel to critique the assumption that the world's economies are on some ineluctable path to 'modernization' and 'formalization'. Most of us can accept this without too much scholarly protest. What chimes as more suspect is the consensus among academics, governments, and the popular press that the 'underground economy' has been growing over the last three decades across the 'post-industrial' economies. In fact, it may come as a surprise that as early as the late 1970s, O'Higgins (1980) believed that the 'hidden economy' had peaked in the UK, for example, because of the lack of cash required to redistribute work (Pahl and Wallace, 1985).

While these same observers cite a range of reasons for this growth, they also persistently attach causality (to not use the word blame) to an apparent increase in ('illegal')' immigration. In this respect, nearly two decades ago, Castells and Portes (1989) questioned the widespread assumption that directly linked the growth of underground activity to an increase in immigration. As they put it:

"... European case studies contradict the view that the underground economy is primarily a consequence of immigration [..]..Undoubtedly, immigrants provide one source of labor for the expansion of these activities, and they may be preferable to domestic workers because of their vulnerability. However, the underlying causes for the expansion of an informal economy in the advanced countries go well beyond the availability of a tractable foreign labor supply." (p. 25).

More recently, other observers provide evidence from national case studies which support Castells and Portes' conclusions, and argue similarly that (illegal) immigration (to the extent that it is increasing) may facilitate, but does not create underground activity (Quassoli, 1998; Reyneri, 1998; Sassen, 1996, 1998; Wilpert, 1998). Indeed, it is commonly argued that citizens, rather than immigrants, perform the bulk of underground activity, even if the majority of immigrants are involved in underground activity (Williams and Windebank, 1998). In any case, we need to move beyond the verb 'facilitate' however, to elaborate on the precise processes involved, if only because some authors ardently dismiss the availability of an immigrant labor force as a causal explanation, while nonetheless slipping occasionally into such reasoning (compare Sassen, 1991, 1996, and 1998 for example).

In this sense, this paper draws on research primarily from the experiences of European Union countries since the early 1990s, and critically analyses the relationship between the apparent growth of (illegal) immigration, new forms of political economy, and what I shall call 'underground employment'. …


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