© 2024 Milwaukee Public Media is a service of UW-Milwaukee's College of Letters & Science
Play Live Radio
Next Up:
0:00
0:00
0:00 0:00
Available On Air Stations

Trillions Earned Under Table As More Work Off Radar

MICHEL MARTIN, HOST:

I'm Michel Martin, and this is TELL ME MORE from NPR News. Coming up, the day when white people no longer make up the majority of the American population is coming, and coming a lot faster than initially predicted. Today, we are going to look at how the browning of the nation could lead to a real divide between the older, white minority and a younger, growing, brown majority. We'll start the conversation about what that might mean for the country's future. That's ahead this hour.

But first, we want to talk about the economy. The unemployment rate is officially at its lowest rate since 2008, but it's still at 7.7 percent; and that means that 12 million Americans are officially out of work. Notice we keep saying officially because we know that some people have given up and are not counted. But we also know that a lot of people are working but making ends meet by working off the books, under the radar, often for cash, and sometimes in trades that cross the line into crime.

This is what economists call the shadow economy, and it is bigger than you might think. According to our next guest, the shadow economy - or informal economy - accounts for some $2 trillion in trade.

Joshua Zumbrun wrote about this recently for Bloomberg News, and he's with us now. Welcome. Thanks so much for joining us.

JOSHUA ZUMBRUN: Thanks so much for having me.

MARTIN: Joshua, by definition the work is under the radar, so how is it that we are measuring this? How do we even know how big this part of the economy is?

ZUMBRUN: That's a great question. That's exactly why it doesn't get written about as much as it should because it's so hard to measure. But one of the ways that economists have tried to get at this question is to look at how much cash is actually circulating in the economy - because you can walk into a bank and ask for your bank account to be handed out to you in cash, but it's not a very common thing to do. It's actually a lot more convenient to keep it in the bank and, you know, write your checks.

The disadvantage of that is that it leaves a formal record. And so when people ask for that cash, one of the reasons that they might do that is because they are making informal transactions that they don't want to be tracked. And the growth in cash has been really remarkable over the last five years. The amount of cash in actual circulation, the number of physical dollar bills has actually grown by about 50 percent, and so it's one of the leading clues that this activity has picked up quite a bit since the recession started in late 2007.

MARTIN: So the use of cash had been on the wane - do I have that right? And all of a sudden, it's picked up. So you figure something interesting is going on here.

ZUMBRUN: It had been growing very slowly, at about the same pace as - that the population had been growing, and that's not surprising. You'd expect it to grow about along with the rest of the economy, but over the last five years it's grown much, much quicker, and so that's one piece of the puzzle that points to the fact that this part of the economy, the shadow economy, has been growing in recent years.

MARTIN: So we wanted to figure out what kinds of things people were doing. So we put a call out on NPR's Facebook page, and we asked people if they would share their stories. And we heard from a lot of people. We heard from Kimberly Hansing from Nashville, Tenn. She says she's worked a number of part-time jobs to make ends meet because she could not find full-time work with benefits, and this is what else she told us.

KIMBERLY HANSING: I have done freelance graphic design. I've also been a substitute teacher. I work two nights a week as a trivia D.J. I have a close friend who used to run a flea market booth with collectibles, and she put me to work selling them on eBay. I have another close friend who is a lawyer, who would have me serve subpoenas. I worked at a big-box office supply store for about a year. At any given time, I might have three, four things going on. [POST-BROADCAST CLARIFICATION: Hanson is not part of the so-called shadow economy.]

MARTIN: Joshua, when you're reporting your story, is this what you're talking about?

ZUMBRUN: Absolutely. You know, when economists look at this, they often talk about it from the perspective of - are people not reporting their taxable income, and is the government missing out on revenue? And it's true that that's a part of this story, but for a lot of people this is about struggling to make ends meet, people who are running out the 99 weeks of unemployment insurance and still not able to find a formal payroll job. They're turning to whatever they can do to cobble things together.

And these sort of shadow economies, you always see them get bigger when the economy is weak. It's actually very common in Europe, where their economic problems are a lot worse than ours.

MARTIN: We also heard from people who responded to our query on Facebook, where people who didn't want to tell us their names, or they would only tell us one name - and you can imagine why - that's because they were doing things that they thought that other people would frown upon, particularly law enforcement.

For example, we heard from a single mom who claims she was working as an escort in addition to a part time job as a bartender. We got an email from a listener named Eric who said he was selling marijuana to support his son. Do we have a sense of how much of the informal economy is this kind of work?

ZUMBRUN: We know it's substantial, but it's really impossible to put an accurate number on it. When the IRS does its look-back at how much unreported income they think they might have missed, it took them until 2012 to make their estimate of what it was in 2006, so it took them six years to construct that estimate. It takes a very long time to even get the broadest estimates of how big the shadow economy might be, and because so much of it is transacted with cash, it's really just about impossible to measure. Nobody's going to honestly answer government survey questions about it. They're probably not going to answer questions, even from a private company that was conducting a survey.

And so you know a lot of cash is changing hands, but whether or not that's legal work, you know, someone who's doing a sale on eBay - that's perfectly legal, but you technically are probably supposed to report some of the income that you make if you make a profit off your sale, whereas, you know, someone who's a drug dealer - you can't tell the difference. You can just tell that the activity is occurring.

MARTIN: Is there a problem with this from sort of a broader economic standpoint for the whole country, looking at this for the whole country? Let's go back to Kimberly, who did give us her name and who told us exactly what she's doing. Is there something wrong with this? Is there a downside to this?

ZUMBRUN: There's both good and bad aspects to it. One of the bad aspects obviously is that this is unreported income that isn't getting collected by the IRS, which means that that does make the deficit problems a little bit worse. We're talking about a substantial amount of revenue and if everyone was reporting everything 100 percent accurately, the deficits would be a little bit less scary.

But it also - it's a safety net of last resort for a lot of people. It's a very flexible part of the economy. It comes to life very quickly when the economy gets bad and, you know, allows for people to fill in the gaps, so you wouldn't necessarily want to have an extremely draconian sort of policy to prevent this activity because it does help some people as sort of the only way they're able to make ends meet in a very tough economy.

MARTIN: Is this the kind of economy that you expect to kind of contract if the economy really does get better and that people will move back into more formalized labor arrangements, or is this the new normal?

ZUMBRUN: I think that unfortunately for a lot of people, this is going to be the new normal for at least the foreseeable future. You know, there's a lot of things that have made this economy very tough. There's international competition where it's so much cheaper for companies to locate manual labor facilities in other countries, and what activity happens here, a lot of it will continue to be informal work until a point when the economy is much stronger than it's been over the last five or six years.

MARTIN: You've told us(ph) the good part about it is that people are able to make ends meet and the bad part about it is - and there's the taxing mechanism. I'm just curious about how people who are participating in this work feel about it, from what your reporting indicated.

ZUMBRUN: You know, I'm sure there are people out there who are just trying to avoid paying taxes and, you know, stick it to the government, but by and large every single person I've talked to, they want a formal job or they want their business to be incorporated and to be in a - you know, a legitimate official business. Everybody I've talked to - they really want to be in the regular economy. They don't want to be doing these under-the-table things, and if they had any ability to do that, they'd get out of it. They're not people who are trying to stiff the taxpayer. They're people who are struggling to make ends meet and wish there was a better way they could do it.

MARTIN: Joshua Zumbrun is an economics reporter for Bloomberg News. He was kind enough to join us from our bureau in New York. Joshua, thanks so much for joining us.

ZUMBRUN: Thanks for having me. Transcript provided by NPR, Copyright NPR.

Corrected: April 7, 2013 at 11:00 PM CDT
The "shadow economy" includes informal work arrangements, cash-only jobs and other economic activity beneath the radar. Our conversation may have left the impression that Kimberly Hansing is part of this shadow economy. This is not the case.