The heterogeneity of the underground economy.

• Author: Williams, Colin C.
• Position: Report

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.g., Blair and Endres, 1994; Button, 1984; Castells and Portes, 1989; Gutmann, 1978; Rosanvallon, 1980).

The finding of the vast majority of these empirical investigations is that the marginality thesis is invalid. Not only are the unemployed usually found to engage in less underground work than those in formal employment in western economies (e.g., Barthe, 1988; Cornuel and Duriez, 1985; Fortin et al, 1996; Foudi et al, 1982; van Geuns et al, 1987; Jensen et al, 1995; Mingione, 1991; Morris, 1994; nelson and smith, 1999; Pahl, 1984; Williams, 2001, 2004a,b) but most also find underground work to be concentrated in affluent rather than deprived areas (e.g., van Geuns et al, 1987; Mingione, 1991; Renooy, 1990; Williams, 2004a). Although this recognition at first led to one universal generalization (i.e., the marginality thesis) simply being replaced by another one (what is here called the 'reinforcement thesis' in that underground work was claimed to reinforce the inequalities produced by the formal economy), more recent understandings have developed a more contextual and refined comprehension.

Based on the recognition that in some specific circumstances there is evidence to support the marginality thesis (e.g., Kesteloot and Meert, 1999; Leonard, 1994, 1998), a more embedded understanding has begun to emerge. This recognizes that even if in most situations underground work is concentrated amongst the affluent, there are particular economic, political, cultural and geographical circumstances where this does not apply (e.g., Kesteloot and Meert, 1999; Mateman and Renooy, 2001; Renooy et al, 2004; Williams and Windebank, 1995, 1998). This, in turn, has led to a recognition that it is how various factors combine together in specific situations, rather than individual causal factors per se, that determine the size of the underground economy (e.g., Mateman and Renooy, 2001; Renooy et al, 2004; Williams and Windebank, 1998).

When seeking to read the character (rather than variable size) of underground work, however, such refined and embedded representations have been far less prevalent. Instead, the recurring narrative throughout the western economies is that underground work is composed of exploitative work carried out by 'off-the-books' employees under sweatshop-like exploitative conditions. Media reports on the underground sphere, moreover, seem merely to fuel such a narrative. Take for example, media coverage of this topic over the past year or so in the United Kingdom. This has been dominated by firstly, reports about the deaths of cockle-pickers working in highly exploitative and dangerous conditions for very low wages and secondly, the use of illegal immigrants as agricultural laborers by gang-masters again in highly exploitative circumstances.

It is not only media portrayals that reinforce this representation of the nature of underground work. So too do academic commentaries. Many political economy accounts read the underground economy as a new form of work that is emerging in late capitalism as a direct result of economic globalization (seen as a dangerous cocktail of de-regulation and increasing global competition) and which is encouraging a 'race to the bottom'. Underground workers, in this narrative, are thus viewed as sharing the same characteristics subsumed under the heading of 'downgraded labor'. They receive few benefits, low wages and have poor working conditions (e.g., Castells and Portes, 1989; Gallin, 2001; Portes, 1994; Sassen, 1997).

The key problem, however, is that this conventional depiction of the nature of underground work as low-paid exploitative work carried out by employees in sweatshop-like conditions does not tally at all with the overwhelming finding in the vast majority of studies throughout the western economies that such work is usually undertaken by the formally employed and people living in relatively affluent localities (see above). For the past decade or so, in consequence, each and every one of the characteristics of this conventional depiction of underground work has been put under the spotlight.

Beyond underground employees as exploitative low-paid workers

Firstly, and solely examining 'organized' underground work carried out under an employee/employer relationship for wholly or partially underground businesses, it has been slowly realized that this work is not always low-paid and exploitative in orientation. To assert this, of course, is not to deny that there are many wholly or partially underground enterprises which are run by unscrupulous employers who have a wanton disregard for the health and well-being of their workforce and who pay wage rates well below any national minimum wage, such as owners of clothing industry sweatshops, gang-masters in agriculture and those employing home-based workers in various trades who pay piecework rates.

However, besides forms of organized exploitative underground employment, such as in labor-intensive small firms with low levels of capitalization, utilizing old technology and producing cheap products and services for local markets and export, which involve on the whole marginal populations engaging in low-paid exploitative activity (e.g., Lin, 1995; Sassen, 1997), other forms of underground work have been identified. There are organized forms of underground work which are more autonomous in orientation, such as in highly capitalized firms which are modern and use high-technology equipment to produce higher-priced goods and services and whose off-the-books employees are well-paid, employ higher skills and have more autonomy and control over their...