Underground Economy
Candlefocus EditorThe underground economy is vast and its elements vary from one nation to another and from state to state, as well as in some cases, from municipality to municipality. It is referred to by different terms such as the shadow economy, the black market and the informal economy, and it deals in a variety of activities such as illegal drug trafficking, human trafficking, trade in endangered species, illegal sale of human organs, trade in stolen items, smuggling of antiquities and much more. The underground economy is not exclusive to the US and can be found in most countries.
Most underground economic activities are illegal and, as such, are not reported to law enforcement or by the taxpayer. A lack of taxation on labour activities and legal decision-making within the underground economy also contributes to its size and scope. This lack of taxation also means that profits earned in the underground economy do not benefit social insurance and other programs funded by taxes.
Two primary circumstances can lead to the growth of the underground economy. The first one is when people pay someone in cash to avoid paying taxes or when those conducting business in the underground economy evade them. The second is when certain groups in society don’t have access to legal or safe job opportunities or when people engaging in the underground economy don’t want their income to be tracked for other reasons.
Various attempts have been made by governments to reduce the size of the underground economy by cracking down on it, introducing legal measures and financial methods to trace and controlling activities of tax evasion. Undocumented or informal workers are often encouraged to become part of the mainstream economy through social security or income tax registries. Furthermore, it is important for the governments to continue to offer incentives such as attractive employment opportunities that can motivate those earning money through underground means to switch over to the legal formal economy rather than staying in the shadows.