A shadow economy may be keeping the US afloat
$2 trillion in cash, untaxed earnings may explain why consumers can keep spending even with tax hikes and a slow jobs recovery.
Today's better-than-expected jobs numbers are just one outward sign of the economy's continued -- though sluggish -- recovery from the Great Recession. But there may be another explanation for why consumers keep spending more despite higher payroll taxes and more pain at the gas pump.
That reason is a thriving shadow economy, estimated to have reached as much as $2 trillion last year, according to a study (.pdf file) co-written by Edgar Feige, an economist at the University of Wisconsin-Madison, and Richard Cebula, a finance professor at Jacksonville University.
A shadow economy is one where workers turn to employment that pays under-the-table. While that sometimes includes illegal activity, such as drug dealing, much of the shadow economy today appears to be in areas like service work, such as babysitting, and working construction jobs for cash.
A woman named Kevin Kalmes told Bloomberg that she started selling her belongings after getting laid off and receiving a foreclosure notice. She then started selling items for other people, calling her sale the "Little Shop of Hoarders."
She turned to the idea after trying to find work for two years, with many of the job prospects paying significantly less than her previous work as a production manager.
"At some point you believe that you have no value in the workplace," she said. "It’s like going through 25 boyfriends in a couple of years and saying: 'doesn’t anyone want to love me?'"
That kind of work may help explain some perplexing inconsistencies in economic reports. Retail sales have grown at an annual rate of at least 3.5% since September 2010, even though payroll taxes have jumped and jobless benefits have been whittled down -- and expired for many long-term unemployed.
"The jobs are in service industries from small food establishments to landscaping." David Fiorenza, an economy professor at Villanova University, told CNBC. "Even the arts and culture industry is not immune to working off the books in areas of music and entertainment."
As a result, the underground economy has doubled since 2009, according to a study from a professor at Johannes Kepler University that CNBC cited.
So, who's the loser in this scheme? The Internal Revenue Service, according to Feige and Cebula's study. As much as $500 billion in taxes aren't being paid on the $2 trillion in underground earnings, his study says.
And the shadow economy may be poised to get even bigger.
With Obamacare requiring large businesses to provide health care insurance to full-time workers, some companies, such as Regal Entertainment (RGC), are cutting back hours. In turn, those employees just might joins the millions who are already finding work in the underground economy.
Follow Aimee Picchi on Twitter at @aimeepicchi.
Well, if you see the cash one minute, then its a shadow the next...
In all sobriety, the "shadow economy" will grow until Fair Tax
standards are implemented and the old code thrown out
along with a majority of the politicos in D.C.
So, who's the loser in this scheme? The Internal Revenue Service, according to Feige's study. As much as $500 billion in taxes aren't being paid on the $2 trillion in underground earnings, his study says. "
The Federal Government just borrows money to support its oversized self anyway. Guess who is on the hook for that......... Yep... You and I.
As a kid back in the late 1950's if it said made in the USA I knew it was perfect.
Driving over a cement bridge,you knew it was safe. Buying fresh meat and veggies,you
knew it was going to be good. If the President said something you knew it was the truth.
NOW 2013 IT IS NO LONGER SO.GOD HELP US!!!!
You have to take care of number one and those under your care. Children need shoes now not when you finally score a job, the electric bill has to be footed now not a month from now when the first check comes in. If someone needs to move furniture from here to there, and they need a hand, cash is welcome or if you have a pick up truck, a couple of twenties will get the deed done...
Better keep ourselves a float and in so doing, the country will stay a float.
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A basic income policy can actually ensure a decent standard of living for everyone.
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