Left out of economic recovery, workers go underground

Off-the-books jobs help some survive. But at what cost?

June 24, 2014

 

Santana does not want to be part of Chicago’s underground economy but says he has struck out everywhere else.

“I’ve tried getting a formal job at Menard’s, Home Depot, Target, Walmart — all these big corporations, which usually do hire a lot of ethnicity people,” he said. “I have not been called back for an interview.”

So Santana — who, like other workers in this story, spoke on condition we not publish his full name — spends most days pushing an ice-cream cart in Little Village, a Mexican-American neighborhood.

Santana does not earn much. “On a decent day, maybe about $90,” he said.

And he comes from a low-income family. “I actually have to claim homelessness to get funds from the government such as a Link card,” he said, referring to Illinois’s food-stamp program. “I’ve been paying rent at my mom’s since I was 16.”

So Santana says he has good reason to skip paying taxes on his income.

“It’s all off the books,” he said.

Five years since the Great Recession, the U.S. economy has grown but a key labor-market gauge shows little evidence of the recovery. As of May, more than 41 percent of the working-age population lacked employment, according to U.S. Bureau of Labor Statistics data on civilian, noninstitutionalized individuals. The most recent figure for Chicago, from 2012, is almost 44 percent.

Many of the jobless folks are, like Santana, finding other ways to earn money. And there is reason to believe this shadow economy is expanding.


Down but not out

It is hard to know how many jobless individuals have resorted to working off the books. Few economists will even hazard a guess.

But Edgar Feige, a professor emeritus at the University of Wisconsin-Madison, estimates that income not reported to the U.S. Internal Revenue Service is as high as $2 trillion a year — equivalent to roughly 20 percent of the nation’s total adjusted gross income. Feige said that number is “approaching the levels that we observed during the Great Depression.”

He means the one in the 1930s.

Nowadays a business may look legitimate from the street while most of its staff works off the books.

“I get paid $8 an hour to basically just clean this restaurant,” a 25-year-old man said as he hosed off a grill in back of a South Side jerk chicken joint. “No one here ever gets a check or pay stub. It’s all paid in cash.”

What is driving people to take these shady jobs? Many of the workers say formal employment is beyond their reach. The labor market is particularly tough for young workers, African Americans, people with a criminal record, immigrants in the country illegally and high-school dropouts.

And it can be tough even with a college degree. “I have a bachelor’s in information technology and I’d like to be a Web developer,” said a man I’ll call Jonathan, a 27-year-old in Flossmoor, a suburb south of Chicago.

Jonathan says he came up with nothing in searches for an internship or apprenticeship — anything that would put food on the table while he developed his skills. So he works on cars.

“I go to the junkyard and I pick out an engine,” he said. In his mom’s garage, he installs those engines in cars he finds on Craigslist. Then he sells the cars.

And the title on those vehicles?

“I don’t even transfer the title into my name first,” he said. “I actually just pass it straight on to the person that’s buying because I’ve reached my limit as far as how many cars I can sell.”

Jonathan admits he is paying no income tax on this work. “The choice is, Do I pay my water bill or do I pay my taxes?” he said.
 

Everyone affected

If you think Chicago’s underground economy operates only in low-income neighborhoods, you are wrong.

“I live on the North Side of Chicago,” said a 45-year-old woman I’ll call Jennifer. “I’m a presentation designer and writer. I’ve had no full-time employment since 2008.”

Jennifer does get freelance gigs in her field. “But that’s infrequent,” she said.

So she resorts to other paid work, much of it off-the-books. It includes dog walking, cat sitting and handing out swag at trade shows and street festivals. “Then I figure out what things probably won’t go noticed if I don’t claim them,” Jennifer said.

She’s not talking about hiding income from the IRS but from the Illinois Department of Employment Security. She doesn’t want officials there to dock her unemployment checks.

Jennifer says her options are few. “Right now, I don’t have electricity,” she said. “My electricity was turned off five weeks ago. And I guess I owe ComEd $500 and I have no idea how I’m going to get that $500.”

Even if people report all their income and pay taxes on it, they might still have close ties to the shadow economy. Maybe they have a nanny and do not report her pay to the IRS.

Or maybe the taxpayers shop at a big-box store. The prices might be great, but that could owe partly to shady contractors that clean the place at night. Those contractors might bring in janitors working off-the-books.


Drawbacks

“You can think of these underground economies as actually being a buffer that helps families get through difficult times,” said Feige, the economist, pointing out that people making money off-the-books also spend it. “It contributes to economic growth in the official economy as well.”

The informal economy does have its downsides. It does not generate many tax dollars to fund the job training or social services that some workers might need. The workers may also lack benefits and protections such as unemployment compensation and a minimum wage.

“A young person will have fewer and fewer contacts to the outside regional economy,” said Steven Pitts, a labor economist at the University of California, Berkeley. “They’ll have a résumé that’s undeveloped for use in that economy. So you may get a reproduction of poverty because of that.”

There are other risks, especially when the work is further outside the law, such as drug dealing.

On Chicago’s West Side, a 23-year-old who calls herself Ebony faces workplace hazards every day. “I’m a prostitute,” she said. “I work the streets.”

Ebony, a Chicago Public Schools graduate, says she does not enjoy her trade but considers it her best option. “I’ve applied for McDonald’s, Walmart, White Castle,” she said.

Employers have all passed on her “because I don’t have a work history,” she said. Or at least not a formal work history.

Ebony says she has been earning a living since she was 16.

“I stand and wait for guys to pick me up,” she said. “You get in a car. They ask you, ‘How much is this?’ and ‘How much is that?’ You give them a price. They give you the money. You either do it in the car, you rent rooms from people, or you go to a hotel.”


Desperate measures

That brings us back to Santana, the young man who pushes the ice-cream cart. Even without paying taxes, he says he is not making enough money. And he could be heading down the same road as Ebony.

“I’ve actually even considered being a sugar baby,” Santana said, describing that as spending time with an older woman and providing her all sorts of services. “She’d be a cougar. I’d be a cub. She’d basically pay for my bills and stuff like that.”

To become a sugar baby — to find his sugar mama — Santana says he might have to become a stripper.

With that in mind, he says, he has been lifting weights. He has the shoulders and arms to prove it. “I’m never going to look this good again in my life,” he said.

In Chicago’s underground economy, Santana figures his body might be the best thing he’s got.

 

Employment-population ratio

 

SOURCE: U.S. Bureau of Labor Statistics. NOTES: The employment-population ratio is the proportion of the U.S. working-age population (ages 16 and over) that is employed, either full- or part-time. That population includes everyone except members of the military and institutionalized persons. A 2013 figure for the city of Chicago is not yet available. Annual figures are averages of monthly figures. REPORTER: Chip Mitchell is WBEZ’s West Side bureau reporter. Follow him on Twitter @ChipMitchell1 and @WBEZoutloud, and connect with him through Facebook, Google+ and LinkedIn.