Since the “discovery” of the informal economy in the beginning of the seventies, many observers subscribed to the notion that the informal economy was marginal and peripheral and not linked to the formal sector or to modern capitalist development. Some continued to believe that the informal economy in developing countries would disappear once these countries achieved sufficient levels of economic growth and modern industrial development.
The informal economy can however no longer be considered as a temporary phenomenon. Furthermore, the informal economy has been observed to have more of a fixed character in countries where incomes and assets are not equitably distributed. It seems that if economic growth is not accompanied by improvements in employment levels and income distribution, the informal economy does not shrink. The situation is therefore that the informal economy is continuously increasing in most developing countries, even in rural areas. But I will focus in Spain. (5)
The underground economy is widespread in time and in space. Some causes that have led to the underground economy are:
– History presents us with a large number of prohibition and taxation events that gave rise to contraband in many products: perfumes; coffee; salt; matches…among numerous other examples. At different times and places, pamphlets, newspapers and books were censured. This fostered a black market has grown over the years.
-An answer to the question of causes can be found in Adam Smith’s celebrated Wealth of Nations. Smith saw the foundation of modern society in the division of labour, which itself came from “a certain propensity in human nature… to truck, barter, and exchange one thing for another”. Exchange is a fundamental dimension of human relations, and occupies a central place in economic theory. Every time the propensity to exchange is constrained, individuals try to circumvent the constraints in order to obtain what they perceive as the benefits of exchange. In other words, when impediments prevent exchanges in the official economy, demanders and suppliers will often retreat in the underground economy to pursue their trades.
– The unemployment is one of the more important causes of the underground economy. When the people are unemployed they don’t earn money to feed his family and need to earn money as they can.
Here we have a link where we can find an article about unemployment and underground economy in Spain. (3)
In the article «Recession-hit Spain goes back to black economy» published in the newspaper «The Telegraph» on October 19, 2009 and written by Fiona Maharg Bravo explains the situation in Spain with declining employment and rising the informal economy. This kind of economy increases when unemployment rises because people need money to survive and feed their families. (6)
-Other cause is the reduction of working hours on a mandatory basis. This causes people to earn less money and need other jobs to survive. They can only have a second job in the underground economy because it is illegal. (3)
-These are some causes about underground economy, but it is likely that the sole motivation is by working poor trying to keep up with the rising cost of living in an economy where prices of everything keep climbing while wages remain stagnant. In the end, media reports of government bureaucracy and legislation acting in collusion with the growing power of unbridled corporate greed fuel most of the economic angst of taxpayers. Many workers, quite justifiably so, become indignant when they see legislators creating massive loopholes for big corporations while tightening the legislative noose around the necks of both the middle class and working poor.
There are also many strong arguments made by those participating in the so-called “underground economy“. Some could argue that the types of jobs in an underground economy almost always stay in the local communities, thus strengthening them, while cutting out the middleman – the government. Another argument is that there is, in consequential terms, little difference between an underground economy and the lack of transparency you find in the government and corporate accounting practices. (7)