Underground economy is a term used to describe an unregulated, illegal market in which people trade in goods and services that are not legal. Such markets are often referred to as “shadow economies” because they are characterized by non-compliance with institutional rules. This article will discuss the different kinds of illegal markets. Illegal goods and services are classified as “illegal” and “semi-legal” and the various ways they can be used.
Illegal goods and services
The underground economy is the system of illegal trade, which does not take place in government-regulated channels, such as retail stores or online auction sites. These markets include both illegal and legal trade, often in an effort to evade taxes. The emergence of these markets has been driven by the incentives of profit, and because they are largely unregulated and do not have the same ethical standards as mainstream markets. Most of these markets deal solely in cash, though some black market operators are beginning to use digital currency.
The amount of GDP generated by illegal economic activities is small. If all the GDP from such activity were included in GDP, it would increase the nation’s GDP by a factor of over 1%. It is also important to remember that these activities are not measurable or tracked in the markets. As a result, they often go unreported, and are not accounted for in GDP figures. In fact, they contribute little to the economic growth of any nation.
The gross domestic product (GDP) is the most widely accepted measure of economic health and standard of living. While the United States began collecting GDP data annually in 2003, many other countries have yet to begin this process. Although GDP data does not include illegal activities, some of the most important indicators of economic health in a country are based on the amount of illegal goods and services. By comparison, illicit economic activities contribute about $234 billion annually to the GDP of the United States.
Production of illegal goods and services
Underground economies are unreported sources of income. These include black market trade, illegal drug sales, and unreported tips from restaurants, bartering, and other activities not subject to government regulation. In the United States, for example, these businesses may include illegal drug sales and the sale of stolen goods. The underground economy also includes undocumented immigrant income and illegally traded antiquities. Its size can be estimated through sample surveys and national accounting and labour force statistics.
The economic underground is not officially measured, but it has become an important source of income. Approximately 1.8 billion jobs are created in this sector. The underground economy is not counted as part of the official GDP, because it uses cash and never keeps official records. Some types of illegal markets include copyrighted materials, endangered animal species, antiquities, and even human organs. It is estimated that the underground economy in the UK amounts to 6% of GDP, with Zimbabwe accounting for the largest amount. In many developing countries, it provides the only means of earning a living for people who cannot afford traditional forms of income.
As legal businesses sought to avoid regulations, the underground economy spread. Even when a state passed a comprehensive building code in the late 1870s, there were still vast numbers of small contractors working outside the law. In 1893, Illinois banned the employment of children under 14 in manufacturing. This was later extended to all industries, but enforcement was not as effective as in the past. While compulsory schooling helped reduce child labor in large enterprises, smaller businesses continued to employ children.
Production of semilegal goods and services
The production of semilegal goods and services is a common practice that evades laws and government regulations. Activities in this economy range from babysitting “off the books” to the distribution of narcotics. These activities have evolved over time as legislators redefined what is legal and illegal. The underground economy also serves willing customers, imposes unique costs on participants, and may foster violence.
One key indicator of economic activity is the use of electricity, which is closely tied to GDP. A higher level of electricity usage translates to higher economic activity. Although it may not provide a good living, the underground economy may offer other benefits such as feeling of belonging, the chance to advance in the gang, and excitement. Moreover, high unemployment and poor economic conditions increase the attraction of the underground economy. People who do not have access to traditional banking facilities may seek illegal loans from illegal loan sharks.
Some authors have tried to codify informal economic activities. While some use the term “undocumented economy” to refer to the entire undocumented economy, the authors have proposed taxonomies that distinguish between different kinds of undocumented activities. As a result, there is no universal definition of the “undocumented economy.”
