To avoiding paying taxes, for many employees, being paid “cash in hand” is an attractive prospect.
This attractiveness is often reciprocated to the employer, who can avoid paying social security taxes and employee benefits. Ultimately, this allows employers to lower wages and avoid having to register for licenses and permits.
This form of employment is growing in California and elsewhere, and public officials trying to track down the practices call it the “underground economy”.
Although employing people unofficially and violating labour laws is not an attractive prospect for all employers. So, it stands to reason that those businesses which comply with employment laws are often at a disadvantage to those that violate the laws and serve to expand the underground economy.
California DIR Creates Labor Enforcement Task Force
In an attempt to ensure that all employees and businesses are protected, and to promote healthy business competition, the Department of Industrial Relations (DIR) in the State of California has announced the creation of the Labor Enforcement Task Force (LETF) to eventually eliminate the underground economy.
The collaborative effort between state agencies to improve the business environment so that legitimate employees can thrive is made up of various partners, including the DIR, the Bureau of Automotive Repair, the Employment Development Department, the Board of Equalization and the Contractor’s State Licensing Board.
Goals of the California Labor Task Force
In a report about the new Labor Enforcement Task Force employed in California to tackle the state’s growing underground economy, Marty Morgenstem, secretary of the Labor and Workforce Agency, wrote in a press release:
“The goal of the LETF is to ensure fair and safe working conditions in all workplaces and promote a level playing field for employers through education and enforcement of state laws. Labor law violators endanger workers and have an unfair market advantage over law-abiding businesses. We cannot tolerate businesses that skirt the law.”
The press release, issued by the Department of Industrial Relations, highlights what the goals of the LETF are, which include:
— Ensuring that all employees receive lawful wages that comply with the minimum wage and workers can carry out duties in safe working conditions.
— To guarantee that the State receives its due taxes and gathers any penalties that may occur by employers who infringe labor laws.
— To “level the playing field” within businesses in California, so that companies which adhere to laws are not at an unfair disadvantage to those which do not follow the rules.
— To make efficient use of California’s resources in carrying out these goals and to subsequently eradicate an underground economy.
Talking about the money and time that will be saved through the efforts of the Task Force, Christine Baker reported:
“By joining forces with other agencies conducting inspections, we can have a greater impact on stopping labor violations and the underground economy. Collaboration will also save time and money by avoiding overlapping inspections and focusing our efforts on the egregious violators.”
According to ABC News, California’s underground economy is costing the state an estimated $7 billion per year in lost revenue.
In the same article about California targeting its underground economy, ABC News informed readers that the Contractors State License Board of California had videotaped various sting operations and caught numerous businesses operating without a license and hiring workers illegally.
The problem was particularly prevalent in the landscaping, restaurant, farming and construction industries.
The Other Side of the Coin
Of course, there are two sides to the “underground economy” coin, which many articles that have covered the subject have ignored.
Working “off the record” for cash is particularly popular among those who are effectively “unemployable”. Those include illegal immigrants, for example, who tend to make up a large percentage of “off the payroll” worker base.
Likewise, those who have a criminal record will often seek cash-payment jobs. Although the pay may be a pittance, at least it is some sort of income. In this sense, an “underground economy” arguably helps to reduce crime, since those “unemployable” workers are at least receiving an income.
At the end of the day, those workers are less inclined to resort to crime in order to survive in today’s economic climate.
It is not unemployable workers that are the problem, nor is this only an issue in the state of California or in the U.S.
For example, in Spain, unemployment has risen to its highest level for almost 15 years. At 21.5%, Spain has the highest jobless rate among industrialised countries.
With such high levels of unemployment, people are naturally turning to any means to earn money, including working for cash.
According to Kyero.com, this time last year, the then Minister of Labour, Celestino Corbacho, said that the underground economy in Spain accounts for between 16% and 20% of GDP, while also recognising that those activities usually increase in times of economic crisis.
In this sense, California’s new Task Force aimed at “dismantling” its underground economy, may immediately prove beneficial to the state as it will receive its due taxes. It may also prove beneficial to the legitimate businesses, because they will be competing within a level playing field with other companies.
However, whether or not it will it prove to be as advantageous to the workers or to the community over the long term remains to be seen.