The informal economy in the United States is work that exists outside of the tax and regulatory systems of the government. Traditionally thought of as the “black market”, informal work is much broader. Not including criminal and illegal enterprise, and everything done by undocumented workers, informal work is work done by people legally allowed to work, but they are doing so outside the tax and regulatory systems.
Informal workers include the broad range of small self-employed workers; small entrepreneurs not reporting income; day labourers; domestic and agricultural workers who are paid in cash; and anyone outside of the formal employment system that reports to tax and regulatory authorities. This huge underground economy is mostly made up of the working poor, but there are some benefits to employment in the informal sector. Urban.org, in their brief on the informal economy, describe ease of entry into work, avoidance of tax and detection, and independence and flexibility as benefits of working in the informal sector.
People who are trying to go undetected, people who are trying to live on disability, people who fear losing government assistance if they earn money through the formal system, and people who are making minimum wage and can’t support their families are all trying to earn extra money through the informal economy.
In some communities, embedded mistrust in the government can encourage the informal economy. Native Americans have an unemployment rate of between 11% and 15%; this is much higher on reservations. The Navajo Nation reports 42% unemployment for adults on the reservation.
For those who have traditionally been excluded from mainstream society, the formal workplace can be a place of harassment and discrimination.Transgender and LGBT people have double the rate of unemployment of the rest of America, and 90% of transgender people surveyed report they have experienced harassment in the workplace. For excluded populations, the informal workplace might offer a welcome degree of freedom.
Since this economy is unreported and unregulated, it is hard to get accurate information. Complied data from several sources suggest 3-40% of the labor force in the US engages in informal work, with GDP estimates of 5-10% value of the informal economy.
By far the majority of workers engaged in the informal economy are working poor. In a study set in rural Nebraska, the majority of people working in the informal economy were “patching together” a number of small microenterprises with other formal and informal work–the low wage formal work on ranches and in agriculture was not enough to support families. The median amount of informal income was around $3,200 annually. This study considered if the current level of microenterprise development assistance could be expanded to assist the working poor in their efforts at building small businesses.
Because people in the informal economy are poor and working outside the regulatory system, they are at risk from exploitation, trafficking, and unsafe working conditions. They can’t be protected from employment discrimination under current laws. They may not be eligible for vocational and skills training that could change their ability to support themselves and their families.
Microenterprise development assistance, legal assistance, diversity and inclusion training in workplaces, and modification of disability and welfare laws that prohibit people from working might be first steps in allowing the excluded working poor to participate in American opportunity.