Any regulated economy will develop a parallel underground economy to circumvent the regulations. The United States is no exception to this. Here the underground economy is driven by the availability of cheap labor in the form of new and illegal immigrants, the hopes of avoiding taxation by doing business with cash, and the high cost of providing benefits and complying with regulations in a business with employees.
There are a few things which nearly all underground practices have in common. One is dealing in cash. Checks and credit cards are simple to trace. Cash, however, changes hands without leaving any marks.
A very large part of the informal sector is inextricably linked with the regular economy. The two exist side by side in firms that report most of their income, or hire mostly legal workers, and in households that report regular employment income, from which taxes are withheld, but fail to report cash income from occasional part-time work (Paglin, 1994).
Another is spreading out sources of income. Most underground workers make a small amount from several different employers. Likewise underground hiring is often done informally through a pool of connections. Contracts are small and sometimes short-lived. This constant movement keeps the transactions under the amounts that the government requires to be reported and makes it difficult to see patterns in the underground economy.
According to a report issued by the Cleaning Up Silicon Valley Coalition in 1991, there are approximately 300 janitorial contractors operating in the region, ranging from companies that employ more than 600 workers to small contracting firms that employ fewer than 10 workers (Zlolniski, 1994).
Linked to this spreading out is a network of people in which a few are making large amounts of money while others are not. The few may be land owners who ship in laborers from other countries at harvest time. Or it may be wealthy par...