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Coronavirus is destroying the underground economy

Billions of people hold jobs that aren’t recognised as such by governments - which means they get no help when Covid-19 decimates their incomes.

The lockdown many countries have imposed to slow the spread of coronavirus has an unfortunate side effect: many people have suddenly found themselves unable to work. Governments around the world have scrambled to find ways to ensure these displaced employees still have an income. The UK is paying 80 percent of the wages of people placed on furlough (which means they’re still technically employed by their company but not working). The US has increased the unemployment benefits laid-off workers are entitled to and expanded the length of time they can receive them for. Italy is giving 500 euros to everyone who is self-employed.

Without such schemes, both society and the economy would be under threat. Businesses that are still limping on by selling their wares online or as take-out would have even fewer customers with money to spend. And people who can’t pay their rent or buy food for their families are unlikely to stay quietly at home for long. That’s why some people are worried that these government schemes leave certain groups of people out. In particular, they do nothing for those who work in the underground economy (sometimes also referred to as the informal sector, shadow economy or black market).

The underground economy is all the bits of the economy that operate without the oversight or knowledge of the government. That means it isn’t bound by government regulation like the minimum wage and it pays no tax. Underground economy workers include straight-up criminals like drug traffickers, but also plenty of people who are doing things like running a small fruit and veg stall without a permit or doing cash-in-hand building work.

Although we don’t know exactly how many people work in the underground economy, we know it’s a lot. The International Labour Organisation reckons that it’s about 2 billion people worldwide, which is 60 percent of all workers. Some of these people’s primary motivation for working in the underground economy may be to avoid giving money to the state. But others may simply find the formal economy too hard to enter, perhaps because of their immigration status or education level or just the availability of jobs. Some of them may simply not be aware that they’re doing anything wrong.

Italy, which has been on strict lockdown for a month, has a large underground economy. Many of these workers have seen their incomes drastically reduced - after all, not many people are buying cocaine or roadside strawberries right now. But because the government doesn’t formally know about this income, it isn’t offering to replace any of it in the same way formal sector employees are entitled to.

There’s now a growing concern that the money problems faced by these people will spill over into unrest and protests. There’s even been reports that petty criminals and desperate people are being recruited by the mafia who are offering the financial assistance (with unsavoury conditions) that the state is currently not. The government now says it’ll announce new cash payments for underground economy workers this week.

Read our explainer on: the black market.

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