There is extensive evidence of a growing informal labor force in Los Angeles City and County, along with stagnant employment in the formal labor market. Between 2000 and 2004, the working age population in the county grew by 4.9 percent, but the number of wage and salary jobs (i.e., the formal economy) declined by 2.3 percent. This trend in Los Angeles’ economy is in distinct contrast to national trends. When we look at the United States economy we see a much narrower gap between the number of household members who report being employed and the number of workers that employers report having on their payrolls.

The most compelling reason for workers to accept informal jobs is economic desperation. We have evidence that many working-poor residents of the city and county, including US citizens, accept jobs in the informal sector, but the group of workers who have the greatest difficulty finding employment is recent immigrants. The evidence suggests that non-citizen immigrants are a major component of the informal labor force. Foreign-born persons made up an estimated 11 percent of the US population, 36 percent of Los Angeles County’s population, and 40 percent of Los Angeles City’s population in 2000. We project that undocumented immigrants account for 25 percent of the foreign-born population of the city and 23 percent in the county.

Our best estimate is that on a typical day in 2004 there were 679,000 informal workers in the county and 303,800 in the city. These workers are estimated to account for 15 percent of the county labor force and 16 percent of the city’s labor force. Undocumented workers are estimated to make up 61 percent of the informal labor force for the county and 65 percent for the city. If we use the projection put forward in this paper that on a typical day there are 679,000 informal workers in Los Angeles County, and if we assume that the annualized wage for an informal job is $12,000, this represents $8.1 billion in annual payroll. It means that each year the public sector is shortchanged by $2 billion in unpaid employee benefits and insurance that is mandated by law for underwriting the public’s costs in providing a minimal social safety net for workers. These costs are not avoided simply because the responsible parties fail to pay them. Instead, costs are shifted to other segments of society and the social safety net becomes more precarious.

Informal employment is more prevalent in low-skill jobs. Informal jobs are estimated to outnumber wage and salary jobs in low-skill industries where the average job can be learned in less than three months. One strategy for curtailing the informal economy is to upgrade the skills of workers and build a better-trained labor force.

Informal jobs emerge in large measure out of the hope and energy of workers who want to be self-sufficient but who are economically desperate. Undocumented immigrant workers whose low-cost labor has helped the region avert even worse economic stagnation are a central component of the informal economy. The status and future of undocumented workers must be addressed as part of any substantive strategy for curtailing the informal economy. We recommend three areas of immediate action to reduce informal employment, and a fourth area of longer-term research to understand the progress, conditions and needs of immigrant workers.

1. Provide an effective combination of incentives, technical assistance and sanctions that will induce informal employers to move into the formal economy. Tools include: enforcement of existing labor and tax laws, lowinterest loans, targeted worker training, and technical and legal assistance for informal employers seeking to bring themselves into compliance with labor laws and tax reporting requirements.
2. Provide an effective combination of skill development, education, citizenship assistance, and enforcement of labor laws that will enable informal workers to move into the formal economy and become selfsufficient. Tools include: identifying fair eligibility criteria for citizenship, giving standing to immigrant workers with long-term employment histories, encouraging undocumented workers to file tax returns and establish positive track records, strengthening immigration controls to prevent continued largescale undocumented immigration, and increasing the availability of English language, education and vocation training programs.
3. Respect union-organizing campaigns among low-wage workers as a means of formalizing the employment conditions of informal workers and raising the wage floor to bring workers above the poverty threshold. Tools for safeguarding worker rights include: national labor, occupational safety and civil rights laws, local job protection ordinances for public sector contractors, and local living wage ordinances.
4. Investigate unanswered questions about the jobs, skills, economic histories, and working conditions of LA’s undocumented workforce. Questions include: How share of jobs are in the informal economy? How much economic progress are workers achieving? Is there growing job insecurity? Are they able to acquire new skills needed for better jobs? What eligibility criteria for citizenship do non-citizen immigrants see as being fair?

Section Headings:

1. Executive Summary
2. Introduction
3. What is “informal economy”?
4. Why should we expect to find informal employment in Los Angeles?
   • What evidence points to economic desperation as a driver of informal employment?
     The gap between jobs reported by employers and people who report working
5. How many workers are employed in LA’s informal economy
   • What is a low-range estimate of the number of county workers in the informal economy?
   • What is a high-range estimate of the number of county workers in the informal economy?
   • What is a mid-range estimate of the number of county workers in the informal economy in 2000?
   • What is a mid-range estimate of the number of county workers in the informal economy in 2004?
   • How many workers in the City of Los Angeles hold informal jobs?
   • What is the cost of informal employment to the public social safety net?
6. What role does gender play in the informal?
7. Why do immigrants participate in the informal economy?
8. How many informal workers are undocumented immigrants?
9. Undocumented workers broken out by City planning area
   Industries that employ the informal labor force
10. In which industries do undocumented workers find jobs?
    Which industries show up with unreported jobs?
    How many unreported jobs exist and in what industries
    Best estimate of informal employment in each industry
11. Conclusions
12. Next step – learning more about the progress, conditions and needs of immigrant workers
13. Data appendix
14. Description of tables
    Table A, Estimated undocumented workers by industry, Los Angeles City and County, 2000
    Table B, Indicators of informal employment in Los Angeles County industries
    Table C, Indicators of informal employment in City of Los Angeles industries
    Table D, Integrated industry estimates of informal employment in Los Angeles City and County, 2000
    Endnotes