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Workers Without Rights

May 6, 2002 / By Pascale Joassart and Daniel Flaming
Underwriter: Economic Roundtable

What is the informal economy?Workers_Without_Rights_img_01
The informal economy produces legal goods and services that are not effectively regulated. Such activities can give rise to abuses by employers who fail to respect basic labor, safety, immigration, and tax laws, leaving workers without rights.

How can it be measured?
By definition the informal economy is hidden “under the table” and “off the books.” However, by comparing different sources of employment data we can identify industries where a significant share of jobs appear to be unreported. Industry characteristics such as the proportion of unauthorized Latino immigrants can also be used as an additional indicator of informal employment.

How big is the informal economy in Los Angeles County?
A variety of approaches to estimating the size of the informal labor force produce estimates indicating that from 9 to 29 percent of county employment may be informal. The average of nine different approaches to estimating the size of this labor force is 811,000 workers.

What is the amount of lost payroll benefits and tax credits for informal workers?
Based on an estimated 811,000 informal workers, and using a conservative estimate of $7,200 a year in average earnings, the amount of legally required but unpaid payroll tax and insurance benefits for workers in Los Angeles County is over $1.1 billion per year. The amount of Earned Income Tax Credits that are unavailable to them because of their informal status is estimated to be in the range of $1.4 billion a year in Los Angeles County.

Which industries are most likely to rely on informal labor?
Employers of informal labor appear to be found most frequently in a variety of manufacturing industries (paper, lumber and wood, metal, glass and concrete, food and tobacco, textile and apparel, plastics), as well as agriculture, construction, private household services, miscellaneous retail, and restaurants.

What are the consequences of informal employment?
It is inconsistent with a sustainable economy for Los Angeles County. It entraps workers at the fringe of the labor market in jobs that often have very low wages. And it allows businesses to gain short-term competitive advantages at the risk of jeopardizing the long-term economic growth of the region.

What can be done to reduce informal employment?
Four broad strategies that could help raise the floor under Los Angeles’ economy by bringing more workers into the primary labor market are: (1) increased enforcement of existing labor regulations, (2) more education and training (including English skills) for under-skilled workers, (3) recognition that union-organizing campaigns among low-wage workers may help formalize the employment conditions of informal employees, (4) immigration amnesty for workers who have tenure in the Los Angeles economy.

Area of Work: Economy, People
Tags: Abuse, Day Laborers, Earnings, Economic Desperation, Economic Growth, Economic Impacts, Economy, Foreign Born, Gender, Immigrant, Immigration Status, Income, Industries, Industry, Informal Economy, Job Quality, Jobs, Labor Market, Los Angeles County, Misclassification, Misclassified Work, Occupation, Polarization, Poverty, Risk, Skills, Social Safety Net, Social Sustainability, Under the Table Jobs, Underground Economy, Undocumented, Unemployment, Unfair Competition, Unpaid Taxes, Unreported Jobs, Unreported Work, Wage Deficit, Wages