“… the Underground Economy encompasses any unlawful or ‘off the books’ activities conducted by businesses or individuals that create an illegal and unfair business environment, put employees at a disadvantage or in harm’s way or cheat government agencies out of taxes.”
— “Leveling the Playing Field: Put California’s Underground Economy Out of Business,” Little Hoover Commission, March 2015
In California, the Underground Economy is a $170 billion dollar marketplace for employers who break the law. In this marketplace, employers underpay their workers, deny them legally required breaks, under-report their number of employees and hours of work, misclassify employees as independent contractors, and/or fail to make required tax and insurance contributions. This is also called “wage theft.”
Studies have shown that wage theft is most common in labor intensive industries that pay by the hour—such as janitorial, the restaurant industry, and construction.
Underground Economy “wage theft” not only cheats workers and gives unlawful employers an unfair competitive advantage over legitimate businesses that play by the rules—it costs California taxpayers an estimated $8.5 billion in lost tax revenue, every year.
While “wage theft” and “off the books” economic activity are prohibited by state law, enforcement resources are limited. Workers impacted by wage theft—often fearful of retaliation from their employers—issue complaints to state regulatory agencies in only a fraction of cases. Where claims are filed and judgments issued, employers use a variety of tactics, including bankruptcy, shell corporations, shuffling money between relatives, and subcontracting to evade payment. As a result, studies show that less than 20% of judgments are actually collected.