Underground Economy

Technical University of Moldova
UNDERGROUND ECONOMY
Made by: Stajilov Nichita, ML-211
Chisinau, 2021
UNDERGROUND ECONOMY
• Underground economy, also called shadow economy, transaction of goods or services not

reported to the government and therefore beyond the reach of tax collectors and regulators.
The term may refer either to illegal activities or to ordinarily legal activities performed
without the securing of required licenses and payment of taxes. Examples of legal activities
in the underground economy include unreported income from self-employment or barter.
Illegal activities include drug dealing, trade in stolen goods, smuggling, illegal gambling,
and fraud.
• Unreported economic activity tends to occur when excessive taxes, regulations, price
controls, or state monopolies interfere with market exchanges. Failure to recognize or
enforce private property rights and contractual agreements may also encourage underground
economic activities. Measurement of the underground economy is difficult because, by
definition, its activities are not included in any government records. Its size may be
extrapolated from sample surveys and tax audits or estimated from national accounting and
labour force statistics. Because the underground economy is sensitive to fluctuations in
global and national economies, its size is subject to change, growing in times of recession,
for example, or shrinking in response to increased penalties for tax evasion.
MOTIVATION OF PARTICIPANTS
• People work in the underground economy for a variety of reasons. Employers

may have incentives such as avoiding government fees and licensing
requirements, labour union involvement, and payment of payroll taxes. Most
labourers working off the books do so to supplement their mainstream jobs,
which often provide benefits such as health care and pensions as well as a
visible source of income if the worker should attract the attention of the
authorities. This unreported moonlighting is especially prevalent in European
countries, where holding a second job is often illegal. In the United States,
working off the books is often motivated by a desire to avoid income taxes
and increase income.
MOTIVATION OF PARTICIPANTS
• Some workers in the underground economy have no mainstream jobs. Most

of these are people who lack the skills, social networks, or documentation
necessary to obtain jobs in the mainstream economy. The jobs held by these
people, many of whom are undocumented immigrants, often pay below the
legal minimum wage and fail to comply with government standards of health
and safety. Some full-time underground economy workers with marketable
technical skills choose this type of work because the jobs may pay more than
mainstream jobs. A third category of workers prefers jobs in the underground
economy because of the personal freedom provided by temporary, irregular
work.
ETHICAL ISSUES
• Whether the underground economy is seen as harmful or helpful depends on

one’s values and political philosophy. Those who look to the state as the
guarantor of fair wages and labour practices see the growth of the underground
economy as a major threat to social welfare. The nonpayment of taxes from this
sector reduces money available for social programs, and the workers do not
enjoy the legal protections afforded to mainstream workers. Mainstream
companies may complain of unfair competition from underground enterprises
that do not have to pay taxes or minimum wages. Where there is significant
underground economic activity, as in construction, wage standards of the entire
industry may be lowered over a wide region.
VOCABULARY:
• Barter(troc) - the direct exchange of goods or services—without an intervening medium of exchange or money—
either according to established rates of exchange or by bargaining. It is considered the oldest form of commerce.
• Smuggling(contrabanda) - conveyance of things by stealth, particularly the clandestine movement of goods to
evade customs duties or import or export restrictions.
• Gambling(jocuri de noroc) - the betting or staking of something of value, with consciousness of risk and hope of
gain, on the outcome of a game, a contest, or an uncertain event whose result may be determined by chance or
accident or have an unexpected result by reason of the bettor’s miscalculation.
• Fraud(frauda) - Fraud is an intentionally deceptive action designed to provide the perpetrator with an unlawful
gain or to deny a right to a victim. Types of fraud include tax fraud, credit card fraud, wire fraud, securities fraud,
and bankruptcy fraud.
• Property rights(drepturi de proprietate) - define the theoretical and legal ownership of resources and how they can
be used. These resources can be both tangible or intangible and can be owned by individuals, businesses, and
governments.
• Payment(plata) - is the transfer of money, goods, or services in exchange for goods and services in acceptable
proportions that have been previously agreed upon by all parties involved. A payment can be made in the form of
services exchanged, cash, check, wire transfer, credit card, debit card, or cryptocurrencies.
VOCABULARY:
• Labour union(sindicatul muncii) - is an organization formed by workers in a particular trade,

industry, or company for the purpose of improving pay, benefits, and working conditions. Officially
known as a “labor organization,” and also called a “trade union” or a “workers union”.
• Recession(recesiune) - is a macroeconomic term that refers to a significant decline in general
economic activity in a designated region. It had been typically recognized as two consecutive
quarters of economic decline, as reflected by GDP in conjunction with monthly indicators such as a
rise in unemployment.
• Market(piata) - is a place where parties can gather to facilitate the exchange of goods and services.
The parties involved are usually buyers and sellers. The market may be physical like a retail outlet,
where people meet face-to-face, or virtual like an online market, where there is no direct physical
contact between buyers and sellers.
• Minimum wage(salariu minim) - is the lowest wage per hour that a worker may be paid, as
mandated by federal law. It is a legally mandated price floor on hourly wages, below which
non-exempt workers may not be offered or accept a job.
QUESTIONS:
• 1) What is barter?
• 2) What is smuggling?
• 3) Which is motivation to participate in underground economy?
• 4) What are ethical issues of underground economy?
• 5) What an underground economy means?
• 6) How is also called underground economy?
• 7) What is a minimum wage?
• 8) What is gambling?
• 9) What is labour union?
• 10) What is recession?
• 11) What is property rights?
• 12) What is fraud?
BIBLIOGRAPHY:
• https://www.britannica.com/topic/underground-economy
• https://www.investopedia.com

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Technical University of Moldova

Made by: Stajilov Nichita, ML-211

• Underground economy, also called shadow economy, transaction of goods or services not

• People work in the underground economy for a variety of reasons. Employers

• Some workers in the underground economy have no mainstream jobs. Most

• Whether the underground economy is seen as harmful or helpful depends on

• Labour union(sindicatul muncii) - is an organization formed by workers in a particular trade,

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